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Payer-Provider Negotiations
Atrium and North Carolina’s State Health Plan spat escalates
On Tuesday, Atrium issued a press release announcing a new Affordability Protection Program for North Carolina State Health Plan (SHP) members. This follows the SHP's July announcement of a tiered network structure for 2027 that would move Atrium to a Non-Preferred tier and increase member cost sharing for seeing an Atrium provider. Atrium shared its displeasure with this move back in July, noting that it would increase costs for the 130,000 SHP members who see Atrium providers.
Atrium claims the new program will make it the cheapest health system in North Carolina for SHP members, as it attempts to waive deductibles and coinsurance requirements under the tiered structure and replace them with a new, lower copay. Atrium gives an example of how this could turn a $1,000 copay, deductible of up to $5,000 and 30% coinsurance under the SHP’s tiered plan design into a $400 copay under Atrium’s program. You can see the financial appeal here for a SHP member who wants to see an Atrium provider.
Understandably, the State Health Plan is not thrilled with this move, quickly responding with its own press release suggesting that Atrium is playing a shell game and calling into question the legality of Atrium’s move to sidestep the SHP plan design. The SHP filed a lawsuit against Atrium on Friday, arguing the new program is illegal and threatens the financial viability of the plan serving 750,000 members.
It will be fascinating to watch how this plays out in the court system and also in the court of public opinion. The argument offers a helpful lens into the challenging dynamics of payor/provider negotiations in a particularly tense situation where two heavyweights are moving aggressively. In this situation, a payor with dominant market share (750k commercial lives) is aggressively trying to manage costs by steering members away from high-cost care. Meanwhile, the high-cost dominant health system in the market (which already sees 130k of those 750k lives) is aggressively trying to maneuver around the payer.
Stepping back for a minute, it’s worth viewing this move in the context of national opinions on healthcare costs and the upcoming election cycle. KFF shared a fascinating report on the role healthcare is likely to play in the midterms, noting that voters will view the healthcare discussion primarily as an affordability issue.
One key point the KFF article makes: when voters think about healthcare affordability, they generally aren’t worried about what the payer (federal/state/employer) pays in aggregate. They worry about what they spend as individuals. That seems like a key insight into the challenging discussions around healthcare costs in this country today.
Now apply that thinking to the Atrium / SHP spat, and it is easy to see why the SHP is so frustrated by Atrium’s move this week. If Atrium’s Affordability Protection Program is found to be legal, it clearly has the upper hand here. Atrium gets to play the PR card that it is making life more affordable for SHP members who want care from Atrium providers. Per the KFF data, this is what people want, and Atrium clearly knows that — the name of Atrium’s program is a dead giveaway here. It is pandering to public sentiment to protect its commercial market share.
Meanwhile, the SHP is left in a pickle. It is waving its hands, shouting from the rooftops that we collectively cannot afford this for much longer. The plan was going bankrupt; it implemented these tiers to avoid that outcome, and a move like this by Atrium cuts the plan’s changes off at the knees. The core challenge for the SHP is that societally, nobody seems all that worried that we’re collectively going bankrupt, per the KFF data above, so long as we’re individually getting a better deal. It’s a real-time example of the “tragedy of the commons” of American healthcare, as Trillant described in its excellent annual state of healthcare report this week.
I tend to agree with the SHP about what is going on here, and that Atrium knows what it is doing in trying to sidestep that. I also think it is pretty clear that Atrium knows it is playing a winning hand in the court of public opinion as the provider making care more affordable for the individual, and so it is willing to push the boundaries. It will be worth keeping an eye on what the courts decide here and how these two parties eventually settle this issue.
If you want to go deeper on this topic, earlier this year I hosted Tom Friedman, the Executive Director for the North Carolina State Health Plan, to discuss the efforts underway to help manage costs in the state. It was a fascinating look into a thoughtful effort by a plan attempting to avert financial disaster. The game theory involved in making these decisions in a market with health systems like Atrium pushing back is fascinating.
Quote of the Week
The twists and turns of the No Surprises Act
"I knew it was not going to go well, but I didn't know it was going to be this bad"
This is perhaps my new favorite quote about American healthcare, because I could randomly insert it into almost any discussion and it would fit (see most of the newsletter this week, as just one example).
