Weekly Health Tech Reads | 2/11/24

A flurry of Q4 earnings, Kaiser's AI-pilot results, Cohere Health co-creation, and more!


Discussing strategic implications from earnings calls this week

CVS Health posts a strong Q4, but reduces 2024 guidance on MA headwinds

On Wednesday, CVS's solid Q4 2023 earnings pushed its stock price up slightly, despite it needing to reduce its 2024 EPS guidance because of Medicare Advantage uncertainty. The MA headwinds were a large topic on the call, as CVS repeatedly emphasized it will be focusing on margin recovery in the MA insurance business in 2025. From CVS's CFO on the earnings call: "Beyond 2024, we are committed to returning our Medicare Advantage margins to our target of 4% to 5% while also preserving the projected returns on capital for our 2023 acquisitions."

That quote highlights the challenge ahead for CVS - how it both drives growth to support its 2023 acquisitions of Oak Street and Signify while also moving the MA business back to a target margin of 4% - 5%. CVS leaders shared that it expects the MA book of business to be "marginally profitable" in 2024. If you're following along with all the insurer earnings calls, this should invite some skepticism given Humana's earnings call - they also are projecting 0% - 1% profitability in 2024, but did not grow significantly, instead calling out CVS for growing rapidly by underpricing its product. So one of these two insurers is going to be wrong.

As has been reported already, CVS noted it expects significant growth in the MA market in 2024, growing by over 800,000 new members. CVS shared that it believes it is in a good position with these members financially, noting that 75% of them switched from other MA plans, and 33% are in D-SNP plans. CVS believes these new members will be neutral to earnings in 2024, and then will provide a tail wind in 2025 as CVS gets members coded and no longer has as much distribution costs. It is going to be fascinating to watch this year evolve for CVS as it learns about this population and attempts to move toward profitability with 2025 bids. CVS, similar to Humana and Centene earlier in the week, expressed its disapproval for the 2025 Advance Notice, noting that the rates are not sufficient, and specifically calling out the changes to Part D as a key challenge.

On the utilization front, CVS noted it is also seeing higher MA utilization, but that it is in the same categories it had been previously (which if you're tracking along closely is different than what Humana noted about the rise in inpatient short stay). As a result of higher paid claims in December, CVS is increasing its medical cost estimate by $400 million in 2024.

All of this combines to make 2024 a critical year for CVS leadership as it attempts to navigate a really challenging environment in MA. As the CFO highlighted above, they will need to balance driving to profitability on the insurance business while also growing the book of business enough to justify the Oak Street and Signify acquisitions. The challenge is that it seems those two activities seem like they are in direct conflict with one another. If you're on the team designing CVS's 2025 Medicare Advantage bid strategy, this all must make for a fascinating (and difficult) exercise to work through.

Relevant Links:

Centene's earnings call expresses optimism around exchange growth and signals it will cut back on benefits for seniors unless MA rates improve

On Tuesday, Centene posted a solid quarter and expressed optimism around growth exchanges, which resulted in them raising revenue guidance for the organization in 2024. Unsurprisingly, Medicare Advantage rate notice and utilization patterns were key topics of conversation, so much so that Centene's CFO felt the need to remind analysts that MA accounts for only 12% of Centene's revenue..

Turning to those other parts of the business, growth does appear solid in the individual exchange business. They took market share in the exchanges (from 23% to 26%) which given overall growth in the exchanges meant Centene did quite well. As echoed on other earnings calls, they're seeing a slightly younger demographic on the exchanges and view that a positive sign, meaning the gig economy is moving on the exchanges. ICHRA, which has also been generating a lot of excitement, is still very early. Centene leaders noted the Indiana ICHRA pilot just sold its first customer in January. In Medicaid, redeterminations is playing out as Centene expected; it will bottom out with 13.2 million members at 3/31/24 before rebounding to 13.6 million at the end of the year. They were pleased with some of recent contract wins, again noting the local approach Centene takes as the key differentiator for them.

Back on the MA front, Centene noted in prepared remarks that Advance Notice was "insufficient" and unless there is improvement in the final notice, it will cut benefits for seniors. On the utilization side, Centene shared it apparently hasn't seen any of the recent uptick Humana has seen, prompting numerous questions from analysts about the divergent narrative between Centene and Humana. This is where the call got a bit contentious as analysts were clearly trying to figure out what is happening in the MA market. The back and forth underscores the increasing level of confusion investors and analysts have in the MA market, seeking to understand what is going on - and it's not entirely clear that the insurers know all that well either given the conflicting narratives, and how quickly the narratives are changing. It's a problem for the space as a whole.

