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Editor’s note: I’m taking a slightly different structure in this edition of the weekly newsletter, focusing on the five things I spent the most time thinking about this week. The amount of news that came out this week was bananas, so this was the best way I could think of to keep this edition manageable.
I’ll plan on going back to normal next week, but lmk if you like this approach more.
Happy Sunday!
- Kevin
Vertical Integration
1. CVS splits out CVS Pharmacy from CVS Health
Chances are you’ve already heard plenty of opinions on the merits and motives behind CVS’s announcement that it is separating the CVS Pharmacy retail assets from the rest of CVS Health.
Source: CVS Q3 Investor Update Presentation
It appears I’m one of the few folks who think this is an astute strategic move for CVS, given both the stock market drop and social media reactions I’ve been reading this week.
As I embark on sharing why, I think it’s worth paying attention to what CVS shared in its earnings release as the rationale for the deal. CVS was in a distressed spot only two years ago, with Aetna initiating a turnaround across the business and retail projecting a 5% decline. Over the past eight quarters, it has consistently outperformed in executing on the turnaround. CVS also shared on the earnings call that it expects to be at the high end of its long-term earnings growth targets through 2028.
Given that performance, CVS clearly feels it is operating from a point of strength at the moment, as it stated on the call. It is equally clear that the market reacted with shock, questioning the logic of both the timing and the details of this announcement. CVS leadership and the Board surely had enough advisors to anticipate this reaction from Wall Street and DC. So why make this decision now?
I don’t read it as a disintegration play; rather, I see it as CVS smartly focusing its vertically integrated model on managing both medical and pharmacy costs for high-acuity populations, where it should win given cost trends in American healthcare. CVS, of course, needs to execute and prove out this case, which it clearly believes it can do. To me, this reads as CVS doubling down on this as the winning approach, and it also suggests confidence in its ability to work through near-term political headwinds. Clearly, CVS considered the risk of state and federal legislation here, but this split doesn’t fully address the state issues raised around PBM/pharmacy ownership, let alone the care delivery and insurance components that are all still under the CVS Health umbrella. If CVS were particularly concerned that further legislation would dismantle the remaining asset, I’m not sure why it would make this decision now rather than a larger move that would have proactively dismantled the vertically integrated structure. Instead, it makes more sense to announce this now because you’re confident doubling down on vertical integration is the winning play to support healthcare needs for high-acuity populations in the years ahead.
As part of this focus on managing costs for high-acuity populations in CVS Health, it is also spinning off a retail business that apparently hasn’t seen much benefit from vertical integration. This is perhaps the more surprising portion of the news, given the challenges in retail and the perceived benefit of integrating with the PBM. But as CVS made clear on the earnings call, it doesn’t actually think it has seen much benefit from retail being under the same ownership as the rest of CVS, and it thinks it can achieve similar benefits as separate entities. I’d imagine the biggest question CVS was asking itself in this move was the standalone viability of CVS Pharmacy, and the business's recent outperformance is a big part of why we’re seeing this move now.
That question about the standalone viability of CVS Pharmacy also helps reconcile what was perhaps the most confusing part of the announcement to me: the outsized role that Health100 played in the overall narrative. Here you have a consumer app that has just been launched, yet it is referenced multiple times in the press release and earnings call, with CEO David Joyner at one point referring to it as the connective tissue between the two organizations moving forward.
It’s an odd amount of pressure to place on a relatively nascent initiative in the business, which I think is telling of the opportunity that CVS is trying to paint for CVS Pharmacy ahead. CVS Pharmacy is clearly positioning itself as an AI-centric marketplace for consumers to access healthcare services. I’m not sure I’m as bullish on this part of the narrative; CVS still has a lot to prove out here given how early Health100 is and the growing competition in this market. But what is clear is that having a footprint of 9,000 retail stores in local markets will help position that brand as a multi-modal access point for healthcare, and presumably decoupling from a managed care brand will help it move faster as a marketplace.
On the whole, I think that making this specific move, and making it now, is ultimately a very bullish move for the vertically integrated assets under CVS Health, and a potentially bullish move for CVS Pharmacy as well, while also serving as an acknowledgment that the benefits of an integrated retail play with the PBM and insurance assets were overstated.
A book excerpt for your Sunday coffee:
On retail integration, I think it’s worth going back and reading the excerpt from Mark Bertolini’s book on why he sold Aetna to CVS in 2018 (and had previously tried to merge Aetna with Humana so it could be the acquiring company). It was a bold vision to bring together retail and insurance assets to rethink healthcare, though it clearly didn’t materialize in this iteration. The logic is still appealing, and I suspect someone else will make a similar case to Bertolini’s at some point. Interesting to ponder if it would have played out any differently had Aetna been the acquiring entity instead of CVS.
Midterms
2. What’s probable / plausible / possible for healthcare after the ‘blue wave’ midterms
Wednesday’s Daily Brief for HTN members went deep on our early read of the implications of the midterms after the blue wave:
What’s probable / plausible / possible:
Probable: more congressional scrutiny of CMS, including controversial programs like WISeR; a continued focus on market-based solutions as well as VBC
Plausible: Medicaid Expansion in a handful of states
Possible: significant changes to OBBBA
Changing state trifectas. We’re also keeping an eye on state “trifectas,” as Democrats gained at least five state trifectas while also breaking a few Republican trifectas.