In this case, the quote is from Representative Frank Pallone (D-NJ), one of the coauthors of the No Surprises Act, referring to the outcomes of the arbitration system created by the No Surprises Act (I dug into one San Antonio employer’s experience with those outcomes back in August). Pallone, who also seems understandably pleased with how the No Surprises Act has eliminated surprise bills for consumers, is now proposing legislation to revise the arbitration process to avoid the gaming that appears to be currently happening in the process.
This week, Pallone introduced the Lower Premiums, Faster Payments Act, which would aim to fix the arbitration-style process with a new payment system based on median in-network rates and require payments to be issued within 30 days. As Martin noted on LI yesterday, this generally seems like a payer-friendly outcome, with some provider-side social media pushback calling the legislation “catastrophic to the US healthcare system”. Holland & Knight went in depth on the proposed changes, if you want to go deeper on the proposal and its implications through a law firm lens.
For the provider side of the IDR debate, Martin hosted SCP Health’s Randy Pilgrim, MD for an expert briefing on Friday — the recording is in the HTN Pro archive.
Consumerism
How will people purchase healthcare in the age of consumer AI?
One of the biggest headlines in the healthcare startup world this week was General Medicine's $120 million Series B funding to build out its online store for healthcare services. It’s notable both because the founding team includes the PillPack founders, and investors include a16z, Lilly, Mercy Health, and others. This prompted a fair amount of discussion about the need for a new healthcare store, but a specific piece of TJ Parker’s LinkedIn post announcing the funding caught my attention:
Say an AI doctor tells you to check your cholesterol. To turn that advice into care, someone still has to identify the right test, determine whether you need an order, compare prices with and without insurance, and find somewhere you can go. If the result comes back high, the same problem repeats with treatment. Whether you do that work yourself or ask an agent to do it, the underlying requirements are the same.
The agent needs a store. Frankly, humans have long needed one, too.
While much of the press release is about helping consumers shop for healthcare, to me this reads like Parker is tipping his hand at the bigger opportunity afoot. A theme I’ve been discussing a lot in the newsletter recently is the rise of AI assistants for everyday tasks. As I’ve chatted with folks about applying this to healthcare, some seem skeptical that AI agents can infiltrate the healthcare experience, given how complicated it is. That may be true today, but models like General Medicine will likely have a chance to fill that void quickly.
It seems highly likely that the transaction layer will become much more efficient, quickly, with AI agents in the middle.
The strategic value of a store for AI agents
I was listening to the CEO of Instinct in a podcast interview on Invest Like The Best last week, and one of the concepts that has stuck with me was him describing how AI is essentially a new user interface for accessing information on the internet much more efficiently than we’ve been able to in the past. Building an online store designed to reduce friction for AI agents (and humans too) makes perfect sense to me, and I can see the opportunity afoot for General Medicine in that way.
An interesting strategic question is the value of owning the store in that future state. I think about 2022, when UHG’s CEO Andrew Witty told investors about a new strategic plan to make an Optum Store the initial entry point for consumers to build a relationship with UHG, and then sell other services to that consumer as the relationship grew. That idea, generally speaking, strikes me as the strategic value of owning the “storefront” here — yes, you monetize the transactions, but it also creates lots of opportunities to increase customer LTV.
AI agents present an interesting twist on that LTV concept. If agents endlessly crawl the internet for the best deal, it seems there is zero brand loyalty or relationship with the customer. You’ll win as long as you’re the most frictionless/best price, right? As soon as you’re not, the AI agent theoretically will shop elsewhere. I imagine companies will try to respond by building their own walled gardens for AI agents, and we’re already seeing turf wars emerge, with Amazon blocking Meta’s Muse AI assistant from shopping on its website a few weeks ago.
In that scenario, brand loyalty and owning the entire experience become much more important. Going back to the TJ Parker quote above, the dominant strategy isn't just to have the store that can fulfill the test, but to be the AI agent that convinces someone to get a cholesterol test in the first place. Whoever owns that agent at the point of the consumer decision will get to dictate what happens next.
