Weekly Health Tech Reads | 10/16/22

Bright exits the exchanges, Babylon selling its IPA, UHG & Walgreens earnings, & more!

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News of the Week:

  • The big news of the week was of course that Bright Health announced that it is exiting its core insurance business, the exchanges. Bright’s operational and pricing challenges have been well documented at this point, so this move isn’t entirely a surprise. Investors have put too much capital into Bright to let go belly up, and this move to focus on Medicare Advantage represents the most viable path forward for Bright, which didn't appear to have many good options. As Bright pitched in the investor update call, this move will allow them to focus on the senior population, which certainly has proven to be a profitable line of business for other organizations. All of that said, exiting the exchanges represents a massive failure for an organization that has struggled to demonstrate it understands the fundamentals of how to operate an insurance business since going public last year. Tellingly, it does not appear that Cigna invested in the $175 million capital raise that Bright announced as part of this release. Keep in mind that Cigna led a $750 million funding round in Bright less than a year ago. The fact that Cigna didn’t invest anything here points to how quickly that relationship unraveled. Moving forward, Bright appears to be betting its future on being a regional integrated Medicare Advantage payor / provider. And again, this does appear to be a viable business - look no further than Bright's acquisitions such as Brand New Day to see that there is a real underlying business here. The primary question is whether Bright has the ability to execute on any of this better than it did on the exchanges. I’d imagine there’s a certain sense of whiplash amongst Bright’s employees at the moment, who have seen organizational priorities shift rapidly from implementing a massive operational overhaul on the exchanges to exiting the exchanges entirely, which has to make them skeptical of the direction coming from leadership. Bright shared with analysts that it expects the new business to generate $3 billion of revenue and be profitable on an Adjusted EBITDA basis next year. If it can achieve those numbers, there is a future for this new version of Bright. We’d guess that this new version of Bright will attempt to go quietly off into the night from here and look for a PE buyer to take them private, assuming the business can reach positive cash flow next year. I can’t imagine a strategic acquirer wanting to touch Bright any time in the foreseeable future. It’s not exactly a great story for the type of change VC-backed healthcare disruption creates - chaos for patients who have Bright insurance, the front line clinical staff who have to interact with Bright, and the employees who seem likely to lose their jobs.    Link (Bright Presentation) / Slack

  • Babylon Health announced this week it will be selling Meritage Medical Group, an IPA with 1,800 clinicians that it acquired in California last year. While Babylon shares in the press release that it grew Meritage's revenue from $111 million in 2021 to $400 million in 2022, it appears Meritage didn't grow its patient volume at all over that time - Babylon's press releases last year announcing the acquisition and this week both cite Meritage as having 90,000 patients. Pretty eye-opening that a primary care org can apparently grow revenue by 4x while serving the same amount of patients, right? For Babylon, this seems like a move made by a company struggling to raise capital to stay afloat - why else sell an organization growing revenue by 4x when costs should stay relatively flat (which seems like it should be true if you're treating the same # of patients)? While it was certainly a nice story Babylon told, that appears to be exactly what it was. Similar to Bright, this seems to be another example of disruption causing chaos for patients, front line staff, and employees dealing with these shenanigans. Link / Slack (h/t Kevin Wang)

  • Walgreens hosted Q4 earnings and did a deep dive on the business, going in depth on a number of strategic priorities, including its expansion in US healthcare. Walgreens is characterizing 2022 & 2023 as years of heavy investment in expansion, expecting to lose $220 - $240 million of Adj EBITDA in FY2023 before turning Adj EBITDA positive in FY2024. Walgreens is leaning into growing its VillageMD clinics substantially, aiming to hit 200 clinics before the end of the year, up from 152 today. Yes, 48 clinics opening in the next 2.5 months seems like a lot to us, too. Walgreens notes the advantage that VillageMD clinics have from a profitability perspective - because they are both FFS and VBC, Walgreens thinks the clinics will hit profitability faster than other models, explicitly calling out Oak Street here. Will be fun to watch the data on this emerge over time, obviously. Walgreens also shared some interesting insights on M&A: 1. its biggest M&A period is now in the past, 2. anything acquired would be EBITDA positive, and 3. if anything it'd be looking to tie together existing assets with a tech platform. If you're interested in speculating what type of tech platform Walgreens is interested in, check out this slide: Notice that category with no Walgreens logo next to it? Provider enablement / MSO, which we'd imagine will be a space they look hard at for their tech platform. And lastly, this was an interesting quote from Walgreens' CFO, which seems to encapsulate the general sentiment in 2023 well: "we’re very, very focused on simplifying the company because it’s too complex for investors." Focus continues to be the name of the game these days. Link (announcement) / Link (slides) / Link (Transcript)