Our 🚨 Emergency Pod 🚨. Martin, Rae (HTN’s newest team member!) and I chatted live on Wednesday morning about the election implications (and the CVS news!).
EHRs
3. athenahealth’s Thrive Summit highlights the agentic unlock in the EHR market
A few weeks back in this newsletter, I mentioned how Instinct’s CEO shared on Invest like the Best that AI is fundamentally creating a new UX/UI layer for accessing information from the internet. I found myself thinking about that concept again while attending athenahealth’s annual customer conference, Thrive Summit, in Nashville earlier this week. If you frame agentic AI as unlocking a fundamentally new UX/UI for clinicians to interact with the EHR as a system of record, it feels like the utility of the EHR could expand dramatically, very quickly.
My general sense leaving the Thrive Summit is that even athena is surprised by how quickly its agentic AI capabilities are advancing as it rapidly expands the capabilities of Sage, its agentic AI assistant. athena is deploying new products across front office, clinical, and back office workflows. As just one example, check out this video from the main stage highlighting a VBC workflow about how a clinician can go from identifying gaps-in-care to deploying a patient engagement campaign in under two minutes. As a VBC nerd who spent years toiling away in VBC data analytics platforms before I started writing this newsletter, capabilities like this seem like an incredible unlock:
The feature expansion is coming so rapidly that the rate-limiting factor doesn’t feel technical; it’s how quickly practices, and the market more broadly, can adopt these tools and features.
In a macro environment where the ambulatory setting feels more strategically important than ever, and we may be at peak physician employment in health systems, it seems like a strong strategic position to be the trusted technology partner for ambulatory practices.
Disclosure: athena paid HTN to attend the Thrive Summit; opinions above are mine
Insurance
4. Devoted’s impending commercial insurance launch
On Monday, I wrote a post highlighting a few recent clues that indicate that Devoted is gearing up to launch a commercial insurance product in the large-group ASO market. Needless to say, it’s a bold move given how complex each market is to operate in. But between Devoted’s moonshot-y narrative and current valuation, it makes sense that it needs to place big bets like this to justify both of those.
Given the difficulty of this move, there is ample reason to be skeptical here. I will be watching three things in particular:
How does the C-SNP engagement engine translate? Devoted appears to have discovered a unique engagement opportunity in C-SNP, as attestation requirements drive engagement with its Devoted to Me visit, which in turn opens up access to a virtual ecosystem that drives the experience. The employer market is notoriously much harder to engage and will require different approaches from Devoted. It’ll put to the test how much of Devoted’s success is tied to C-SNP.
How does Devoted’s industry brand halo translate? Devoted appears to have a relationship advantage in the MA market with brokers and providers as it doesn’t have the historical baggage that other insurance brands carry after years of negotiations and strategy shifts. Moving into commercial is a play that risks making Devoted feel more like a typical insurer, and it is now entering a new market of benefits leaders. This will show up across both go-to-market partnerships and network conversations.
Do vertically integrated headwinds impact Devoted? Devoted is a vertically integrated model scaling at a time when vertically integrated models are under heavy scrutiny both in DC and on social media feeds. Devoted is clearly attempting to displace the large incumbents while staying relatively under the radar as a private company, but will political blowback come its way as it scales? Mark Cuban is now taking potshots at Devoted on X, which may hint at the answer, as this feels like a rite of passage for any scaled vertically integrated player in healthcare.
If Devoted can navigate those challenges, success in the large group ASO market would put it in a different competitive set than it is today. Right now, it’s still in a peer group with Clover, Alignment, and Oscar as a successful, growing single-line-of-business insurer. Succeeding in large group ASO, however unlikely it may be, would put it more in the Fortune 50 comp set alongside UHG, CVS, Cigna, Elevance, Centene, and Humana.
That ambition is what I think makes Devoted perhaps the most interesting bet in the healthcare services private markets right now, even if I’m not particularly convinced it has a high likelihood of success.
Speaking of large group commercial market innovation, also check out a few recent interviews from us:
Centivo’s CEO Ashok Subramanian on the evolution of its virtual-first insurance plan offering for the large-group ASO market
Included Health’s CEO Owen Tripp on how it is approaching building an alternative health plan following its Firefly Health acquisition
Aligned Marketplace’s CEO Patrick Nelli on building a network of advanced primary care clinics for large employers
If one thing is clear to me from all of the above, it’s that there is a massive opportunity afoot to help large employers rethink their insurance offerings in a way that preserves access to quality care while managing cost trends.
Q3 Earnings
5. Earnings rundown: a beat-and-raise quarter across the board
Beat-and-raise quarters were a consistent theme among the batch of healthcare services earnings calls this week, although stock performance varied based on outlook looking ahead into 2027. Lets run through the key calls:
Hinge continues its solid performance as a public company as it approaches $10 billion in market cap, its stock up almost 200% since its IPO in May 2025. It beat the high end of its revenue guidance for Q3 by 4% ($235m vs $225m), driven by a higher yield of members enrolling in programs. Its entry into the SMB market is going quite well, as it has now closed nearly 1 million lives in that market.
