Weekly Health Tech Reads | 1/7/24

Walgreens earnings, Devoted Health raises $175M, American's views on healthcare, and more!


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


For anyone interested in primary care VBC / MSO strategy world, the analyst call that agilon held related to the news is a must listen. agilon announced Friday it had to revise down its medical margin estimate by roughly $110 million for 2023 - dropping its target range from $455 to $470 million to $340 to $360 million.

$90 million of the reduction was due to higher than expected utilization, which had been occurring since Q2 but agilon only became aware of it after November close. Another $20 million was due to a revenue reduction in two new payor contractions related to data exchange issues. It's a huge miss to be recognizing this now, particularly when you consider that payors have been flagging this medical expense issue going back to May. But perhaps even bigger than the internal operational questions this should raise are the strategic questions around whether agilon can recover from this, or if this is a more fundamental issue starting to appear regarding the scalability of MSO models.

For instance, one of the key problems that agilon cited on Friday for this miss was that newer providers in its mature markets are performing materially worse than its mature providers in those markets. It highlighted this in the chart below (from this set of slides). Newer PCPs average only $34 PMPM versus mature PCPs average $161 PMPM in mature markets:

In response to an analyst question about why this was the case, agilon shared that they need to go back to the basics in those markets. They essentially stopped onboarding new providers to the agilon model and suggested that is a key reason why performance faltered. But it begs the question whether this is really a training issue in those markets, or a much more fundamental shift that is happening in the business as it scales beyond its initial set of providers.

Either way, 2024 is looking like a critical year for agilon to demonstrate it has moved past this and provide the market with some confidence that its operational issues in 2023 are a thing of the past.


Walgreen’s new CEO Tim Wentworth took his first earnings call. It’s worth remembering Wentworth’s background as a pharmacy services / PBM operator (he previously held CEO roles at Evernorth and Express Scripts). I say this because the earnings call certainly seemed to set the stage for Wentworth to focus Walgreens’ strategy moving forward on the pharmacy business. For the pharmacy services nerds reading this, the call was full of interesting details about how Walgreens thinks about its model and positioning moving forward, as well as some conversation about the CVS approach.

For the care delivery nerds, VillageMD seemed to take a noticeable backseat in this call. In opening remarks, Walgreens’ noted that Village is almost halfway through its clinic exit strategy - it has closed 27 of the previously announced 60 clinic closures in non strategic markets. When asked by an analyst about whether Village is a core asset moving forward, Wentworth seemed to deliberately refer to Village as an “investment” instead of an “asset”, a distinction he also made earlier on the call. He also noted later in the call that he would not expect Walgreens to invest further in primary care assets beyond Village moving forward. So, it certainly started to feel like Walgreens is positioning primary care delivery outside its core focus moving forward. On the other hand, Wentworth did share he views the Pearl Health partnership as the type of relationship it is looking to build upon so it can be the independent partner of choice for payors, providers, and pharma.

On the whole, the call seemed like a pretty clear signal that Walgreen’s strategy will be moving away from the CVS / UHG vertical consolidation play, particularly in acquiring care delivery assets, and toward a more focused strategy as the independent pharmacy partner for payors, providers, and pharma.


Devoted has had a fascinating run over the past few years in the insurtech market as it has chosen to remain private and avoided the scrutiny of its peers on the public market. Devoted has been able to grow its membership in an impressive manner - Devoted now reports 140,000 Medicare Advantage members as of December 2023, representing year-over-year growth of 70%. Its valuation has also apparently remained more stable than it might have on the public markets, as this round was reportedly at a $12.87 billion valuation, a slight increase over its last valuation of $12.7 billion two years ago. It seems notable that Venrock was not mentioned in the press release as an investor in the round, given Venrock's deep involvement as a founding investor of Devoted and continued role with two seats on the Board.

The numbers above imply a valuation of more than $85,000 per Medicare Advantage member ($12 billion / 140,000 = ~$85,000). For context, that is dramatically higher than the $65,000 valuation per member number that I nearly lost my mind overwhen Clover went public via SPAC back in 2020. Granted, Devoted seems to be built on a very different foundation than Clover was (look no further than Devoted's Star Ratings for proof that it's built a solid business), but these valuations seem destined to come back to earth just given the nature of the insurance business. For another valuation comparison, see the news below highlighting how Cigna is selling its 600,000 member MA business for $3 to $4 billion, which would imply a max value per member of $6,666. At Devoted's current valuation, it would need to over 10x its number of members and reach 1.8 million members to be valued similarly to Cigna's book of business, which would make it the fifth largest MA plan in the country.

That statement probably highlights the rationale behind the bull case here - Devoted is already being valued like it is one of the largest MA plans in the country. It'll be quite interesting to watch how long of a runway Devoted has here before its investors begin to look for an exit either via IPO or acquisition.


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

Gallup Survey Data Highlights Changing Views on Care Delivery

Gallup released results from a survey on Americans' views of healthcare delivery in 2023. It's a good set of data to peruse. In particular, the chart above caught my attention - it's interesting to note how uniformly the results got worse over the past decade, particularly when compared to the gains of the previous decade.