  • The one organization that seems to eschew the general trend of focus this year just so happens to be the one that has kicked off $21.5 billion (!!!) in earnings from operations so far this year, UHG. UHG's Q3 earnings this week featured a bit of a unique set of opening remarks in that CEO Andrew Witty highlighted two partnerships UHG is working on: 1. the Walmart partnership and fifteen clinics they'll be managing and 2. the Optum / Red Ventures JV, which now houses the Optum Store and Healthgrades, among other assets. For an organization that is generally reticent to discuss partnerships, it seems noteworthy for UHG to lead with that, particularly during a quarter where the core business again seemed to perform quite well. Optum Health growth continues to be a highlight, as the segment grew revenue by 31% per member YoY, meanwhile still only 15% of Optum Health members are in global cap contracts. Certainly if UHG can continue converting those members to global cap it represents significant upside. Per usual, though, beyond those high level highlights very little detail is shared on how that transition is actually occurring. It'd still be great to see Optum Health share more data on how it is transitioning providers to risk over time, and the performance of those providers as they do so. Will be curious to see how much Optum shares on this at their upcoming investor day.Link (announcement) / Link (transcript)

Other News:

  • Providence is now playing defense after the NYT article questioning its Rev Up program, fielding questions from a senator on what exactly they're up to. Providence provides the response you'd expect about their commitment to serving the community. Note that Providence chose not to answer the question about how much it paid McKinsey & Co for the Rev Up program. Link (article) / Link (Providence response)

  • SCAN Health Plan is launching a new Medicare Advantage plan in southern California focused on the LGBTQ+ population in partnership with Included Health. Interesting to see more plans targeting specific populations.  Link

  • This is an interesting piece in Forbes touching on how North Carolina Medicaid's decision process to award a sole supplier contract to UniteUs is causing a kerfuffle after UniteUs asked the state Medicaid director to intervene with at least one large health system that wanted to use another vendor. Should be a reminder for startups how relationship driven (and political) decision making can be. Link 

  • Brave Health raised $40 million for its virtual mental health offering for Medicaid populations. Link / Slack

  • FOLX Health raised $30 million for its virtual care model for the LGBTQIA+ community. Link

  • NeuroFlow raised $25 million for its behavioral health tech platform.Link

  • Rhino Health raised $6.7 million. Link


  • This Business Insider article is a really well-done and tough read on the many issues Elemy, a VC-backed company providing autism care for kids, is having. It's hard to read because it certainly comes across as a leading example of a company that has prioritized short term financial gain over doing what is best for patients. The article highlights how Elemy has grown by developing relationships with provider practices and getting referrals, but it has been unable to hire therapists to meet the demand and left kids on indefinite waiting lists. It's really tough reading this article and then going back to this article (paywalled) last year about how Elemy raised $219 million at a $1.15 billion valuation to go hire 2,000(!) clinicians. It all feels like a get-rich-quick scheme under the guise of bringing ABA therapy to the masses, which is so disappointing because the main people who are hurt here are kids with autism and their families. Hopefully this serves as yet another case study for VC-backed care delivery Boards on what their organizations should not be doing. It is good to see that Elemy appears to be reversing course and focusing on building out infrastructure rather than continuing to scale a service it can't deliver, but we're skeptical this change is driven by protecting patient interests versus financial necessity.  Link (paywalled) / Slack (h/t Rik Renard)

  • HTNers Arpan and Amith Parikh wrote a piece on the current state of digital therapeutic offerings for insomnia, SUD, and ADHD. It provides a nice overview of where things are at today, the limitations that have been holding the space back, and where it might head moving forward. Link / Slack

  • This is a nice read from Duncan Reece exploring how CMS is attempting to make the process of selecting a Medicare Advantage plan more consumer friendly. It highlights how the CMS Plan Compare website has changed recently from ordering plans by cheapest first to plans with the highest Star ratings to encourage people to select higher quality plans.  Link / Slack (h/t Duncan Reece)

  • This is a good article in Fortune highlighting how private equity backed ER staffing firms are working with hospitals to set up obstetrics emergency departments, OBEDs. The article does a good job of highlighting the trade-offs of these OBEDs, on the one hand, the staffing firms will argue they're an essential part of providing access to maternal care (and see data below highlighting why access to maternal care is so needed). On the other hand, the costs of these EDs are being passed on to patients in the form of surprise bills, as many people don't even know they're entering an ED. While hospitals are saying OBEDs help solve the maternal mortality problem in this country, this quote in the article from Bob Wachter resonated with us: "I’m always a little skeptical of the justification,” Wachter said. “They will always have a rationale for why income maximization is a reasonable and moral strategy.” Link / Slack


  • This is an interesting study from Covered CA looking at the impacts of various actions on shifting Medicaid members to exchange plans, which is on everyones minds as the public health emergency approaches an end. The study finds that email reminder + personal calls to members increased the likelihood that people would sign up for an ACA plan.  Link

  • New March of Dimes data suggesting the number of counties in the US that are maternal health deserts are increasing, up to 36% of all counties in the US. The report showed that the number of OBGYNs increased by 7% between 2020 and 2022, but only 7% of those providers are in rural areas. Link 

  • Here's a good list of VCs investing in seed stage digital health. Would be an interesting addendum to see how many are active in this current market. Link

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