Agilon Health closed 2025 with negative results -- full-year adjusted EBITDA of -$296 million and medical margin of -$57 million -- as elevated inpatient utilization pushed the full-year cost trend to ~6.5% and market/payer exits and risk-adjustment shortfalls weighed on revenue of $5.93 billion. Management framed 2025 as a transformation year and took disciplined actions: exiting unprofitable payer contracts (cutting MA membership by ~50,000 to ~430,000), reducing Part D exposure below 15%, cutting $35 million of operating costs, scaling clinical pathways (heart failure in 90%+ of the network), and building an enhanced data pipeline covering 85%+ of members. For 2026 the company guided to roughly $5.5 billion in revenue, $325 million in medical margin, and breakeven adjusted EBITDA, supported by over $625 million of incremental medical-margin value from contracting and payer bids and a doubling of the quality incentive opportunity. Key overhangs are a still-elevated ~7% net cost trend and CMS's 2027 Advance Notice, which management believes it can largely offset as it did with V28.
Thank you, operator. Good afternoon, welcome to the call. With me are Executive Chairman, Ron Williams, and our CFO, Jeff Schwaneke. Following our prepared remarks, we will conduct a Q&A session. Before we begin, I would like to remind you that our remarks and responses to questions may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. Additionally, certain financial measures we will discuss in this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a better and more complete understanding of our financial results, it's consistent with how management views our financial results.
A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is available in the earnings press release and the Form 8-K filed with the SEC. With that, let me turn the call over to Ron.
Thank you, Evan, and thank you all for joining us today. 2025 was a year for building the foundation of sustainable performance through intense focus on operational discipline. While we are navigating a comprehensive transformation, our mission remains unchanged: empowering physicians to lead the transformation of healthcare through our Total Care Model. The fundamental resilience and effectiveness of our partnership model demonstrates a durable, long-term growth runway through trusted relationships with community-based physicians. These individuals are leaders in their communities and have an average 10-year-plus relationship with their patients, creating deep community ties that are difficult to replicate. While we are not satisfied with our financial performance in 2025, we made tangible progress in the areas that matter most for a durable turnaround, which Jeff will provide more detail on in a moment.
Our tangible progress includes the advancement of our clinical pathways and quality programs, our disciplined approach to payer relations, and our continued focus on data-driven performance. All are driving greater clarity and sustainability across agilon's scalable operating model to support long-term value-based care success for our Total Care Model. Our preparation for the future includes applying our continued discipline and focus across these critical areas as we navigate the potential of a lower-than-expected rate increase in 2027 following CMS's Advance Notice. We believe the Advance Notice does not sufficiently reflect the ongoing population-wide increase in cost and utilization due to growing chronic disease burden and aging the Medicare population. Our further review of the risk model revision and normalization outlined in the Advance Notice, we believe the potential impact will be generally in line with the national average.
However, we believe that our clinically focused program remains a critical part of the long-term answer. Continued advancement of our burden of illness and clinical pathway initiatives with our partners will help to mitigate the impact of the risk model changes as they did for V28. In addition, given the focus of our model is the assessment of conditions at the point of care with diagnosis tied to documentation from a visit, we believe we have minimal exposure to unlinked or audio-only coding. We believe our ability to differentiate on the management of medical costs and quality outcomes should continue to position us well with health plans and physicians, with the expectation that the rate and cost spread will ultimately normalize over time. Throughout the year, we advanced several key transformation priorities, which are embedded in our expectation for material improvement in year-over-year medical margin and adjusted EBITDA.
At the midpoint, we expect revenue of $5.5 billion, medical margin of $325 million, and adjusted EBITDA at breakeven. Our 2026 outlook reflects the expected positive impacts from the team's execution on payer contracting, clinical and quality programs, cost initiatives, as well as premium increases. We also anticipate benefiting from payer benefit design changes, including increases to deductibles and maximum out-of-pocket expenses, as well as reductions in supplemental benefits. While this is expected to benefit cost trend, we are assuming that net cost trends will remain elevated in 2026 at approximately 7%. Let me now reinforce key areas we believe are supporting a stronger foundation for execution in 2026 and forward. First, we enter 2026 with an enhanced financial data pipeline and strengthened actuarial and analytical capabilities, improving financial discipline, clinical visibility, and overall predictability.
