Alignment Healthcare, Inc.

Current report

Our Star Rating has declined with respect to our largest Medicare Advantage contract, which will impact our quality bonus payments, and we may not be successful in maintaining or improving our Star ratings in future years.

Current report

CMS measures the quality of Medicare Advantage plans through a Five Star Quality Rating System. The Star Rating system considers various measures adopted by CMS, including, among others, quality of care, preventative services, chronic illness management and member satisfaction. The achievement of Star ratings of 4-Star or higher qualifies Medicare Advantage plans for an increase in the benchmark against which they bid (potentially increasing premium payments). With respect to the 2027 rating year, CMS recently announced that the Company’s California HMO health plan contract (H3815), which serves approximately 75% of the Company’s health plan membership, was awarded a 3.5-Star Rating. The Company retained a 4.0-Star or higher rating in each of its six other eligible plans, including three plans that achieved a 4.5-Star Rating, for the 2027 rating year. The rating year 2027 Stars results are not expected to impact our revenue for fiscal years 2026 or 2027. The change in Star Ratings performance for rating year 2027 will impact our quality bonus payments for fiscal year 2028.

Current report

We may not be able to maintain or improve upon the Star ratings of our health plans in future years. Failure to maintain satisfactory quality and performance measures may negatively affect our premium rates, impede our ability to compete for new business in existing or new markets or result in the termination of our contracts, or affect our ability to enter into new CMS contracts or expand the service area of current health plans. Star ratings are an important component of how MA beneficiaries select an MA plan, both during each annual enrollment period and throughout each year. Low Star ratings may reduce our membership or result in lower membership growth rates, if members choose to enroll in higher-rated plans.

Current report

Various factors may make it difficult for us to maintain or increase our Star ratings. For example, there are numerous providers that serve our plans, and we engage multiple third-party vendors to provide supplemental plan benefits. We may have limited success in obtaining quality health care outcomes and satisfactory member experiences from these providers and vendors. As a result of our dependence upon these relationships, we may have limited ability to directly influence the overall quality rating of our plans. Additionally, our higher concentration of minority members and members residing in socioeconomically disadvantaged neighborhoods generally may make it more difficult for us to achieve and maintain high Star ratings as compared to our competitors, given the well-documented health disparities among different minority and socioeconomic groups. CMS has attempted to address some of this disparity, but the efforts may not work as intended or be sufficient to address the difficulties of serving varying member populations. More recently, based on our review of the data provided by CMS, the decline in Stars performance for H3815 for rating year 2027 was driven primarily by higher industry cut points and a decline in certain triple-weighted measures across Health Outcomes Survey (HOS) and Part D. We have and will continue to implement enterprise-wide initiatives, including to enhance member and provider engagement, expand care gap closure programs and provide additional quality oversight. We believe these actions will strengthen our business and position H3815 to return to at least a 4.0-Star rating in future rating years. However, there can be no assurance that these initiatives will be successful or that H3815 will return to a 4.0-Star or higher rating in future rating years.

Current report

The Star Ratings program and the methodologies used to calculate Star Ratings are subject to change and uncertainty, including as a result of CMS actions, litigation and other legal and regulatory developments. For example, in May 2026, a federal district court ruled in favor of Clover Health in litigation challenging CMS’s use of certain measures in calculating its 2026 Star Rating and ordered CMS to recalculate Clover Health’s rating without the challenged measures. In response, CMS issued a memorandum announcing that it would voluntarily recalculate the 2027 quality bonus payment ratings for certain Medicare Advantage contracts and increase ratings where the recalculation resulted in a higher rating. CMS has appealed the district court’s decision. These developments, as well as other pending challenges to CMS’s Star Ratings methodologies, create substantial uncertainty regarding the measures and methodologies CMS may use to calculate Star Ratings in future years.

Current report

Additionally, CMS continues to make changes to Star Ratings methodology that could negatively impact our Star Ratings in future years. For example, for the 2027 Star Ratings, CMS determined not to implement the Excellent Health Outcomes for All reward, previously known as the Health Equity Index reward, and instead continued the historical reward factor. The elimination of this reward reduced the impact of investments that we made to align with CMS’s objectives under its prior implementation. Future adjustments to, or legal challenges involving, the Star rating methodology may have a negative impact on our Star ratings.

Current report

In addition, audits of our performance for past or future periods may result in downgrades to our Star ratings. For example, if a CMS audit finds that a particular issue of noncompliance impacts the data source for a Star measure, the Star measure may be reduced if the data set is deemed inaccurate or biased.

Current report

As a result of the foregoing, our plans may receive a lower Star rating and may not be eligible for full level quality bonus payments, which could adversely affect the benefits we can offer, reduce membership and/or reduce profit margins. Also, CMS has the authority to terminate contracts that have had a rating of less than three Stars for three consecutive years, whereas Medicare Advantage plans with five Stars are permitted to conduct enrollment throughout almost the entire year. Because low quality ratings can potentially lead to the termination of one or more of our contracts, we may not be able to prevent the potential termination of a plan or a shift of members to other plans based upon quality issues, which could, in turn, have a material adverse effect on our business, results of operations, financial condition and cash flows.