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Alignment Healthcare - Aligned Incentives

Apr. 01, 2021 9:09 AM ETAlignment Healthcare, Inc. (ALHC)1 Comment


  • Alignment Healthcare has seen a solid public debut.
  • Investors like the focus on the senior segment and the right incentives behind the business model.
  • I too, like all of this, although the relative valuation gap with established peers is what causes me to have a cautious stance now.
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Alignment Healthcare (NASDAQ:ALHC) has received a welcomed offering on the markets as shares have jumped quite a bit from the offer price, despite rocky conditions on the financial markets. Investors like the focus on the senior lifestyle and the focus on the right outcomes and incentives of the business model. While I appreciate the fundamentals of the company, heightened valuations vs. established peers make me a bit cautious here.

Improving Healthcare

The name of the company gives a good clue what the company is about. The company is all about reinventing the future of senior health care. The company aims to support a ''senior lifestyle'' through a savvy combination of technology, personalized clinical care, and on-demand care and services.

The company was founded in 2013 and is based on a few large values including putting the senior first, supporting the doctor, usage of data and technology, and applying a ''serving'' heart. Misaligned incentives play a dominant role in terms of the misfunctioning of the system and hence the name of the company.

The company aims to tackle these problems with savvy usage of data, technology, engage directly, pro-activity stance and coordination, focus on value-based systems, and a culture of innovation. While all of this sounds highly attractive, in the end, it too has to strive for efficiencies amidst already high scrutiny on the medical budgets.

The potential target market is huge as there are more than 56 million people of the age of 65 or older in the US, as this percentage of 17% of the population is only growing given the existing demographic trends. In terms of spending, this number came in at $630 billion in 2019. A rising number of people in this age cohort, combined with inflation and other factors show that the target market could essentially double in the coming decade.

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Comments (1)

I am long term bullish on this company. On high level, two major reasons:
1st: the overall aging society provides the need of more medicare insurance and medicare advantage penetration rate is increasing every year. Comparing to traditional medicare provided by CMS, MA plans are overall high quality, low cost and provide extra perks to members.
2nd: if MA InsureTech is on the right population trend for the upcoming 10 years at least, I think it makes sense that a better quality MA insureTech company in the sector will win more market shares. I think ALHC has overall better quality over the others recently IPOed in 2021 Q1.

Upon some research, I found the company has a positive adjusted EBITDA 11M for 2020, which is the only one among recently IPOed insureTech companies. Its net loss 22.9M comparing to similar sale volumn MA insureTech company is negligible, besides it was narrowed from 2019 44M net loss.
If you compare ALHC to Clover and Oscar from their S-1 file, you will find this company is quality and the closest to turn loss to the net profit.
Their CEO John Kao successfully exited his previous company CareMore before founding Alignment Healthcare. For an insureTech, how to reduce medical claim loss ratio besides administration loss ratio is key to turn loss to profit, and an effective care management company buildup experience plus mature relationships with local provider networks help a lot in addition to its tech power, which could manage members better to increase satisfaction and reduce acute events.

As currently with a NPS of 66 (CaseAnyWhere members rate ALHC as 76), ALHC is top in MA InsureTech, overall just after the famous Kaiser Permanente, who hold large provider network. Improving the customers' satisfaction is key for both retention and new market growth. A better chronic disease population management experience is key to reduce acute events, maintain member health condition and save tons of cost for ALHC.

I think for healthcare, professional is the first then technology. Technology is catalyst but couldn't replace the trust we put on those healthcare professionals. If without a good provider, a good payor and a tight alignment/coordination between two parts working for my health, I wouldn't buy just due to they provides me a beautiful app.

Alignment Healthcare is the most similar one to payor-provider, or payvider, after kaiser permanente, which has the power to manage their benefit design structure and in the same time affect the quality of offline healthcare networks. They have their own clinics and hired 100+ doctors in additional to contracting with local healthcare networks.

If they can further scale and reproduce what they did in current 22 markets of 81k members to more counties, at the same time maintain the current quality, I think very largely they will 10x within 5 years or 3X within 2 years.

The limitation of InsureTech startup is, the huge payors like United healthcare, Humana, Cigna still own 75% of the overall MA plan markets; Healthcare is a competing game region by region, for each region, the negotiation, the contract with local providers are different and the population mix could be different as well. It is just not like Amazon online shopping or netflix. Depending on the strategy of a company's growth, it may be slow to double or triple the member base in 1 year.

In conclusion, overall I am very bullish towards ALHC.
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