So while AI agents may make the transaction layer more efficient, the consumer LTV lies in owning the upstream decision.
The rise of the celebrity influencer
How healthcare decision-making works in an era of AI-enabled consumerism will be fascinating to watch unfold. One stakeholder in the ecosystem who I think is poised to do quite well in this new era? The celebrity influencer.
Ro recently signed actress Megan Fox to a multi-year brand ambassador deal to sell Ro’s erectile dysfunction product, Ro Sparks. Megan Fox is now plastered all over Ro’s social media feed, in ads that you might expect that are designed to sell ED medications. I am sure Megan Fox is compensated quite well for these ads; as I understand it, this market is booming as D2C brands compete for human attention.
In a world where AI agents are making all the purchasing decisions, why is the market for celebrity influencers taking off? I don’t think an AI agent will care that Megan Fox is selling Ro’s ED medications. I do think that Ro knows its target audience will care that Megan Fox is selling Ro’s ED medications. Ro is bringing consumers into its “store” via very human narratives and storytelling. It’s a smart play.
In some sense, it feels like at some point we’ll look back on Megan Fox selling ED medications as this decade’s version of Joe Namath selling Medicare Advantage plans to seniors. It might be easy to poke fun at, and make it all a little bit queasy watching the ads, but it’s also probably going to be lucrative for both Ro and Megan Fox. If that’s the case, it’s not going to stop until a regulator steps in.
To me, this is the odd duality of the AI-centric world we are entering. Yes, information will be more abundantly available online than ever, and theoretically that should enable more rational decision-making with all of this information at our fingertips. But I think history tells us that the opposite actually happens as people get more overwhelmed and confused. Somewhat counterintuitively, an abundance of information will drive people to attach even more to very human narratives and storytelling.
Put differently, the transaction layer may become more efficient with AI agents, but upstream decisions will be driven more by human narratives, and that is where consumer LTV lives.
Applying consumerism to the oncology journey
It’s relatively easy to write off all of this as only being relevant for D2C-y issues like ED medications, but it seems to me that this wave is also coming quickly for more complicated medical journeys. Take, as an example, this New York Times Magazine article from last weekend that a daughter wrote about her late father’s cancer journey. After a late-stage cancer diagnosis, the family started treatment at Memorial Sloan Kettering briefly. Although he knew he was likely getting the best care in the world, he didn’t like how he was being treated and felt out of control. So he stopped going to MSK and instead found a clinic in Arizona that made him feel more hopeful and cared for.
The issue is that the Arizona clinic appears to have bilked the family out of $200,000 for clinical treatments with no real coherent plan. For anyone working in and around care delivery, stories like that present a host of interesting questions about what should happen in a scenario like this. Theoretically, you have a consumer empowered by abundant online information who chooses to move their care from MSK to a clinic in Arizona. In this scenario, that information online was arguably misinformation.
This seems like a topic we will inevitably discuss more as healthcare becomes more consumer-centric, especially with AI agents. As a society, how do we collectively evaluate what happened at that clinic in Arizona? It also seems worth noting here that marketplaces make money by enabling transaction volume, so they have a strong financial incentive to encourage more transactions.
If you look at the situation above purely in financial terms, the Arizona clinic generated $200k in customer LTV by influencing a vulnerable individual's decision-making via online (mis-) information. If that financial incentive holds, we should expect to see more of this.
We’ve spent years as an industry talking about the merits of consumerism in healthcare. Now that it’s rapidly descending upon us, I feel pretty confident Rep. Pallone’s quote will end up being applicable here as well: “I knew it was not going to go well, but I didn’t know it was going to go this badly.”
Chart of the Week
The latest Stars results
2027 Star Ratings were published on Thursday, with some big moves among large players in the market. Humana was the biggest winner, as its largest contract (H5216) achieved 4 Star status, bumping its membership in 4+ Star plans from 42% to 95%. Note that this math is a bit theoretical, as membership will shift, but nonetheless gives a good sense of performance. Humana’s stock was up 11% on Friday on the news.
