Weekly Health Tech Reads | 1/21/24

GC's HATCo buys a health system, Humana's stock falls 10%, closing the women's health gap, and more!


Sharing our perspective on the news, opinions, and data that made us think the most this week


Summary: HATCo, the General Catalyst-backed entity seeking to acquire and transform a health system, has announced it has signed a non-binding LOI to purchase Summa Health and flip it into a for-profit system. Summa Health is a $1.6 billion not-for-profit health system based in Akron, Ohio. The two entities plan to close the deal later this year after a diligence period, although it is worth flagging that Summa has been down this path before - in 2019 Summa signed a definitive agreement to merge with Beaumont, which ultimately fell through in 2020. Summa was apparently the target since HATCo launched last year, as HATCo and Summa have been in talks for the better part of a year now. Summa has a number of assets that make it an interesting partner for HATCo, including an insurance business with commercial, individual, and Medicare Advantage membership.

My Thoughts / Reactions:

  • If you remove the intrigue surrounding General Catalyst's involvement here and the implications of a VC owning a health system, this move actually seems to make a good deal of sense if you're looking at placing a big bet to transform a health system. In Summa, you have a health system that has a number of really interesting assets, including a well-performing Medicare Advantage plan with 23,000 members. It has demonstrated its willingness to reorient its strategy around outpatient capabilities, and has a well performing ACO. Summa also can't meet local market demand, as it doesn't have enough capacity to serve 18% of the people who reach out seeking care. At the same time, it's been struggling financially and hasn't had the capital to deploy its most recent five year plan. An aging population in Ohio have also required it to rethink how it delivers services in the local market. Check out these articles from the Akron Beacon Journal (link, link, link) for a good run down of those dynamics. In HATCo, Summa appears to have found a partner that has committed to fully fund that strategic plan and enable Summa to go down the path it is already headed. So I can see why Summa's Board would be excited about a deal like this. You're now years into a journey seeking a partner that has not worked out yet, and now you have a partner with a credible leadership team and deep pockets who wants to partner with you as the case study for change in the industry? Seems like a high risk / high reward bet, but one that makes sense in the context.

  • When you juxtapose the above with the various presentations at JPMorgan about the strategic opportunity that exists in enabling health systems to operate in MA - it's not hard to imagine the broad strategy here for HATCo / Summa working together: Invest in outpatient growth and rationalize inpatient assets over time. Continue leaning into the Medicare Advantage plan. Lean into moving patients with government insurance into outpatient / home-based care models. Leverage the ACO to manage a broader population and take risk as appropriate. Focus inpatient capacity for higher margin commercial volume and tap into some of those 18% being turned away today. Use technology to improve efficiency of back office functions. It doesn't seem all that outlandish to think that if you can execute on a playbook roughly resembling the above, you can successfully resolve the financial challenges facing many health systems today.

  • One of the biggest unresolved topics in this all revolves the uncertainty of General Catalyst's involvement, what success looks like for HATCo, and whether a VC-backed for-profit health system can ultimately improve healthcare for people in the Akron market. If you buy the strategy above, it's not really clear what role GC plays in all of this. Yet the external optics of its involvement remain a clear challenge, and one that they, HATCo, and Summa all seem well aware of given the number of proactive comments about how this is not a private equity play - no jobs will be lost, etc. But until there is more transparency about GC's involvement here and HATCo's general mandate, there will inevitably be lingering questions about the financial returns HATCo an General Catalyst are seeking here, whether directly from this investment or indirectly from supporting GC's broader portfolio. If you look at Optum's acquisition of Atrius as a comparable here, it'd imply that GC will be deploying several hundred million dollars, if not more, on this acquisition over the next several years. That's a lot of capital to deploy without having a clear idea of a financial return.

HTN Slack Convo (h/t Samir Unni)


Summary: Humana's stock fell ~10% on Thursday after it filed an 8-K indicating that 2024 growth is lower than expected and Q4 medical expenses are coming in higher than expected. On the growth front, Humana expects to only grow by ~100,000 members in 2024, lower than its expectation of "at or above" market average. This is due to more members switching plans than expected. On the medical expense front, they increase Q4 expectations from 89.5% to 91.1%. This is above and beyond the increased trend that was seen earlier in the year, driven by higher inpatient costs as well as a further increase in outpatient spend. Humana moved up its Q4 earnings call to next week in order to address the headwinds with investors.

My Thoughts / Reactions:

  • It's another challenging data point for the Medicare Advantage insurers as headwinds feel like they continue to mount for the sector. The medical cost issue is a bit of a surprise coming on the heels of JPMorgan presentations, where there was no real hint of anyone experiencing additional utilization issues (beyond agilon's miss, which felt like something different). It'll be interesting to watch if other insurers report similar issues, as well as how / if this elevated utilization trend continues in 2024. Either way, it feels like we're entering a distinct new chapter for the MA market where investors are going to be asking a lot more questions about the profitability potential for plans (as well as providers that are behaving like plans).


Sharing a visual or two from the week that made us think

An initial look at 2024 Medicare Advantage enrollment numbers

Modern Healthcare highlighted that CVS saw the most growth in MA membership during open enrollment, which makes it a "winner" in terms of enrollment numbers. Yet as we mentioned above, it'll be worth watching if winning on growth is actually a positive from a profitability perspective this year. UHC and Humana came in second and third, although both came in lighter than expected and below overall market growth. Interesting to see Devoted Health have the fourth largest growth of any plan.