We're increasingly able to identify variants earlier and intervene faster. As we have previously stated, we now have greater visibility into detailed revenue and claims information, with the ability to calculate member-level risk scores utilizing our enhanced data pipeline, a key difference versus prior years. In addition, we believe the pipeline, AI-assisted advances for high-risk member identification and diagnosis through our Burden of Illness program, as well as execution on clinical pathways, will deliver results over and above the final year of the V28 impact. Second, through a disciplined approach to better underwriting the risks we take by contracting, agilon intentionally prioritized economic sustainability over membership growth. This approach included a willingness to pause growth, walk away from unprofitable payer contracts, and restructuring arrangements with certain payers in specific markets, temporarily migrating to a care coordination fee model as opposed to full risk.
As a result, we expect to benefit from incremental percentage of premium and enhanced quality incentives for the value we deliver. A reduction in Part D exposure to less than 15% of our membership, as well as shorter average contract term lists, which we expect will help us better navigate changing market dynamics, including exposures to adverse policy, utilization, or payer behaviors. In addition, our disciplined and rigorous recontracting process led us to exit certain payer contracts in specific markets. These contracts did not meet our minimum threshold of profitability. We expect membership will be reduced to approximately 430,000 members in 2026, including approximately 25,000 members in no downside care coordination fee arrangements with upside performance-based fees. We believe care coordination fee arrangements provide a long-term, risk-adjusted growth opportunity to potentially move these members, when appropriate, to a full risk arrangement.
Third, we advanced clinical pathways, which are evidence-based, data-enabled care models designed to help our partners proactively identify, diagnose, and manage the care journey for patients with high-impact chronic conditions. We believe these pathways, including heart failure, dementia, and COPD, can materially affect utilization, quality, and total cost of care. We concluded the year with active heart failure programs adopted in over 90% of our network. Congestive heart failure, or CHF, is the most mature and scaled pathway, serving as the blueprint for other conditions, including early identification, expanded support for Guideline-Directed Medical Therapy, and appropriate end-of-life care guided by patient preference and goals. Palliative care is also a core extension of our Total Care Model. It's designed to proactively support patients with advanced illness, often those with late-stage heart failure, COPD, cancer, or significant multimorbidity.
While only representing a small subset of our population, we have increased the number of patients engaged with this program. Clinically, it improves quality of life and care coordination. Financially, it helps us reduce avoidable late-stage utilization, particularly inpatient admissions and emergency care. Most importantly, the patients and their families have a better experience and clearer goal of care discussions and more coordinated support. Fourth, are our quality initiatives. Our quality programs continue to mature with stronger measurement discipline and improved care gap closures. Quality isn't just a scorecard for us, it's a lever for patient outcomes, member experience, cost, and revenue. The strategy recognizes that primary care performance directly drives the majority of Star measures, making agilon's physician-centric model structurally advantaged and an area of increasing focus by payers.
Our value-based care model enables exceptional quality performance by providing the necessary tools and support to help our network deliver the highest quality care. To drive additional performance in 2025, we strengthened our data access and analytic capabilities to further enhance our ability to identify care gaps. We also expanded our capabilities for providers to close care gaps in areas such as diabetic eye exams. Our network consistently delivers quality performance for measures we can influence and control ahead of benchmarks at 4.2 stars on a composite basis across the platform, maximizing quality bonus revenue while reinforcing physician alignment. In 2026, we believe we have the opportunity to more than double the incentive contribution. We indicated last quarter, 2024 results were very strong in ACO REACH and an improvement over 2023 results.
ACO REACH continues to demonstrate the value creation agilon can deliver and is shaping the way we are transforming our MA business. CMS recently announced the LEAD program, Long-term Enhanced ACO Design, intended to launch after the REACH model concludes at the end of 2026. LEAD is designed as a 10-year voluntary model with a longer planning horizon, benchmarking enhancements, and an emphasis on better serving high-needs patients. We see LEAD as a positive signal. It reinforces CMS commitment to value-based care with a longer-term structure that can support sustained investment and consistent operating execution. We executed on initiatives to reduce operating costs and controls. We believe we made meaningful progress on forecasting, performance reporting, and market-level accountability in 2025. These are critical to improving decision speed and execution.
