The aftershocks of UnitedHealth Group's discouraging first quarter continue to reverberate, and financial analysts question when — not if — the industry giant’s struggles with an evolving Medicare Advantage market will spread to risk-bearing providers and technology companies.

Investors had already grown dubious that value-based care companies would fulfill their promise to make healthcare better and cheaper, based on a mostly middling track record to date. UnitedHealth Group's disappointing first quarter earnings, which led Andrew Witty to step down as CEO and be replaced by Chair and former CEO Stephen Hemsley, sparked worry that the company's subcontractors would get pulled down with it.

“When you look at the challenges amongst these value-based care players today, it's less patient-driven, right? It's about revenue, it’s all about upcoding, which V28 killed,” said Ari Gottlieb, an independent healthcare consultant.

V28 is the technical term for a new coding standard the Centers for Medicare and Medicaid Services began incorporating into the Medicare Advantage risk-adjustment system last year. The agency sought to staunch the flow of what it considered to be overpayments to health insurers such as UnitedHealth Group subsidiary UnitedHealthcare.

UnitedHealth Group is the largest value-based care provider and has an estimated 5.4 million patients in accountable care relationships this year, up 650,000 from 2024. Most of these patients are UnitedHealthcare Medicare Advantage members who receive care from the 90,000 clinicians its Optum healthcare services subsidiary employs. UnitedHealth Group generated $150.9 billion in revenue from these kinds of arrangements last year, up 10.6% from 2023.

The conglomerate's success fostered a cottage industry. Venture capital investors pledged billions of dollars to companies such as Agilon Health built to help other providers and insurers emulate vertically integrated UnitedHealth Group. Many of these companies entered the market at the height of the value-based care tech boom in 2021 with sky-high valuations only to see their share prices dwindle since.

“there aren’t that many full-risk, value-based care partners that are able to do this at scale. We think — despite the environment — we think we’re in a good position,” Agilon Health CEO Steve Sell told investors at the Bernstein 41st annual Strategic Decisions Conference in New York last Wednesday.

Nearly all of these companies earn money by sharing in savings partners such as UnitedHealthcare achieve.

But the largest returns could be generated from agreeing to downside-risk contracts, or what many experts refer to as “true value-based care.” In these instances, companies accept a portion of the monthly fee CMS pays health insurers to cover Medicare beneficiaries. That means they are on the hook if expenditures outpace projections.

Because CMS assesses how much each company should be paid based on the health of their policyholders, there is a financial incentive to exaggerate the cost of caring for individual members.

Vendors that work for health insurance companies record the most care for beneficiaries that they may not have needed or received, the Health and Human Services Department Office of Inspector General reported last year. The independent investigative agency found Medicare Advantage insurers received $7.5 billion in federal payments for conditions not associated with claims for medical care.

President Joe Biden's administration introduced V28 to address this issue. The new system limits how much revenue companies can capture from what they were previously reporting by eliminating the codes they most frequently used to trigger higher payments.

A company with financial projections reliant on those extra reimbursements would be hard pressed to make up the lost revenue and recapture the profit margins they previously enjoyed.

In a compromise with the insurance industry, CMS agreed to phase in V28 over three years rather than implementing it all at once. Despite the lengthened time frame, the magnitude of the change caught the industry by surprise. Agilon Health, for instance, found altering its operations in response to V28 to be more complicated than anticipated, Sell said.

Coupled with a surprise rise in medical and pharmaceutical expenses and spending on increasingly rich supplemental benefits, the coding change pummeled the value-based care sector.

Miami-based primary care operators Cano Health and CareMax filed for bankruptcy last year. Walgreens is in the process of selling VillageMD after the Chicago-based primary care chain reported $13.9 billion in operating losses in 2024. A longtime private equity investment group is taking NeueHealth, formerly Bright Health Group, private after amid chronic financial troubles. Chicago-based primary care chain Oak Street Health missed parent company CVS Health’s initial target of achieving profitability in 2025. Rumors of acquisitions have been circling Miami-based primary care chain ChenMed for years.

The few remaining independent, publicly traded companies focused on assuming risk in Medicare Advantage, such as Agilon Health and P3 Health Partners, have already declared 2025 a transition year after runaway Medicare Advantage expenses battered their margins in 2024. The companies are hoping that renegotiating contracts with insurers to carve out risk for supplemental benefits and pharmacy will improve margins. Agilon Health has also said it retooled its contracts to ensure it is not penalized if CMS fines insurers for upcoding beneficiaries not associated with its practices.

The physician-enablement company business model depends on negotiating leverage with larger insurers that comprise the majority of their clients, said Duane Wright, a senior research analyst at Bloomberg Intelligence. Agilon Health no longer discloses what insurance companies are responsible for what share of its revenue. But at the time of its initial public offering in 2021, the company reported generating 69% of its revenue from Humana, CVS Health subsidiary Aetna and UnitedHealthcare.

“The challenge for all these downstream providers is they're at the mercy of the health plans,” Wright said.

Like rival insurers, Agilon Health and P3 Health Partners are working to distance themselves from UnitedHealth’s struggles. Both companies have assured investors they have clear insight into claims and that medical costs are consistent with expectations. They say that, because they are coding near the industry average, V28 does not pose a significant burden.

If Agilon Health and P3 Health Partners are right, and UnitedHealthcare will not be able to pass on its woes to risk-bearing providers, their gains will translate to worse news for UnitedHealth Group, said Jack Slevin, a healthcare services equity research analyst at the investment bank Jefferies.

“From what I’ve been hearing across the value-based care provider landscape, a lot of them are saying, ‘We’re not a part of Optum’s issue,’ or ‘We’re not seeing what is happening with that issue in our book of business,’” Slevin said. “It tells you either there was an operational breakdown at Optum or things are not exactly what they seem.”

UnitedHealth woes incite worry about its value-based partners

UnitedHealth Group's poor first-quarter earnings and leadership changes have raised concerns about the financial stability of its value-based care partners. The implementation of V28, a new Medicare Advantage coding standard, has disrupted revenue streams for companies like Agilon Health, while bankruptcies and financial struggles plague primary care chains like Cano Health and VillageMD. The industry faces challenges in adapting to regulatory changes and managing rising healthcare costs.