Breaking down obesity care models

Oliver Wyman published an article on virtual obesity care models, including this nice diagram of various flows in the models. It includes some interesting perspective on what they think will win in the space, suggesting that private equity (and I think the paper means VC too) backed models will do well in the space as they'll have the capital to win on bringing in talented leaders, building operational excellence, and aggressive marketing to patients.

McKinsey report on closing the women's health gap

McKinsey released a recent report examining the health and economic burden on women, as well as identifying opportunities to improve the women's health gap.

The report digs into several key drivers causing the gap in health outcomes for women, including lack of quality data and research, barriers to timely and accurate diagnoses, inadequate gender-specific care delivery systems, and more.

It goes on to highlight how VC and PE investments in emerging startups could improve health outcomes and boost the global economy.

Join the HTN Slack convo (h/t Casey Langwith)


A round-up of other newsworthy items we noticed during the week

The State of North Carolina Health Plan provided some insight into the cost impact Wegovy is having on employers. The plan has gotten into a contractual spat with Novo Nordisk over reducing access to the medicine. In 2023, Wegovy alone made up for 10% of the $1 billion that the state health plan spent on prescriptions, and the plan was projecting that spend would increase to $170 to $190 million in 2024. So it decided to restrict access to the medication, a move that prompted Novo Nordisk to remove its 40% rebate for the employer. In total the health plan now expects to spend $130 to $140 million on Wegovy in 2024. The article provides for a really good case study of the cost impact of these obesity medicines for employers. It also hints at the potential massive opportunity for companies in helping employers to manage this spend category moving forward.
Link / Slack

CMS launched a new innovation model focused on improving behavioral health outcomes for the Medicaid / Medicare population suffering from moderate-to-severe mental health conditions and substance use disorder. The model focuses on community-based BH practices treating Medicaid and Medicare beneficiaries. CMS will select up to 8 states in which practice participants can volunteer to test the new payment model.
Link / Slack (h/t Dhruv Vasishtha)

CMS finalized the prior auth rule this week, establishing new requirements for Medicare Advantage, Medicaid, and Qualified Health Plans to implement APIs that will allow patients and providers to access administrative and clinical data.
Link / Slack (h/t Ron Urwongse)

Saltzer Health, a Idaho-based physician group owned by Intermountain Health, will be shutting down on March 29th because of financial difficulties, unless a buyer is found before then. Intermountain purchased the group, which has 11 practices, 450 employees and sees 100,000 patients, four years ago. Apparently Saltzer is in talks with "out of state organizations" about a sale, but it seems like a sign of changing market conditions that there isn't more interest in bolting this on to a VC / PE backed platform.

Innovaccer acquired Cured, a digital marketing platform helping health systems and digital health companies with patient engagement. Cured will bring with it 20 customers, and it appears Cured will be a central piece of Innovaccer's CRM strategy moving forward.
Link / Slack (h/t Nadine Peever)

Anthem Blue Cross and UCSF Health have found themselves in a contractual battle. As always these articles are interesting to read to see the tone of these negotiations.
Link / Slack (h/t Samir Unni)

98point6 purchased the sixteen customers of Bright.MD's asynch care platform. Bright.MD sold its technology to Evernorth late last year.
Link / Slack

Bright Health is officially no more as a brand, as the entity is formally changing its name to NeueHealth and relocating headquarters to Florida.

Pyx Health, an SDoH platform addressing loneliness, acquired InquisitHealth to expand the platform and better support plans in managing CAHPS and Star ratings.
Link / Slack (h/t Conor Green)

Epic launched a new version of its Showroom site to highlight the various vendors that connect with Epic, an evolution from previous App Orchard efforts.
Link / Slack (h/t Sam Seering)


A collection of notable startup financing rounds across the industry

Forta announced $55 million in funding to scale its platform leveraging AI to power ABA therapy for children with autism spectrum disorder.

Onera Health, a sleep diagnostic and monitoring startup, raised $32 million in Series C financing to help expedite regulatory clearance for its PSG system in both the US and Europe.

Rune Labs, a precision neurology startup, secured $12 million in financing.

Health in Her HUE, a culturally competent care platform for women of color, raised $3 million in seed funding.

Shimmer, a coaching platform for adults with ADHD, raised $2.2 million in seed funding.

You Are Accountable, a substance use disorder treatment company, announced $2 million in funding from GEHA Ventures.


A round-up of posts from the broader healthcare community this week that made us think

Digging into MedPAC’s Medicare Advantage Estimates by Joe Albanese
A policy brief from the Paragon Health Institute diving into MedPAC's MA estimates and looking at why the arguments about excess payments to MA might be overstated.

Should early stage investors even invest in healthcare companies? by Primary Venture Partners
The Primary team offers a humbling view on VC investing in healthcare over the past decade, calling out small enterprise value and liquidity, payer/provider software being the least efficient category, and more. Despite the many challenges of investing in early-stage healthcare companies, the team still sees opportunity across the ecosystem.

The Decline and Fall of Elite Multispecialty Groups by Jeff Goldsmith
A good overview of how large regional medical groups are increasingly at risk of losing independence to larger hospital systems as a result of economic decline in rural communities, worsening clinician shortages, and losing business to better off academic health centers.

The 2024 Buyer's Guide to AI Scribes by Bobby Guelich / Elion
This article provides a nice rundown of various considerations for providers looking at implementing AI Scribe tools.

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