Weekly Health Tech Reads | 1/28/24

Network affiliations, VBC landscape, Elevance earnings, and more!


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


Summary: Humana stock dropped by another 10%+ on Thursday after it slashed expectations and left analysts with the sense that we’re seeing a “100 year storm” in the MA market. Q4 medical benefit ratio came in at 91.4%, higher than the previously expected 89.5%, a $475 million increase that was evenly split across inpatient and non-inpatient spend. Humana pulled its 2025 EPS guidance of $37 per share, instead sharing its targeting $16 EPS in 2024 and growth of $6 - $10 per share in 2025, implying a 30% to 40% reduction in 2025 EPS.

This dramatic reduction is because Humana now is projecting an the additional $3 billion of medical spend its seen in 2023 to persist throughout 2024 and 2025. Humana expects this to reduce its profitability on the core insurance business to between 0% and 1%, and shared that it expects the entire industry will need to reprice its product as a result of this trend.

My Reaction:

  • If you needed any further confirmation that we've entered a new era in Medicare Advantage, I think you've now got it. It will be interesting to watch the trickle down of impacts from this storm. There's going to be a number of fascinating things to watch. For starters, will we see the other public MA insurers note this as an industry-wide issue in 2024? Humana certainly thinks it will be. Second, what will happen to MA primary care businesses in 2024? Humana notes that it has already been challenging for the less-sophisticated models, and expects it to be challenging for many more this year. Third, what happens in the upcoming 2025 MA bid cycle? Humana expects everyone to reprice - but will they? Fourth, what does the MA innovation market look like as a result of all this? I can imagine plans spending very little energy considering shiny new things, but also being willing to shift risk to specialty care providers and look at automation to help shrink admin costs as low as possible.

  • It's interesting to see Humana call out in its prepared remarks that it has seen a dramatic uptick in short stay admissions and a decrease in observation events, noting that short stay admissions have a 4x higher unit cost than observation stays. Given the context of public negotiating battles with hospitals recently over MA rates, it's not hard to imagine that this has been an intentional shift on the part of hospitals in order to ensure profitability. It's worth remembering that Humana's $3 billion of medical costs is $3 billion of revenue to provider organizations.

  • Humana leadership repeatedly called out CVS (without naming them directly) for underpricing and taking the market this year: "you've seen it over the years, we do see this behavior that there's one that sort of stands out and takes share for the inappropriate reasons around price. There are smaller players in the marketplace that maybe impact us in one market or another, but I wouldn't get overly upset about those. We see those come and go. We just see one this year. And we suspect that for all the reasons that we've discussed this morning, that player will readjust in 2025." If you're CVS / Aetna leadership, I imagine you're on high alert. With a huge influx of new members that they presumably have very little visibility into at the moment, there is a lot of potential risk there. Getting those members into the Signify / Oak Street machine as quickly as possible feels like it'll be organizational priority number one.

HTN Slack Convo (h/t Manas Kaushik)


Summary: John Tozzi at Bloomberg wrote an excellent piece highlighting the lawsuits filed by Elevance and SCAN against CMS over the holiday. The suits revolve around changes to the Star rating system that resulted in Elevance losing $190 million and SCAN losing $250 million in bonus payments from CMS. The cases are pretty similar, with each insurer suing CMS because of a disagreement over a single secret shopper call that caused them to miss a 4 Star rating, which is tied to receiving those bonus payments.

My Reaction:

  • If you're really looking to nerd out on all things Stars implementation, the complaints here are well worth a read. Elevance's 35 page complaint argues that it should have received a 5-Star rating on the D01 measure, which would have gotten more of its plans to an overall 4-Star rating. Elevance made two core arguments - the first being that the 99% cut point for a 5-Star rating on D01 was wrong because of ambiguities around how CMS applied guardrails and Tukey outlier deletion. Elevance missed a single call according to CMS, but CMS only tested ~60 calls, meaning Elevance couldn't miss a single call to achieve a 5-Star rating on that measure. Second, Elevance was dinged for missing the single call because the secret shopper reached out via TTY, a public service funded by the federal government. The TTY call didn't actually connect with Elevance's call center, which Elevance doesn't think is their responsibility, although CMS does. SCAN's case features a similar argument to Elevance, but centered around a phone call that went over the eight minute limit because they think the secret shopper spoke too slowly in French. Isn't it wild that those two phone calls are responsible for almost half a billion dollars in quality payments that aren't being paid out?