We executed on $35 million in operating cost reductions above what we communicated at the end of the third quarter. This will enable greater operating leverage from the platform and support our business objectives. In summary, we are executing with urgency. While cost trends are expected to remain elevated, we believe our transformation actions will support improved operating performance. We plan to build on the progress made last year with a continued emphasis on discipline, execution, collaboration, and measurable positive impact for patients. We expect 2026 to mark a strong improvement in medical margin and adjusted EBITDA, supported by renegotiating with health insurers to better reflect the reality of today's environment, care costs, and plan-initiated decisions. A heightened focus on investments in quality performance as health plans continue to increase the incentives available for top quintile performance.
Continued progress to improve patient outcomes and reduce total cost of care through proactive chronic disease management and ongoing development and expansion of clinical pathways. Strengthening provider engagement and reducing variability in performance across markets and practices, optimizing our cost structure. Lastly, we will continue to advance initiatives which we expect to support continued performance improvement in 2027. With that, I'll turn it over to Jeff to walk through the financial results.
Thank you, Ron, and good afternoon. As Ron stated, 2025 was a transformational year. We took significant actions focused on improving the profitability of the business, including a disciplined approach to contracting, improvements in our burden of illness program, enhancing our clinical and quality programs, meaningful cost reductions, and continuing to advance strategic initiatives related to our data visibility, clinical, and cost management programs. Through the execution and implementation of these initiatives, we expect to drive significant improvement in profitability in 2026, while continuing to invest in our platform and partners. As we discussed last quarter, this is supported by several underlying market and payer-related tailwinds, including the 2026 final rate notice by CMS, payer bids, which were focused on margin. Our actions we took in 2025 centered on execution and profitability. For today's discussion, I will cover 3 key areas.
First, I will walk through our fourth quarter and full year results and a bridge to our jumping-off point for 2026. Second, I will walk through our 2026 guidance, including key assumptions driving improved profitability. Finally, I will discuss the strength of our capital position in a more disciplined near-term growth outlook. Moving to our financial performance for the fourth quarter and full year 2025. Starting with membership, Medicare Advantage membership at the end of the quarter and fiscal year in 2025 was 511,000 members. Our ACO REACH membership for the quarter and fiscal year in 2025 was 114,000 members. As a reminder, membership continues to be affected by our decision to take a measured approach to growth, inclusive of previously announced market exits in a smaller 2025 class.
Total revenue for the fourth quarter was $1.57 billion and $5.93 billion for full year 2025, respectively. Revenue in both reflect the impact of lower than expected risk adjustment revenue and previously disclosed market and payer contract exits. With respect to medical costs, we continue to see favorable development from the first half of 2025, with the respective cost trend now sitting in the mid-5% range. For the third quarter of 2025, we experienced elevated costs, primarily attributed to inpatient stays, including a few large, discrete, multimillion-dollar claims totaling $6.5 million. Based on this, we increased our medical cost trend for the third quarter of 2025 to 7.2%, up from the low-6% range we previously recorded.
Given the elevated cost trend we experienced in the third quarter, along with minimal paid claims visibility at close of the fourth quarter, we took a prudent approach and recorded fourth quarter medical cost trends at 7.4%. This brings our full year 2025 cost trend to approximately 6.5%, which we believe provides a solid foundation heading into 2026. medical margin for the fourth quarter was -$74 million and -$57 million for the full year. Both the fourth quarter and full year results are reflective of the elevated cost trend assumptions just discussed, as well as the previously discussed risk adjustment impact. The full year results include -$60 million from exited markets and -$53 million from prior year development.
Adjusted EBITDA was -$142 million, and -$296 million for the fourth quarter and full year, respectively. The fourth quarter reflects the items I already highlighted, partially offset by lower geographic entry costs and the benefit from continued operating cost discipline. ACO REACH was in line with our expectations. Adjusted EBITDA for the fourth quarter was -$6 million, and for the full year of 2025 was $41 million. As Ron mentioned previously, ACO REACH performance further supports our confidence in our approach, the Total Care Model, and value we bring to our partners and members. On the balance sheet, we ended the quarter with $285 million in cash and marketable securities and $91 million of off-balance sheet cash held by our ACO entities.