A few other notable takeaways:
Alignment’s stock fell 14% on Friday after a key contract fell below 4 Stars, driving a 75% drop in membership in its 4+ Star plans. Alignment noted in an 8-K filing that it intends to commence litigation
Devoted has always impressed with its Stars performance as a small, growing plan; improving its Stars in a challenging year while growing as quickly as it is is an impressive accomplishment
UnitedHealth, Aetna, and Elevance all saw similar declines, with roughly 10 to 15% declines in 4+ Star plans
Other Top Headlines
Option Care, a provider of home and alternate site infusion services, is going private at an implied enterprise value of $5.8 billion. PE firm CD&R will own a 51% majority stake, with McKesson buying the remaining 49%. Yet another signal that more folks should be paying attention to the infusion market moving forward.
Utah’s AI pilot expanded this week, announcing it is adding other startups to its clinical AI sandbox, beyond its initial pilot with Doctronic. I know this effort has become a bit of a lightning rod in the clinical AI world, but what Utah is doing here seems pretty measured and reasonable to me. Nolla Health, one of the startups Utah approved for a pilot, took the opportunity to announce it has launched “the nation’s first AI prescriptions,” which seems a bit hyperbolic and is likely not helping the negative reaction to these sorts of efforts. Nolla is using AI to issue initial prescriptions for acne, but it is worth noting that Utah has a tight rollout — for the first 100 patients, a licensed physician will review every AI-generated script, before that oversight is relaxed over three stages, with a physician still retroactively reviewing a sampling of prescriptions once per week. As I look at that rollout, I see a thoughtful human-in-the-loop approach to deploying clinical AI in a very targeted use case. I’m not sure I can think of a much better way to do this, personally.
CMS appears to be cracking down on DTC models that bill CMS monthly for Chronic Care Management (CCM) codes, as well as Principal Illness Navigation (PIN), Behavioral Health Integration (BHI), and similar codes. Manatt folks shared on LinkedIn that they’ve seen multiple instances in the past few weeks of CMS suspending Medicare payments to telehealth models, noting, “it appears CMS has soured considerably on the DTC care management delivery.” It seems like a positive signal that CMS is proactively tracking early signs of concerning behavior and acting quickly, although if you’re an investor who recently plowed tens of millions into a business in this space, I’d imagine this is a concerning development.
Hinge Health is pursuing more M&A ahead, per Bloomberg’s John Tozzi, with a particular focus on acquiring hardware startups. Hinge noted it is seeing 2 to 3 inquiries a week from digital health startups looking to sell, suggesting a buyer’s market in digital health right now. It’s interesting to consider what hardware Hinge might acquire here — it previously acquired Enso in 2021, which has become a core component of the Hinge offering.
ThymeCare, the fast-growing oncology VBC startup, launched Thyme Therapeutics this week, working to commercialize biosimilars for the oncology market. This aligns with the strategy ThymeCare outlined when it announced $125 million in Series E funding in September. At that time, ThymeCare also said it expects to launch a clinical trial navigation business in the coming months.
VillageMD sold 27 Houston-based clinics to Harbor Health, one year after selling 32 clinics in Texas to Harbor as well. These 27 clinics are all in the Houston market, marking Harbor’s entry into Houston as a payvidor model. Harbor shared that when the purchase closes at the end of the year, it will operate 70 clinics in Texas, with these clinics continuing to operate under the Village Medical name. Interestingly, Harbor previously rebranded Village Medical clinics in other markets to be under the Harbor umbrella. Now, over a year after the Walgreens / Sycamore take private, VillageMD still operates 17 clinics in Georgia, 2 in Kentucky, and another 12 in Houston, which seems indicative of the market interest in acquiring these assets.
Centene announced a new partnership with employer-focused advanced primary care provider Marathon Health to offer free primary care for CHOICE members in Indiana and Missouri.
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Funding Announcements
General Medicine raised $120 million for its healthcare store. a16z led the round, with participation from Lilly and Mercy Health (via Granger Management) and others. I already discussed this above, so I won’t go into much more detail here, but it’s worth keeping a close eye on this company.