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

BrightSpring has again kicked off its IPO process, filling an S-1 this week with the SEC. BrightSpring is a home and community-based health provider that focuses on high-cost and high-need patients that serves over 400,000 patients daily across all 50 states. It had previously started the process in late 2021 before shelving the IPO in 2022 due to market conditions.
Link / Slack (h/t Michael Ceballos)

Eli Lilly made media waves this week as it launched a D2C site for GLP-1s called LillyDirect. The site currently offers medications for weight loss, diabetes, and migraines and is working with three different telehealth startups to provide virtual visits across those conditions - Form (weight loss), 9amhealth (diabetes), and Cove (migraines). Lots of good discussion in the HTN Slack this week about the rationale for Eli Lilly in making this move and the brand implications for it and other companies in the space. I can understand why Lilly might want to own the brand experience, particularly in the GLP-1 market, but I’ll be curious to watch how committed they are to building out the D2C capability.
Link / Slack (h/t Katie Chlada & Stuart Blitz)

The Wall Street Journal continues to scoop Cigna's M&A talks, this time noting it is in exclusive conversations with HCSC to sell its Medicare Advantage unit to HCSC for $3 to $4 billion after running an auction process on the business. HCSC is the parent entity to BCBS plans across five states, so Cigna’s 29 state MA footprint would add meaningfully to the HCSC business.

UHG and Mount Sinai are apparently in a contract dispute over Mount Sinai's requested rate increases for its commercial population. It seems like a pretty standard dispute, although the arguments are always a bit bemusing in the complete contrast between the two positions. Mount Sinai's position: "we're the lowest cost system in NYC, if that care happened elsewhere it would cost $140 million more". UHG's position: "they're asking for substantially higher rates than anyone else and if UHC agreed to these increases it would cost $600 million more". The article cites a 70% rate increase ask at Mount Sinai's flagship hospital, which seems pretty egregious for a contract that was negotiated back in 2022.

Bright Health's stock price more than doubled this week as it reported that it closed on the sale of its Medicare Advantage business to Molina. A few weeks ago, Molina reported it had amended the purchase price downward by about $80 million, for a total purchase price of $425 million (link). At the time of closing, Bright had 109,000 Medicare Advantage members. Bright shared it will be using the proceeds to pay down its debt and set up its NeueHealth business on solid footing for 2024.

Cano Health is accelerating its transformation plan after receiving a delisting notice from the NYSE because its market cap has been below $50 million for the last month. As part of this plan, Cano estimates it will deliver $290 million of savings in 2024. It also mentioned that Cano has engaged advisors to evaluate interest in the sale of the business.

Guidehealth, a VBC-enablement startup, announced its purchase of Arcadia's managed services business and VBC services division. The company will also partner with Acadia to leverage its analytics platform to run the new entity.
Link / Slack (h/t Michael Ceballos)

Elevance announced it is acquiring infusion services provider Paragon Healthcare for over $1 billion. Paragon serves 35,000 patients via 40 ambulatory infusion centers across eight states.

Brookdale Senior Living sold its 20% stake in a home health and hospice JV with HCA to an unnamed buyer for $27 million.

Cerebral has negotiated with the New York attorney general to pay over $500,000 in restitution to over 16,000 consumers for deceptive and burdensome cancellation tactics.

A new JAMA study suggests that hospitals purchased by private equity firms have an increase in adverse events versus those not owned by private equity.
Link / Slack (h/t Josh Heurung)

This was an interesting deep dive into how HouseWorks, a home health company, has grown its business from $25 million to $400 million ARR in just a few years. The article highlights the acquisitions it has made and expansion of payor revenue streams, shifting from private pay more towards Medicaid.
Link / Slack


A collection of notable startup financing rounds across the industry

Employer Direct Healthcare was recently valued at $1 billion as Insight Partners purchased $92 million of equity from existing investors in EDH. The shares in EDH were previously valued at $300 million. EDH is building a Center of Excellence model for employers, and has worked on ~43,000 surgeries for patients over the last 12 years.
Link / Slack

Nabla, an AI-enabled copilot for clinicians, raised $24 million in Series B funding to continue to expand its platform. The company currently offers its services to both small practices and larger health systems helping physicians automate medical coding and documentation.

knownwell, a metabolic health startup, raised $20 million in Series A funding. The funding will be used to support its enterprise strategy for health systems, payors, and employers, delivering a combo of telehealth and bricks-and-mortar care for weight management.
Link / Slack (h/t Katie Chlada)

Tava Health, a digital mental health startup, raised $16 million in financing.

Sehat Kahani, a Pakistan-based women's health telemedicine company, secured $2.7 million in Series A financing.


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

Zeke Emanuel penned a good OpEd exploring why healthcare costs have remained flat at or below 18% of GDP since 2010. He suggests the key reason for this is likely the value-based payment initiatives implemented by CMMI and spill-over effects from those initiatives.

An interesting set of 8 predictions for healthcare in 2024 digging into politics in healthcare, digital health consolidation, infusion services market, and more.

Dr. Neel Shah (CMO of Maven Clinic) shares a few hypotheses for digital health in 2024. He covers how changes in demographic trends in fertility rates can influence improvements to maternal mortality rates, point solution consolidation, and the rise of misinformation across healthcare.

Halle shares seven charts that provide an overview of some of the biggest happening and trends in U.S. healthcare in 2023 - from Medicaid disenrollments to employer-sponsored health insurance premiums to the amount of GLP-1 medications, and more.

Time Toxicity in Healthcare - A Real-World Example by Laura Stratte and Nikhil Krishnan

This was a good read as Stratte mapped her cancer journey and the amount of time it took her as a patient to manage her treatment. Among other things, it puts in perspective how challenging it is to work during treatment journeys like this.


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