Year-end cash was ahead of our expectations by approximately $66 million, including $34 million in permanent improvement and $32 million related to expense timing. In tandem with our transformation initiatives, after the quarter, we extended our credit facility and term loan. Details were filed in an 8-K. Next, let me discuss our outlook for 2026. As I previously mentioned, we are optimistic about our ability to deliver significant growth and profitability in 2026, driven by our actions in 2025. We have provided our first quarter and full year 2026 guidance metrics in the press release and earnings presentation posted on our website for you today. We have also provided bridges in the earnings presentation that walk from our jumping-off point to the full year 2026 guidance.
For the full year 2026, we expect year-end membership on the agilon platform will be in a range of 525,000-540,000 members. This includes estimated Medicare Advantage membership of 430,000 and ACO model membership of approximately 103,000 at the midpoints. The estimated Medicare Advantage membership reflects the market exits we announced in 2025, a small amount of growth, as well as the impact of our discipline contracting. As we highlighted on our third quarter earnings call, our contracting efforts were focused on achieving positive adjusted EBITDA across all markets, which embeds our assumptions and medical cost trends, payer-specific bids, quality performance, and market-specific cost structure for 2026.
As a result of this disciplined, profitability-focused approach, we exited several payer-specific contracts for 2026, which reduced overall Medicare Advantage membership by 50,000 members. Additionally, Medicare Advantage membership includes approximately 25,000 members in a care coordination fee structure, with additional incentives tied to quality and cost performance. For the full year, we expect revenues in the range of approximately $5.41 billion-$5.58 billion. As highlighted in the slides we provided today, most of the year-over-year improvement is expected to be driven from known factors, including increased percentage of premium from our contracting efforts and payer bids, which were on average at or above the CMS benchmark rate. Combined, these are expected to create over $625 million in incremental value in medical margin in 2026.
As mentioned earlier, in addition to exiting structurally unprofitable arrangements, we also reduce exposure to Medicare Part D costs to below 15% of our membership. We prioritize care coordination fee structures with performance-based incentives, more than doubling the quality incentive opportunity from 2025 for the value we deliver to our members and payers. With respect to our burden of illness program, we are confident that the enhanced data pipeline, which now includes over 85% of our members, AI advances for high-risk member identification and diagnosis in our BOI program, and execution on clinical pathways, are expected to deliver results over and above the final year of V28 implementation. We expect a net 40 basis point improvement year-over-year at the midpoint. As a reminder, over the last two years, we have more than offset the impact of the V28 implementation.
Our enhanced data pipeline has shown a 99%+ correlation rate and is expected to improve the accuracy and forecasting of our risk-based revenue. With respect to cost trend, we are assuming a gross cost trend of 7.5% for 2026, as trends remain elevated, and net 7% when considering the 50 basis points estimated benefit from payer bids. As we have stated previously, 2026 payer bids across our markets on average, demonstrated payers bidding for improved profitability with benefit design changes, including increases in premiums, deductibles, and maximum out-of-pocket expenses, and a reduction in supplemental benefits. It's important to note that this 7.5% cost trend for 2026 comes on top of the higher cost baseline that we are now assuming for 2025, which we believe is an appropriate stance in this continued elevated cost environment.
We expect medical margin to be in the range of $300 million-$350 million in 2026. This reflects the positive impact from our disciplined contracting efforts, a slight benefit from our BOI program, and a more conservative cost trend assumption heading into 2026 due to the continuation of elevated medical expenses. We anticipate G&A expense of approximately $234 million, which is slightly lower than the full year 2025, and geo entry expenses of approximately $15 million. G&A expense for 2026 includes the benefit from the organizational realignment initiatives we implemented in the second half of 2025, which reduced operating expenses by $35 million, exceeding what we previously communicated. This was partially offset by employee merit and medical cost inflation and the reestablishment of incentive compensation expense, assuming a full target payout.
We continue to focus on additional initiatives to optimize our cost structure and drive additional operating leverage heading into 2027. adjusted EBITDA for the full year is expected to be in the range of -$15 million to +$15 million or break even at the midpoint. This includes the contribution from our ACO REACH programs, which is expected to be in the range of $20 million-$25 million. As a reminder, our ACO REACH outlook reflects announced changes to the ACO REACH program for the 2026 performance year, primarily related to a rebasing of the risk adjustment cap from 2022 to 2019. We are confident these factors will drive improved performance. We are continuing to actively manage the business to further enhance execution across all initiatives, laying the foundation to drive improved performance beyond 2026.