  • If you're selling to Medicare Advantage plans, it's worth reading these sorts of cases to understand the types of things your customers are dealing with on a day-in and day-out basis. Imagine being the CFO of one of these plans and you just lost out on hundreds of millions of revenue because of a single secret shopper call. I'd think if you're in that position that you're spending a lot of time making sure you don't repeat the same error next year.


Summary: Compared to Humana's earnings call, Elevance's call was much more business as normal. Profitability continued to improve for Elevance, driven by Carelon performance. Elevance sees a lot of opportunity for growth within Carelon, calling out opportunities both expanding to external clients and also expanding risk-based oncology and behavioral health products for Medicaid members with serious mental illness within Elevance's membership. On the insurance side of the house, the commercial business is on a good trajectory looking forward, with Elevance noting that they're winning 75% of employers who switch carriers in the national accounts business. The individual business is growing nicely, and the Medicaid rederminations process is now roughly 2/3rds complete. Elevance is seeing about 30% of members re-enrolling in another Elevance product. In Medicare, Elevance expects membership to be flat in 2024 due to a stronger than expected competitive environment, but that earnings will improve and it feels good about its 2024 trend assumptions.

Elevance noted that it views 2024 as a "reset" year for the health benefits business, preparing it for growth again in 2025. Among other things, it exited some underperforming Medicare Advantage markets where it didn't see a path to profitability, which will result in a reduction of 84,000 members in 2024. They also reduced supplemental benefits in Puerto Rico, and will loose another 90,000 members there as a result.

My Reaction:

  • It's interesting to ponder why Elevance apparently didn't see the same medical cost challenges that Humana reported just a day later in the week. Elevance noted this a few times, specifically stating that "cost trends in our Medicare Advantage business continued to develop as we expected, and we are confident that the assumptions underlying our bids for 2024 are appropriate." So how is it possible that Humana is seeing a $3 billion increase in medical trend in 2024, but Elevance seemingly is seeing no issue? Elevance did note that it is seeing pockets of increased utilization, specifically in outpatient orthopedic procedures, but all within assumptions. So it's odd to see two payors reporting extremely different results in this regard, and will be interesting to watch where other payors come in as well in 2024.

  • Consider this earnings call as another data point supporting the idea that we're going to see a lot of activity in VBC specialty care this year. It repeatedly came up on this call as Carelon will be very focused on high cost specialties going forward as a key growth driver, with Elevance noting that is "where we think that there's a huge differentiated focus between our technology, our clinical domain expertise, and our ability to drive trend. Again, we don't need to own the providers, but we do need to have a significant role in the enablement of those care providers, and we have spent time doing that." They're expecting to take on capitated risk, particularly within existing Elevance members. The primary reason they cited for seeing so much payor interest is that payors are looking for predictable and stable cost of care in those specialties. Will be curious to watch how Carelon continues building out capabilities here.


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

Mapping out affiliations between providers and their employers

Michael Stratton and the team at Health Data Atlas put together a solid breakdown of how healthcare affiliations between providers, facilities, and networks function. If you've ever been confused by the various legal entities that sit within a provider organization, this is a really helpful visual explainer. It digs into several types of relationships, including physician employment models, facility affiliations, and provider networks.

Analyzing the expanded landscape of value-based entities

Health Management Associates, Leavitt Partners, and Arnold Ventures released a report providing a thorough overview of the VBC landscape, highlighting emerging value-based payment enablers and risk-bearing delivery organizations. The report covers each segment in detail, analyzing common offerings, partnership strategies, provider assessments, care delivery approaches, and growth strategies of the various models. Finally, it offers up policy implications and areas for future CMS research in the space.


