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Where we share our weekly news debriefs and discussions with industry experts. These are lo-fi recordings aimed at giving our readers more opportunities to engage with our analysis and a view into some of the conversations that shape it.
Martin: We're really excited to
welcome John Kao back to HTN.
We're gonna get his insights on
managed care, sentiment shift,
ex California expansion, and what
it's like negotiating with health
systems in this current moment.
How are you today?
John: Good morning.
Doing great.
Martin: Good to see you-
Welcome to the show, John
John: Good to see you again, Kevin.
Good to be with you, Martin.
Martin: Yeah.
Good to meet you.
Kevin, I'll hand it over to
you for the first question.
Kevin: Yeah.
John, I, I'd be curious, uh, we were
just highlighting stock chart changes
and machinations in the public markets.
Itâ¦
The last six months in the industry
seem like a, a uncertain time in a
broader uncertain macro environment.
It seems like the last few years in
general have been a particularly, uh,
interesting time to be running a Medicare
Advantage plan, given all the changes,
uh, the industry has had to digest.
In general, it feels like 2026
is providing firmer footing.
The industry is starting to wrap its
arms around what utilization environment
looks like going forward, V28.
At the same time, we're seeing
stock prices go down 10% a
week, up 20% the next week.
We've got lawsuits that are changing
how stars might be calculated
for the industry moving forward.
Like, uncertainty still seems to
be a key theme of the day, but
the tide also starts to feel like
it's coming back in at the moment.
And I'd be curious, as a, as
a plan leader, h-how, how do
those two things feel for you?
How does that tension kind of
between uncertainty, the tide feeling
like it's coming back in, how does
that show up in your day-to-day?
How do you feel like sentiment is in the
space versus where it was six months ago?
Are we moving in the right direction?
I'll, I'll leave that open-ended
question for you to take.
John: Yeah, no, I, I, I've
said this before, never bet
against Medicare Advantage.
Meaning, I've seen this for
the last, you know, 35 years.
It's the same thing, you know.
The last time this happened
was really, I think, in 2010,
2011, uh, where, where the, um,
uh, ACA had, uh, effectively a 15%
reduction to MA rates, and they
referred to that as normalization.
They're gonna phase
that in over five years.
Everybody freaked out.
Um, and it lasted about a year,
uh, and then everything normalized.
And then if you look at, you know, say
Humana's stock price from 2011 to, to
today, I mean, it's just gone straight up.
And I think you have these, you know,
kind of pricing, uh, corrections every
10 years or so, and V28 was, was the,
was the, was the most recent one.
And the plans, you know, getâ¦
They, they, they have to adjust, and
the beauty of the business is you
get to readjust every single year.
You can normalize, you, you wanna
grow, you wanna do margins, et cetera.
And I think the sector's back.
Um, I think MA is going to be I don't
know, 65 maybe I've even heard 70%
of overall market share of seniors,
uh, in the next five, 10 years.
Um, it's just the value proposition
is just too, it's just too high.
And so what, what they did with
V-28 actually was a good thing.
It, it kind of reset, um, uh, the sector.
They brought program integrity back,
which I just applaud this administration
for, uh, y- you know, kind of, uh,
looking at MA guys in, in the lens ofâ¦
I'll share with you.
I think if I'm s- if I'm CMS, I- I'm l-
I'm looking at this from, from a P&L view.
And what I mean by that
is, okay, look at the P&L.
Start at the top of the food chain.
Look at the payers.
What are the payers doing right and wrong?
How are they gamifying the system?
Well, it was coding,
and it was prior auth.
You know, those two things, I think,
um, are, are the two, uh, hammer
points on the plans to make sure the
plans, uh, have program integrity.
Next, they, they zero in on Trump RX.
They're going after the drugs, right?
Kind of normalizing margins there.
Then they're going after all the
fraud, waste, and abuse that you're
reading about in a, in a, you
know, couple of different markets.
And in particular, uh, what, why I
like this particular administration,
it's not just Minneapolis and,
and LA, it's also South Florida.
