6. Evolent Health, Inc. (NYSE:EVH)
Year-To-Date Loss: 65.55%
Number of Hedge Fund Investors In Q3 2024: 36
Evolent Health, Inc. (NYSE:EVH) is a mid-sized company that offers healthcare plans and benefits management services. As is the case with most firms of its kind, the majority of its revenue comes from Medicare and Medicaid. During the nine months ending in September, Evolent Health, Inc. (NYSE:EVH) earned $1.9 billion in revenue out of which the two care plans accounted for 75%. Since the firm has a sizable presence in the specialty pharma and cancer care market, it has to absorb large costs since these pharma markets are among the costliest in the industry. The impact of this presence was clear in November when Evolent Health, Inc. (NYSE:EVH)’s shares sank by a whopping 41% after its third-quarter earnings saw the firm post a 35% annual profit drop which missed its prior midpoint guidance of $64 million and analyst estimates of $62.7 million.
Another factor that drives Evolent Health, Inc. (NYSE:EVH)’s is its claim partnerships. Here’s what management had to say about these during the Q3 2024 earnings call:
“First, new claims data we received and processed from September through early November from some of our partners that included much higher pay claims expense from prior quarters. This factor drove $24 million in higher net expenses in the quarter related to prior periods versus our expectations. And second, we experienced an acceleration in medical costs in August and September after a period of relatively flat experience between March and July. This new acceleration drove an additional $18 million in increase in medical expense for the third quarter compared to our expectations. On an incurred basis in the quarter, some markets with a small number of customers had medical expense ratios of over 100%. We believe the unusually high medical costs inflation in the third quarter in our specialty performance suite was driven by a confluence of factors, including significant increases in disease prevalence, Medicaid redetermination-driven adverse selection, rapid increases in unit costs, post-COVID acuity increases, and provider coding intensity.
We are not alone in experiencing significant spikes in medical expenses in our industry. As many of the country’s largest insurers noted, a third quarter acceleration in specialty pharmaceutical costs where the majority of our company’s oncology capitation risk lies. This quarter’s spike in medical expenses is unlike anything we’ve experienced since launching the performance suite offering six years ago. We’re moving rapidly to take four actions to address this issue. First, we’re working closely with our partners to update reimbursement rates according to our contractual provisions. We successfully negotiated and captured incrementally higher rates of approximately $35 million relative to our initial expectations for the year, consistent with what we communicated on the August call, and 100% of those increases were signed by the end of August.”
