PIIIW

• The year is transitional, focused on improving stability, operating discipline, and maturing the clinical foundation. - Capitated revenue up ~6%, normalized medical cost trend flat despite industry rises. - Operational improvement plan embedded, achieving over $100 million in EBITDA improvement year-over-year. - Strategic joint venture adding ~13,000 fully accretive ACO members. - Intentionally rationalizing provider network to improve margin performance. - Care Enablement Model improving documentation accuracy, quality performance, and care coordination. - Strengthened utilization management and care management capabilities. - Deepening provider alignment with Tier 1 providers, who outperform on cost and quality metrics. - Advancing payment integrity and contract hygiene efforts.

• Revised full year adjusted EBITDA guidance to a range of minus $110 million to minus $95 million. - There are $120 million to $170 million of EBITDA opportunities over the next 5 quarters, driven by improved provider alignment, Care Enablement Model scaling, contractual improvements, and product/benefit environment stabilization. - Positioned to translate operational progress into meaningful earnings expansion in 2026.

For the third quarter, total capitated revenue was $341.6 million, approximately $982 per member per month. Medical margin for the quarter was $4.4 million or $13 PMPM, with year-to-date medical margin at $52.2 million or $50 PMPM. Operating expense for the quarter was $21.1 million, a decrease from $31.6 million in the prior year period. Adjusted EBITDA for the quarter was a loss of $45.9 million, and year-to-date adjusted EBITDA loss was $85.2 million. Normalized adjusted EBITDA year-to-date was a loss of approximately $70 million.

Q: I wanted to start on the renegotiation efforts, and I know you talked about this last quarter and having made some good progress. But I guess the question that sort of I keep coming up with is, what convinces the plans to sort of see margin in their MA books, especially when they're trying to increase their margins for 2026? And now that you can see the benefits for all the plans for 2026, do you think the changes they made were consistent with the conversations when you guys were going through that recontracting process?

A: Josh, thanks for the question. This is Aric. Yes, I think so. And there's differences across each geography in terms of how they approach benefit design and there is a mix across the markets, but it meets our expectations in terms of what they did to the benefit designs in those geographies. And then when I think about like why on renegotiations, like what is the motivation for the payors, there's a lot of investment that happens from our business into their membership, and they need the help, especially on things around high-risk patients, net expense reduction as well as Stars and quality. And so those are the things that I think are really driving those conversations.

Q: Okay. And then maybe just a quick follow-up on that. Have you made an attempt to sort of have the plans have more skin in the game, sort of participate in a potential surplus that you can create? Are all of your contracts for 2026 full capitation?

A: So the -- it's a good question. And I think one of the things that we're doing in terms of them having skin in the game, we take the risk from the payors. They get their administrative margin, and then we have a percent of premium that we use to run our business. So in terms of the skin in the game for them, it's really around the execution on the business that may be outside of our business, and then they also have to hit the things that drive Star's performance that are plan-related.

Q: On their side, Okay, yes. Yes, I was just thinking like how do you align the incentive around medical management and making sure that they're doing everything that they can. It just seems like we keep getting some of these prior year things or prior period things and the payors keep coming back with updated data. I just know if there was a way to sort of think about getting them to pay more attention, but you still think just taking 100% cap. That's the model, and that's been working, right? That's your idea?

A: Yes, that's correct. And I agree with you. I mean, I think the partnership that we have and that we're developing with the payors on a go-forward basis, there's bilateral accountability for outcomes on the things that we're supposed to be doing. And we've increased the cadence that we're doing in those meetings. We have a lot more visibility, and we've set probably different levels of expectations for them moving forward, if that's helpful.

Q: I think in the last one or two calls, you've talked about some of the issues being sort of targeted at a single payor, single market kind of dragging on performance. Was the guidance reduction sort of driven by that payor, by that market or is it sort of more broad based?

A: It was a little more broad-based, Ryan. It's a good question. Really, the guidance reduction was primarily related to two things. One is the midyear settlements came in less than expected. And so as we talked about, we've got new structural controls put in place around the process, both with how we're coordinated between our MRA function and our finance function moving forward. In addition, that was one of the last areas that we've restructured in early 2025. So our expectations going into '25 were based upon some old processes that we feel like we have corrected moving forward at this point in time. And then a smaller portion of the guidance reduction was related to our back half assumptions on some of our medical cost initiatives just got pushed out and that will flow into 2026. And so that was a smaller piece of the reduction as well.

Q: I'm sorry, can you please repeat what the prior period dollar amount was in the third quarter? And I thought I saw some language about settlement in the third quarter. How much was that either favorable or unfavorable?

A: So the prior period net in our P&L, David, was a $3 million decrement. So we had $3 million of actual headwind in the quarter. And part of -- and when we say prior period, our prior period for the definition of what we're talking about here is 2024 related, not anything 2025 related. The midyear true-up was a $21 million impact to Q3 specifically. And that is effective of the fact that Q1 and Q2 were running at a higher revenue rate based on expectations than what materialized in Q3. And thus, we took the adjustment in Q3.

Q: So it was a total $24 million unfavorable impact in 3Q?

A: Yes.

Q: Okay. That's helpful. And then, I guess, it's great to hear that the trend is normal is how you described it. I guess my question is, what are the odds of another sort of, I guess, prior period adjustment in 2026 related to 2025 claims? I guess, wasn't -- why weren't those claims expenses booked in 2024? I guess, what caused the lack of visibility, I guess?

A: Yes. Some of this is the fact that we do have nondelegated plans, and we get data later than expected. And so some of that is just materialization of how that data comes through our P&L. The expectation for 2026 would be that we will have a more consistent method of how we are booking our expenses and our revenue that should preclude that normalization from having to happen. And why we're normalizing to a large degree, is because we want to compare our 2025 results to 2024. And 2024 was effective -- was really, really lumpy. Yes, it's very back half loaded to how expenses hit the P&L. And then in Q1, we had a material cost adjustment on the MEDAC side that related to 2024. My expectation moving forward is that you will have normal fluctuation of how IBNR settles out and runs out, but that we won't have these material swings moving forward.

Q: And just in terms of like PMPM revenue growth expectations in '26, what percent increase would you expect to see based on number one, improved coding? And then number two, rate increases, which I would assume would flow through from the favorable MA rates the plans are going to get?

A: Yes. This is Aric. I'll take the first swing. And so we've done a pretty deep look at the rate changes that are coming through. And as you know, it varies by county in terms of how that works out. So if you look at the whole country, the aggregate is about a 5% net improvement in premium. And it turns out that in our 4 markets, that's exactly where we land in aggregate is a 5% improvement in premium in terms of those overall dollars. What we've talked through with the expectations for the burden of illness operations, we are seeing improvements year-over-year in those numbers, David. We won't have full guidance on the impact for that until we get into the next quarter.

Q: Okay. So the 5% includes coding improvement and also the premium?

A: No, 5% is just the base rate improvement. And then as we look at the coding improvement, we'll have better line of sight into that as we get into the next quarter, but we are happy with the progress seen year-over-year.

Q: Okay. And just one more quick one. What was the PMPM cost trend in the quarter? Did I hear it was flat or normal? What was the percent?

A: So when we compare -- when we say -- our Part A and our Part B costs, David, are flat when we say normalized 2025 year-to-date versus full year normalized 2024. That is the flat trend.