So it's just like, it's kind of,
it's not a red or blue thing.
It's like, let's just
clean the whole system up.
And I, I think, uh, you know, with what,
two, 3%-ish type margins, maybe four
or five in some, some, uh, companies
in terms of the large MCOs, I, I
think we're still feeling good about
long-term margins five, 6% in the sector.
Um, and I, I think it's, umâ¦
I, I, I think three years is enough
time to be in the barrel, y- which is
what the plans have gone through, and
I think they're gonna come out of it.
Um, some will do better than others,
and, and I think the folks that have
an understanding of care delivery,
uh, clinical-based care for MA are
gonna, are gonna do better than others
Does that help, Kev?
Martin: Oh, yeah One of the things we
hear from you when you're, you know,
on earnings calls and presentations,
is that expansion outside of California
is gonna be easier for you all
because of the IPA infrastructure.
For those of us who are not maybe as
familiar as the California markets
and IPAs, can you give us a sense for
what it's like in California today?
Yeah.
How the IPAs are working-
Yeah ⦠and what that looks
like elsewhere in the country?
John: Yeah, yeah.
I- IPAs in California are
a good thing, r- really.
IPAs are, are, are, um, are, are, are
provider partners of ours and, um, you
know, they, they were organized, I don't
know, 40 years ago really just to, to
help indi- individual, uh, uh, practices,
individual practice association,
IPA, and for contracting purposes.
And, and so they had all these, the,
you know, large payers coming in, and so
they, they kind of aggregated a lot of the
individual docs for contracting purposes.
And they've evolved different kinds of
management service competencies over the
years, or MSO capabilities over the years.
Um, and so, uh, some do better than
others in terms of, uh, star gap closures,
for example, um, risk adjustment gap
closures, uh, working with, uh, the plans
on utilization management, et cetera.
Uh, so on a net-net basis are, areâ¦
we have very good working
relationships with the IPAs.
They deserve a margin for the work they
do, and, you know, everybody's happy for
the benefit of that, of that beneficiary.
Ex California, uh, well, let meâ¦
before I do ex California, and so
what, what we did with a lot of
the IPAs over the past couple of
years is we did something that's
a bit, um, uncommon in California.
So in California, if you have a, a
shared risk or a global cap agreement,
just to throw a couple of acronyms
at you, a division of financial
responsibilities, who does what?
The plan, uh, versus the IPA.
Um, there's something else
called a division of delegated
responsibilities, or a DODR.
And so that means who actually does
what operationally on a delegated basis.
And historically, uh, the IPAs
have, have, have taken some form of
capitation, either professional or
global, but they really want to be
delegated for utilization management.
And some, some, uh, uh, IPAs also want to
pay certainly professional claims, okay?
Which makes sense.
If they're taking downside risk
on the professional, they ought
to have the UM, et cetera.
What didn't make sense to us was
delegating to them the acute management,
the management of the inpatient admission
Um, we didn't think that they had enough
of the data, they didn't have enough of
the care model visibility that we have.
And so over the past year, we
worked with them to de-delegate
them for, uh, the inpatient, um,
uh, admission, the authorization.
And all it really is, is, is just to
determine whether a, a bill that's
coming in from a hospital is, uh, an
auth that's coming in, is it an inpatient
stay supported by medical records, or
it's a two midnight rule admission that's
really paid at an observation rate.
And on average, an inpatient, um, auth,
uh, and claim is, you know, kind of 23-ish
thousand, you know, per, per admission,
um, which is, you know, close to 100%
of Medicare, and then an observation
stay is, you know, about, uh, 3,500.
So obviously a big difference.
Um, and so we worked with them,
we de-delegated them for that.
Theyâ¦
frankly, none of them really cared, but
they started caring now because we're
surplusing more We surplused more, and
so they're like, "Oh, wait a second.
You know, gee, you know, what
else can you guys help us with?"