Healthleap, an AI tool for identifying malnutrition in hospitals, raised $38 million. This funding round comes at a fascinating point in time, as Healthleap’s product sits squarely in the middle of the broader macro question of how much hospitals use AI for clinical documentation versus actually improving clinical care. Healthleap presents its results at Penn Medicine as a case study, which highlights this dynamic. The case study reports that Penn Medicine saw a $24 million financial impact from this tool, driven by $6.3 million from a 21% increase in malnutrition diagnoses and a $17.5 million improvement in the hospital's risk-adjusted length of stay. I’d suspect the $6.3 million from increased malnutrition diagnoses is driving hospital adoption here, as that is clear, hard ROI for a hospital. An improvement in risk-adjusted length of stay seems softer; as someone who led a data analytics team in a previous life, I have seen firsthand how a metric can point one way in the real world, but as soon as you risk-adjust it, it points the exact opposite way. Getting to the bottom of what is happening from a length-of-stay perspective and what a hospital is actually doing differently after a malnutrition diagnosis seems like the key question to evaluate here. If the answer is not much, that seems like an issue, as this starts to feel like a coding game. If the answer is that these patients are getting better care, that obviously seems like a good thing. Either answer, the evaluation here starts with getting to the bottom of that question.
Vitalize, an AI-centric hospital staffing platform, raised $31 million. Oak HC/FT led the Series A, and shared their investment thesis here. The press release notes that a large health system can spend $100 million annually on overtime and agency labor, which seems like a straightforward opportunity for AI to streamline the costs.
What I’m Reading
As usual, Trilliant’s annual trends report provides a data-driven deep dive into the macro trends in American healthcare. This report centers around the idea of the tragedy of the commons, and how the “system” is one where a variety of individual actors maximize their own near-term self-interest at the expense of the common good. Trilliant’s CEO Hal Andrews followed up the report with a blog post adding context and emphasizing an underdiscussed trend in American healthcare: the reallocation of financial risk from the Federal government to various stakeholders in the healthcare ecosystem, citing TEAM and CJR-X as examples. It is well worth spending some time with both the trends report, as well as Hal’s blog post, and pondering what you think about this idea that he shares at the end of it:
At this late hour, I fear that “healthcare for all” is the most likely outcome of the health economy’s tragedy of the commons. I also have no doubt that “healthcare for all” will keep all the things that Americans hate about the current system and eliminate most of the few things they like.
I tend to agree with Hal’s conclusion, although the specific details will matter quite a bit for the various stakeholders involved. We discussed a related topic in the HTN Slack this week: the likelihood that Medicare for All will become the dominant campaign issue in the 2028 presidential election (personally I’m netting out on it being the 2032 election, mostly because Zeke told me that’s when he thinks it will happen and he’s smart). Whether it’s 2028 or 2032, this conversation feels like the most consequential conversation for American healthcare over the coming few decades.
Picking up on the topic of healthcare-for-all and government rate setting, the Manhattan Institute’s Chris Pope shared a critical perspective on Maryland’s efforts to set hospital prices and how the impact of capped hospital budgets has resulted in slowed growth of hospital expenditures, but by reducing the amount of care delivered, and specifically reducing access to the most expensive surgical procedures. Like all things in healthcare, it is worth considering the Iron Triangle of tradeoffs when thinking about these topics, and the decisions around cost / quality / access are fairly predictable.
Duncan Greenberg penned an interesting essay looking at how entrepreneurs are building in the clinical AI space for a future state where the regulatory challenges of today are solved, laying out nine different models he is seeing start to emerge. It’s a helpful framework to think about the various clinical AI efforts underway and what different companies are up to.
KFF released a report looking into a Slack group that CMS created in August 2025 for a Technology Working Group, including a number of startups, AI companies, and venture firms. The report takes a critical view of the outsized influence this group might have on policy around clinical AI. Personally, I look at efforts like this as generally a good thing that the federal government is trying to engage with and learn from the startup community on how to drive positive change. I also appreciate the other side of this being that it invites concerns over the influence these conversations have, and that the processes we have in place about how federal policy is shaped are there for a reason. I mostly think this is an interesting narrative to watch coming out of the midterms — if Democrats win the House, as seems to be expected, CMS innovation efforts, particularly around clinical AI, seem like a natural topic for the political crosshairs.
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