Agilon Health, Inc. annual report, FY2021

Agilon Health, Inc. — FY2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results; it does not provide a distinct Q4 income statement summary. Agilon partners with community-based physician groups to manage Medicare patients under capitated, value-based care arrangements and generally bears financial risk for members’ medical costs.

Business context and operating scale

  • At year-end, the platform included approximately 186,300 Medicare Advantage (MA) members and 51,700 traditional Medicare beneficiaries attributed to five Direct Contracting Entities (DCEs). MA membership grew 42% year over year; total platform membership was approximately 238,000.
  • Agilon operated in 17 geographies, with 16 anchor physician groups, and reported relationships with 15 health plan payors. Three geographies became operational during 2021.
  • MA payor contracts generated nearly all revenue. Humana represented 26% of revenue; Humana, Aetna and UnitedHealthcare together represented approximately 62%.

Financial results and liquidity

MetricFY2021FY2020
Total revenue$1.834 billion$1.218 billion
Medical services revenue$1.830 billion$1.214 billion
Medical services expense$1.648 billion$1.022 billion
Medical margin$182.1 million; 10.0% of medical revenue$192.4 million; 15.8%
Net loss$406.8 million$60.1 million
Adjusted EBITDA (non-GAAP)$(38.6) million$5.8 million
Cash used in operating activities$148.2 million$53.2 million
  • Revenue increased about 50%, primarily on 44% average MA membership growth and a 5% increase in PMPM capitation rates. Medical services expense rose 61%, including a 12% increase in average expense per member.
  • Medical margin declined by $10.3 million. Management attributed part of the change to lower utilization in 2020 during COVID-19; utilization and care costs increased in 2021.
  • General and administrative expense was $455.8 million, including $292.4 million of noncash stock-based compensation. Most of the exceptional increase related to physician-group equity issued at the IPO and employee option performance conditions.
  • Year-end cash and cash equivalents were $1.040 billion, up from $106.8 million, largely following the IPO, which generated approximately $1.2 billion of net proceeds. Cash, cash equivalents and restricted cash totaled $1.055 billion.
  • Long-term debt was $48.4 million net of debt costs, with $5.0 million current. The $100 million revolving facility had $63.3 million available after outstanding letters of credit. The company reported compliance with credit covenants.
  • Operating cash use increased; management cited claims-payment timing, geography-entry costs and higher administrative spending. Investing activities used $90.5 million, including $76.8 million of net loans to physician partners related to taxes on IPO-distributed shares.

Material changes, outlook and risks

  • The company completed its IPO in April 2021 and repaid $50 million of term debt afterward. A September secondary offering by existing holders generated no proceeds for Agilon.
  • Agilon completed the sale of its remaining California operations in February 2021; the California and Medicaid businesses are reported as discontinued operations. The company retained certain pre-sale liabilities.
  • Management expected operating losses and negative operating cash flows to continue in the foreseeable future while investing in expansion and public-company costs. It stated that cash and available borrowing capacity were expected to cover working capital and capital expenditure needs for at least 12 months; this depends on estimates and assumptions. No specific numerical revenue or earnings guidance is provided in the filing.
  • COVID-19 continued to make medical utilization, deferred care and future claims costs uncertain. Management also warned that incomplete diagnosis documentation could adversely affect risk-adjusted revenue in later periods.
  • Key operating risks include uncapped losses if medical costs exceed capitation revenue; dependence on a limited number of payors and physician partners; accuracy of risk-adjustment and incurred-but-not-reported claims estimates; Medicare reimbursement and regulatory changes; and successful expansion and physician transition to the Total Care Model.
  • CMS announced in February 2022 that it would redesign and rename the Direct Contracting Model as ACO REACH, with governance, health-equity and benchmark changes. Management did not expect the stated requirements to materially affect participation, but said the overall effect of technical benchmark changes was not yet known.
  • The filing reports $71.3 million of liabilities for unasserted claims and estimates reasonably possible losses in excess of accrued reserves of up to $32.6 million. The potential outcome of the California Department of Managed Health Care inquiry and related indemnification demands remained uncertain.

Important facts for investors to verify

  • Whether medical margin and per-member medical costs stabilize as utilization normalizes, and how new-geography growth affects margins.
  • How much of the reported net loss reflects noncash IPO-related compensation and whether cash operating losses improve.
  • Claims development, IBNR adequacy and the accuracy and settlement of MA risk-adjustment revenue; these were identified as critical audit matters.
  • Payor concentration, contract renewal terms, required risk-bearing capital and the impact of CMS reimbursement or ACO REACH benchmark changes.
  • Potential exposure from the California regulatory matter and other unasserted claims, including the range of losses beyond recorded reserves.
  • Agilon’s cash availability after restricted deposits, partner loans, capital commitments and subsidiary-level restrictions; the parent company depends on subsidiary distributions, which are constrained by debt terms.