And so we surplus on these, these acute
risk pools 'cause our admissions areâ¦
management is so good, uh, and
we've been able to do that with
great MPS scores and great stars.
And so each one of them are getting
more bigger and bigger bonus checks.
So the whole point is having an
operational infrastructure that supports
that was important to us because
ex California, we're taking all the
risk, typically, there isn't an IPA.
And the closest thing you have to
an IPA ex California is what I would
call a clinically integrated network-
Hashem: Mm-hmm
⦠John: which is the same concept owned
by the large health systems, right?
The, these big health systems, these
integrated delivery networks, uh,
have, uh, aggregated, uh, both employed
doctors and contracted doctors in the
community under an, an umbrella, uh, for
contracting purposes against the plans.
The problem with the CINs is
they don't have the, um, uh, the
management services infrastructure.
They don't understand it well enough
to optimize closing stars gaps,
risk adjustment gaps, helping with
utilization management, et cetera.
Um, and then oftentimes you have, uh,
health systems that, um, are, are, are
still kind of trying to feed the beast,
if you will, um, in terms of moving
admissions into the, into the hospital.
Um, and, and, and so we've had
to develop our MSO competencies
for all the professional risk,
all of the, um, institutional
risk, and all the inpatient risk.
And, and, and w- what I'm most excited
about is our flexibility to contract
with providers kinda how they want.
Mm-hmm.
And then we can, we can have back-end
operational success irrespective of what
kind of contract methodology we have.
Global cap, we know what to do.
We know how to ingest data.
We know how to do automated reporting.
We have the visâ¦
that gives us the visibility and control.
Shared risk delegated,
we know how to do that.
Shared risk de-delegated,
we know how to do that.
And then all of the set above is
required for you to work with a d-
when you're directly contracting with
individual practitioner, um, y- you
gotta, you gotta support that doctor.
The whole idea of alignment is align with
the doctor so everybody wins, including
the hospital Does that, does that help?
Does that make sense?
Kevin: For sure.
John, my, my last real job before I
started writing a newsletter for a
living was I was working for a health
systems CFO, and so you caught my
attention Q1 earnings when you made
the commentary around, you know,
health systems think they're being
paid at 85, 86 cents on the dollar.
We as an MA plan think we are paying
them everything they, they earn.
And I can, I can see the, the
differing positions on those.
I would be, I'd be interested to hear,
as you're having these conversations
with health systems out in the market,
thinking about their clinically integrated
networks, going to market with those
health systems, how do you, how do
you bridge the gap between those two
positions and, and figure out how to,
how to work jointly together in I- what
I presume is win-win type scenarios
across the system and, and payer?
John: Yeah.
I'll, I'll answer the first, uh,
question first and then get into
the, the, the what we're talking to
with the health systems right now.
Um, what, what I, what I said was that
when I speak with health systems CEOs
and CFOs, literally 100%, and we're
talking maybe a, an N of a dozen, um,
are saying the same thing, that you-
you MA plans are paying us 86% of what
we get in original Medicare, okay?
And so I, I started toâ¦
When, when you hear every single
one say the same thing, it,
it tells me it's a brilliant
PR campaign more so than anything else.
I mean, it's just brilliant.
I mean, it'sâ¦
And blame the plan.
And, you know, there's a few
high-profile plans out there that,
that have high denial rates that are,
are making the rest of this, the,
the, the, the, the, the plans look
a lot worse than they actually are.
But what, what I said was, um, let's look
at the numerators and the denominators.
What's the denominator
that you're talking about?
Well, it's traditional Medicare.
Well, you're basically getting
everything you want when you submit
a bill for traditional Medicare.
There's no editing at all.
And in fact, you know, CMS wanted to
pilot something called the Wiser program,
and that got such political pushback.
It was unbelievable.
And all it was was saying, "Look, you
know, let's make sure that the codes
that you're submitting are in fact
accurate and that you're not up coding."
Gee, does that sound familiar?
I mean, so, so, so, and then, and,
and so then I start asking these
guys, I go, "Well, wait a second.