Relevant Links:

Oscar stock jumps as it continues to execute on the exchanges

Oscar's stock price is now up over 300% since it brought on Mark Bertolini as CEO almost a year ago as it continues to execute extremely well on the basics of getting the insurance company to profitability. It's quite impressive how routine Bertolini has made this transition seem, when only a little over a year ago Oscar stopped new membership in Florida and facing serious questions about its ongoing viability. Bertolini has done a great job setting expectations for analysts, and then meeting all of them.

Last March, Bertolini laid out three key objectives he was focused on. He has now hit the first by getting the InsuranceCo to Adjusted EBITDA positive in 2023. He's set the expectation that Oscar will hit the second objective by reaching overall Adjusted EBITDA profitability in 2024. The third objective, bringing +Oscar capabilities to market, remains the furthest away.

This earnings call felt pretty uneventful strategically, instead analysts were diving into a blocking and tackling conversation about how Oscar continues to execute on initiatives to squeeze margins out of the insurance business - things like renegotiating provider contracts, using LLMs to handle call volumes with less staff, PBM savings, managing payment integrity, etc. It's stuff you'd expect to hear on any insurance company earnings call.

The one piece of interesting dialogue was the analyst question about subsidies and what would happen if they go away. Oscar thinks that is unlikely given 63% of new ACA customers are in red states. If it does go away, Oscar expects that to primarily impact individuals in the 100% - 200% of FPL who have zero premium plans and are paying $60 - $70 a month.

There was almost no dialogue in this session about Oscar's next big growth levers, being ICHRA expansion opportunities and the +Oscar play as a white-labeled plan infrastructure for health systems. There was a mention in prepared remarks of how Oscar is serving 500,000 external client lives via +Oscar, but it felt like a side note in the conversation more than anything.

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Molina Healthcare highlights a positive growth story in exchanges & Medicaid, is also seeing challenges in MA

Molina's earnings call on the whole was positive - a solid Q4, and Molina is quite bullish on its (profitable) growth plans moving forward. They noted they have a $50 billion revenue opportunity in Medicaid bids in new states over the coming years. Similar to Centene's earnings, despite MA making up a relatively small percentage of Molina's overall business, the headlines coming out of the earnings call were that Molina saw higher than expected MA medical costs, although for different reasons. Molina seems to feel it has captured costs in its 2024 bid, as it expressed confidence in its ability to get back to mid-single digit margins in 2024 in MA, unlike the other players. Also similar to other insurers, Molina expressed that 2025 Advance Notice was insufficient, projecting a 0.5% rate increase on its legacy book of business (they're still figuring out the impact on the Bright membership).

The spike Molina has seen in MA costs was attributed to three things on the call: utilization of supplemental benefits (vision / dental card benefits were too rich in 2023), in-home care (specifically, in-home services (LTSS for duals), and high-cost drugs (GLP-1s were referenced). An analyst asked if Molina was seeing anything similar to other plans in terms of outpatient and Molina had a good explanation why they were not - Molina has a more complex population than other insurers. Molina's CFO also expressed his surprise as to why analysts are so intrigued by the two midnight rule these days; he views it as a non-issue. There was an interesting brief discussion on V28 and why Molina thinks that might be helpful for the polychronic patients they tend to have.

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

Sustainable payment rates for community health worker programs

Source: Financing Thresholds for Sustainability of Community Health Worker Programs for Patients Receiving Medicaid Across the United States, Journal of Community Health

This was a good analysis looking at the FFS and PMPM rates that would be needed to cover the costs of operating a CHW program. The chart above in particular provided a helpful visual breakdown of the various costs of operating a CHW model.

Kaiser shares positive pilot results with AI-scribe co-pilot tool

Source: Ambient Artificial Intelligence Scribes to Alleviate the Burden of Clinical Documentation, NEJM

Kaiser Permanente published a report in NEJM Catalyst discussing results from its pilot program leveraging Nabla's AI co-pilot tool for automating medical scribing. The Permanente Medical Group (TPMG) offered the tool to 10,000 providers in Northern California. In the 10 weeks since the program's launch, the ambient AI tool has been used by 3,442 TPMG physicians across 303K+ patient encounters - with 968 of those providers using the tool more than 100 times.