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

Per Bloomberg, Walgreens is exploring the sale of Shields Health, its specialty pharmacy business, for $4+ billion. Walgreens completed its acquisition of Shields only a few years ago, underscoring the shifting strategy underway at Walgreens away from a diversified business and towards a more focused retail pharmacy strategy.
Link / Slack (h/t Sander Duncan)

North Carolina's State Employee Health Plan, which we highlighted a last week for its decision to restrict access to Wegovy because of the cost, voted to end all coverage of the drug in a 4-3 vote from its trustees. The article makes for an interesting read on the tradeoffs at hand.
Link / Slack (h/t Vijay Singh)

Lumeris and Integrated Physician Network (iPN), a clinically integrated network in the Denver area, announced a new value-based care partnership.

Instacart announced a partnership with in-home care provider, DispatchHealth, to provide Dispatch care professionals with tools to prescribe food interventions to patients via Instacart.

Tyson Foods has dropped CVS Caremark as its pharmacy benefit manager, replacing it with a startup PBM, Rightway. The move comes as the food giant looks to cut costs spent on providing drug benefits to its 140,000 employees.

Tempus, an AI-based genetic testing company, announced it has signed an agreement to become at in-network provider for Humana. The deal will provide Humana's 13 million+ members access to Tempus' suite of molecular profiling tests for cancer.


A collection of notable startup financing rounds across the industry

Midi, a menopause care startup, is raising $60 million in financing, just 4 months after closing its previous Series A round of $25 million.
Link / Slack (h/t Michael Ceballos)

Turquoise Health, a price transparency platform, secured $30 million in Series B funding to develop further pricing workflows for its 160 healthcare customers.
Link / Slack (h/t Kevin Wang)

Spark Advisors, a platform for Medicare brokers, raised $25 million in Series B funding at a 4x valuation increase. Spark has grown to serving 3,400 brokers who have enrolled 60,000 Medicare beneficiaries.
Link / Slack

Ansel (fka Brella Insurance), a supplemental insurtech company, secured $20 million in funding to scale employee insurance offerings.

Motif Neurotech secured $18.75 million in Series A funding to further develop its lead product, the DOT microsimulator. The company's device acts as a miniature brain pacemaker, stimulating the brain and aiming to treat mental health disorders.

Sano Genetics, a precision medicine startup, raised $11 million in Series A financing. The company's precision medicine research software helps connect patients living with rare and chronic conditions to biotech and pharma companies pursuing research studies on the diseases.
Link / Slack (h/t Paul Wicks)

CardioSignal, a remote patient monitoring startup, raised $10 million in Series A funding to support further clinical validation of CardioSignal's breakthrough cardiac SaMD technology.

Isaac Health, a dementia care startup, raised $5.7 million in Seed financing. The company provides virtual brain health and memory care by partnering with health systems and health plans to diagnose, treat, and manager their populations.
Link / Slack (h/t Raihan Faroqui)

HEAL Security, a cybersecurity platform for healthcare, launched with $4.7 million in funding coming in part from the American Medical Association's Health2047 fund.


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

January 2024: What if ACH had attachments? by Ayokunle Omojola
A deep dive into payments innovation, unpacking messaging layers & speeds, money movement layers, and more. Ayokunle walks through how healthcare payments are executed as an example.

​​Who Pays for Healthcare AI? (Part I) by Morgan Cheatham
Part 1 of a three part series diving into how current payment models are slowing the progress of healthcare AI adoption.

The Complete History & Strategy of Novo Nordisk by Ben Gilbert & David Rosenthal
The Acquired podcast duo is unpacking the best companies of healthcare in the newest season of the pod - up first, digging deep into Novo Nordisk focusing on its historical involvement with Ozempic and Wegovy.

Men’s reluctant relationship with healthcare by Neel Shah
An interesting lens into the paternal health crisis, reflecting on men's reluctant and often lacking relationship with healthcare. From preventative care to prescription drug utilization to accessing mental healthcare treatment, men are far less likely to access care and the negative impacts are showing.

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