The customer “stampede”. Hinge noted more clients switched to it from competitors this year than all others combined; indicative of the strength of its product offering.
Omada shares fell almost 20% on Friday despite a beat and raise quarter, which Omada referred to as its strongest quarter ever.
GLP-1 coverage uncertainty. It appears that uncertainty around employer GLP-1 coverage ahead weighed on the stock, as Omada is seeing its selling season extend into Q4 as employers evaluate their approaches.
Progyny stock jumped after a beat and raise quarter in which it noted its strongest selling season ever, and it appears Progyny Rx is a key part of this success in market.
A competitive reset in women’s health. Progyny noted in prepared remarks it is seeing rationalization in the market as competitors that are not profitable, not operating at scale, or not controlling cost trends are exiting or paring back.
Doximity continues to show impressive momentum in its AI offerings, though its stock fell after earnings, seemingly on gross margin compression from AI costs. Doximity clearly sees a seismic shift of pharma dollars away from paid search, where pharma has historically spent $14 billion per year on Google.
Pharma’s shifting budget priorities. Doximity referenced a new survey done by BofA of 35 pharma marketers, asking where they would spend incremental marketing dollars with if they had more budget. Doximity was apparently the answer 28 times, with only 2 saying paid search / Google.
Oscar’s stock fell despite reporting another beat-and-raise quarter, seemingly quieting the post-election ACA momentum for 2027. Oscar said it expects overall exchange enrollment to be flat in 2027, though it is pricing in higher acuity due to program integrity requirements. It still expects to grow membership as it grows market share, both via its market expansion and other plan exits.
ACA politics. A few analyst questions came in about the political implications of the blue wave. Oscar doesn’t appear to expect enhanced subsidy expansion in time for 2028, as it would be part of a broader negotiation between Congress and the administration. It continues to push on CHOICE plans at the state level and a universal health wallet at CMS.
Humana jumped after earnings on Friday, as management beat-and-raised, while noting that margin recovery is tracking ahead of plan as it continues to outperform market expectations for 2026. It appears that Humana is confident its 2027 product positioning is in line with expectations, and will deliver margin improvement that puts it on track to achieve its 3%+ target margin in 2028. It now expects to grow membership in 2027 after previously predicting flat to a slight decline.
Can an MA business perform too well? Humana shared it expects a one-time benefit in 2028 as a result of its Stars outperformance, as it achieved top-decile results for payment year 2028, and is only building towards top-quartile moving forward. This prompted analyst questions about how to model the general path of recovery and why not aim for top-decile results all the time. These seem like first class problems to have, particularly given the tenor around Humana’s approach entering 2026.
Cigna beat and raised for 2026, although it signaled headwinds in 2027 in the pharmacy business between rebates and GLP-1 coverage declines in the employer market. The specialty business continues to rip, with Cigna noting it is building its fifth clean room to mix and compound specialty medicines, which it refers to as one of its most durable competitive advantages in the specialty market.
The ACA exit drag. Cigna had to repeatedly mention on the call that 2027 earnings growth will include a $200 million drag from exiting the ACA. While Cigna is clearly focused on the employer market, it’s worth pondering whether it wishes it had kept a foot in government programs given the improved profitability in the ACA this year is now creating a drag on 2027.
Clover beat and raised, noting it now expects to reach GAAP net income profitability in 2026 for the first time. 2027 AEP is tracking as expected, with Clover seemingly happy with its PPO positioning in its core markets (NJ and GA). It’s expecting significant member growth in those markets, raising profitability questions.
Counterpart remains vague. Clover shared it is making strong progress toward serving as many people through Counterpart as through Clover, but overall it was a non-update. It still feels very +Oscar-y to me; cool technology that is hard for a public managed care company to justify as a standalone reporting segment.
Privia’s stock jumped this week after beating and raising guidance. Privia noted it will be investing in adjacent lines of business and new capabilities over time as it continues to grow, which could potentially include more transformational M&A ahead.
Taking more risk for a reason. Privia continues to inch further into the VBC market, announcing the acquisition of American Choice Healthcare, a subsidiary of Cano Health that has 36,000 attributed lives in the MSSP program for 2027. Privia is paying $36 million, roughly $1,000 per MSSP life. Given Privia’s circumspect approach to VBC contracts historically, it seems like a good signal for MSSP.
Agilon beat and raised on a solid Q3, with its stock jumping 33% this week. Agilon continues its impressive turnaround after a challenging 2025; its stock price is now up 580% over the last year.
2027 ACO growth. Agilon expects ACO membership to grow 40% to 50% in 2027, with most of that growth in MSSP, as practice partners expand from MA into MSSP.
Astrana posted a solid quarter with core underlying performance, although its stock dropped seemingly over concerns about Medicaid trend and disenrollments in 2027.
Medicaid disenrollments. Astrana guided to the higher end of its 10% to 15% membership drop range for Medicaid disenrollments next year, creating a single-digit EBITDA headwind in 2027.
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