Milliman's hypothetical obesity center of excellence

The Milliman crew shared a report exploring the concept of creating an obesity center of excellence and unpacks the financial and operational considerations of launching such an initiative for employers. The high-level process for doing do is outlined in the chart above.


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

Primary care companies Marathon Health and Everside Health announced they are merging, creating a joint entity with 680 health centers across 41 states serving 2.5 million eligible patients. Everside most recently raised $164 million from NEA in 2022 as it had to scrap IPO plans in that market environment (Everside filed an S-1 in 2021 associated with those plans). NEA originally acquired Everside, then known as Paladina, from Davita for $100 million in 2018. I'd imagine part of the benefit here is getting to a level of combined scale that is appealing for a potential future IPO.
Link / Slack (h/t Samuel Lee)

Cano Health officially filed for Chapter 11 bankruptcy after a series of issues for the healthcare provider last year, ranging from board room changes, layoffs, and market exits. The bankruptcy filing shows Cano reports $1.2 billion in assets and $1.4 billion in debt.
Link / Slack (h/t Judhajit De)

Novo Holdings, the investment arm of Novo Nordisk, is set to purchase drug manufacturer, Catalent, in a $16.5 billion deal. The new purchase will provide Novo's parent company with additional resources to keep up with its high growth production of obesity and diabetes drugs.
Link / Slack (h/t Abigail Risse)

STAT digs into Devoted Health's financial filings history, highlighting how the insurtech company has yet to become profitable after five years of selling its MA plans. It's not necessarily surprising this is the case given the nature of building an insurance business - and frankly these losses are lower than I'd have guessed given the experiences of other health insurance startups. But it does invite questions about how long Devoted can continue to raise capital on the private markets at the valuation its at.
Link / Slack (h/t Samir Unni)

This was an excellent read from Elizabeth Rosenthal on GoFundMe and its role as a healthcare utility in this country. It makes some interesting points about some of the issues GoFundMe has with perpetuating social inequities and how many of the medical-expense campaigns fail to meet their goals.
Link / Slack


A collection of notable startup financing rounds across the industry

Ambience Healthcare, an AI-enable medical scribe, raised $70 million Series B to scale operations. The company's technology is currently used by several healthcare orgs, including UCSF, Memorial Hermann Health System, John Muir, GI Alliance, and more.
Link / Slack

Unlearn, a digital twin platform, secured $50 million in Series C financing to invest in employees, engineering resources, and R&D initiatives. The company is developing digital twins of participants to optimize clinical trials.
Link / Slack

Ezra raised $21 million in fresh capital. The company leverages its FDA-clear AI tech to enhance MRI imaging and early cancer detection.
Link / Slack (h/t Kevin Wang)

Aizon, an AI-focused SaaS platform for pharma manufacturing operations, raised $20 million in Series C financing.
Link / Slack (h/t Jordan McLean)

Headlight, a prescription mental health startup, raised $18 million. The company provides prescription medication following in-person or virtual visits with therapists or psychiatrists.

Rivia Health, a RCM platform, secured $3.25 million in Seed funding to enhance its solution and expand into new markets.


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

A brief thesis on Flare Capital's co-creation / investment in Cohere Health, a prior authorization platform, discussing the demand for these tools as the abundance of non-clinical staff outnumber frontline healthcare workers. The article digs into Cohere's positioning in the crowded prior auth market and argues why it emerges as a "utilization management transformer" among other players, like Availity, Change Healthcare, Carelon.

An interesting lens into what is wrong with primary care in the US, sheding light on the several non-profit orgranizations that seemingly have prioritized creating large fortunes at the cost of improved patient care. The piece discusses how a handful of these health systems have connected hedge funds that manage massive amounts of wealth, on the order of magnitude of billions of dollars and are home to executives that pull in million(s).

Inciting events by Katie McCurdy

A cool story diving into visual timelines of people's health stories with the aim of identifying an "inciting incident" that kicked off a cascade of health issues to follow. It discuss various examples of health issues - like Covid-19, lyme disease, shingles, and mono - and the cascading health outcomes that followed for these individuals.

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