Alignment Healthcare’s Medicare Advantage membership fell below expectations for 2022, with CEO John Kao blaming the short-term miss on a competitive market dominated by insurers with unsustainably low prices during the annual J.P. Morgan Healthcare Conference on Wednesday.
The insurtech, which went public in mid-2021 and whose stock price has retained the most value among other young insurers that entered the public markets last year, aimed to grow membership by 20% year-over-year, but instead grew its number of enrollees 16% to 92,700 at the start of 2022.
“Long-term, we’ll get a lot of these members back,” Kao said during the annual J.P. Morgan Healthcare Conference on Wednesday. “I think this is nothing new to us, I dont think it’s an anomaly, this is the market. It’s very competitive and I think people who are just buying business will go by the wayside or significantly ratchet back their benefits next year.”
The company’s news mimicked other announcements this week, with both Humana and Cigna saying that their Medicare Advantage books of businesses missed expectations. Clover Health, meanwhile, said it grew its Medicare Advantage membership 25% but noted that two-thirds of its revenue now comes from software sales.
Alignment expects to end 2021 with up to $1.14 billion in revenue on profits of $130 million. During the fourth quarter, the company said inpatient utilization has so far been 5% better than expected. Kao added that he believes insurers that are underpricing their products to gain business will end up dumping patient risk onto providers through global capitated arrangements, which will threaten their networks. He said that a third of Alignment’s business comes from global capitation contracts.
“If, in fact, the strategy is to just dump the risk on providers, we’ve seen the providers are not going to sit there and just take it,” he said.
He added that he does not feel the need to build de novo clinics, but instead partners with community-based providers. The company ended the third quarter with $500.4 million cash on hand, and Kao said Alignment has changed its investment strategy to focus on acquiring clinicians. He aims to have about half a dozen providers in each market where Alignment is active.
“We were very active at looking at health plan acquisitions consistent with our beach head expansion strategy and we’ve taken a step back,” Kao said. “Protecting our balance sheet is paramount. I think we’re in a good position from a cash perspective, given our focus now and the realities of the marketplace, focusing on a lot of practice acquisition and provider kinds of deals makes a lot of sense for us.”
The company does not expect immediate changes to risk adjustment in 2022, after the Build Back Better plan stalled in Congress, Kao said. But Medicare Advantage carriers submitting patient diagnoses at significantly higher prevalence rates than among fee-for-service Medicare will continue to remain a target for federal audits, he added.
“That creates an outlier opportunity and people are going to be at risk for that, in my humble opinion,” Kao said.