You, you know, like, what
percentage of your auths and
claims do you submit to the plans?
What, what would you guess the
proportion of those auths are inpatient
admissions auths versus an observation
stay to midnight rule admission?"
Well, it's like 100%
is an inpatient, right?
I mean, so the plans now through their UM,
they're not denying care, they're justâ¦
They're, they're determined, making
a determination based on medical
records, is it an observation
stay or an, or an inpatient stay?
It's kind of that simple.
And, um, when, when you kind of
do the math, it's about 85, 86%.
See, in other words, the plans are
actually paying the hospitals what
they deserve to be contractually paid.
They may not like it because they
want 100% of all their admissions,
whether they're observations or not.
And the way you get around that
is basically you have to deal with
them upfront in the contracting,
just have some predefined rates,
you know, that, that makes everybody
happy around an observation stay.
Um, having said that, um, the
plans are still talking to
us, um, because there's aâ¦
There, there's a couple plans they really
just don't like, a lot of the big guys.
They just don't like dealing with them
because of a lot of these claim edit
issues and, and frankly, denial issues.
And so they want alternatives, and
what they notice about us, particularly
the ones that are approaching us,
are the ones that are over capacity.
So they're like at 120% of
their, their acute beds Yes.
Right?
And so they're coming to us and they're
saying, "Look, you guys are pretty good
at managing admissions per thousand."
Right?
And so, like, last year we, we were
at 142 acute admissions per thousand.
And, uh, you know, CMS, uh, would
say, y- you know, a, um, a original
Medicare member is, is close to 250.
So we're, like, r- doing really well.
And so they go, "Well, if you can reduce
the percentage of our admissions for
seniors down, because of your care
model, that allows us to free up more
capacity for our commercial members
that we're getting paid a lot more."
Yeah.
And, and so we go, "Yeah, no,
that, that makes total sense."
And then you, you work out a contract
where they also gain both short-term
and long-term with that strategy.
In other words, you're moving
market share into their system.
Their system now is, you know, typically
in their geographies, you know,
50 to 60% of all healthcare spent.
It's just the acute hospital, all
the ambulatory, and then all theâ¦
They have the professional specialty.
Like, it's 50 to 60%, if not even a
little bit more, of, of, of all spend.
Um, and there, as, as you guys
pointed out on, on the last call,
it's kind of their turn in the barrel.
You know, the, the, like, the,
the plans got, you know, last two
and a half years was, was, you
know, under a lot of scrutiny.
Um, and, uh, pharma under
PBMs are a lot of scrutiny.
Post-acute, fraud, waste, and abuse.
I think they're going down that P&L
And looking at, well, where's the
real trend and where's the real money?
And so as the, as the health
systems are feeling that pressure,
they're looking for alternatives
to manage their cost structure.
And one of the ways is to,
you know, lower the amount of
admissions for seniors per se.
And, and of course, if, if senior
needs to go to the hospital,
they're going to the hospital.
That's not the point.
It's just if you can manage the
patients at home and, and drive down
admissions and make the hospital win
financially with a contract, and then
allow them to have more capacity on
the commercial side, everybody wins.
And it's clinically driven.
And, and I think that's what the
hospitals are seeing with us.
And the degree of engagement we have
had, uh, with their clinical leadership,
the doctors are the key, the doctors
are the key to everything, uh, has
been different in the last year and
a half than I've seen in the past.
You know?
Y- y- they justâ¦
And, and I think it's 'cause the hospitals
realize, you know, they've got ACA
pressure, they've got Medicaid pressure.
Um, and, and, and so they need different
ways to, to, to, to think about y- you
know, kind of, uh, a population health
approach to managing their, their mem-
their members and their, their patients.
Martin: John, I feel like it's
never enough time with you.
We're at time.
Thank you so much for your insights
today, and we're already looking
forward to having you back.
John: All right, guys.
Take care.
Thanks for having me on.
Kevin: Appreciate you, John.
Good seeing you.
John: Take care, guys.