Weekly Health Tech Reads | 5/12/24

Lots of earnings calls (Oscar, Clover, Privia, agilon, etc), Cerner's declining sales, and more!

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Q1 Key Earnings Takeaways

A rundown of key strategic takeaways from earnings calls this week

Oscar’s shares jump as it turned a net profit in Q1 for the first quarter ever

Oscar saw its stock jump almost 20% on the week as it turned a positive net income during the quarter. Over the last six months, Oscar’s stock is now up 218%.

Going Deeper:
Oscar’s core ACA insurance business certainly appears to have found its footing as the business generated $177 million of net income for the quarter, up from a $40 million net loss a year ago. At a time when so many narratives in the health tech innovation space are going sideways, it’s refreshing to see a company that’s nailing it like Oscar.

One interesting development to note from the quarter is that Oscar is ending its Oscar+Cigna partnership for small group businesses. Bertolini shared the rationale: it is hard to make a profit off an insurance product when you have two entities involved. Elsewhere in the call, Oscar noted that ending this partnership will negatively impact revenue by $250 million to $260 million for the year but have almost no impact on profitability.

  • Between the profitability challenge and the ICHRA opportunity — which Oscar also brought up on the call as potentially 70 million lives — it makes sense that it was time to move on from the Cigna partnership.

The next hill for Oscar to climb as the ACA business stabilizes will be demonstrating consistent growth beyond the ACA product. An analyst already asked Oscar this quarter about whether they’re now a one-product business. Oscar continued to reiterate its plan for growth in ICHRA, provider-sponsored Medicare Advantage plans, and the +Oscar platform. We’ll hear more on these strategies at the investor day in June, which should make for an interesting session.

Links:

Clover’s Medicare Advantage business performs well; buys back $20 million in shares

Clover posted a solid quarter financially for the insurance business, with a positive Adjusted EBITDA in Q1. It also increased its FY 2024 Adjusted EBITDA target to $10 to $30 million.

Going Deeper:
Clover is in an interesting strategic spot at the moment. The insurance business is finally close to achieving profitability. Clover has an interesting hypothesis about its ability to successfully manage PPO lives via the Clover Assistant and Clover Home Care. Yet despite that, Clover isn’t really a Medicare Advantage insurance business any longer.

Clover makes it clear they are a physician enablement business. Based on the earnings call it appears to be in the very early stages of attempting to package its Clover Assistant and Home Care capabilities to sell to third parties as a way to successfully manage a PPO product like Clover. Clover indicated as much during the earnings call, sharing that It formed a new affiliate entity during the quarter to unify its “non-clinical quality improvement services offerings” in New Jersey and eventually sell those offerings to third parties.

Details were vague on the approach, but it seems pretty clear that Clover is moving towards selling its platform to other payors. I’d imagine we’ll see Clover attempt to target provider organizations seeking to manage risk — it seems like a logical target given Clover’s offering. After all these years, it seems like a return to Clover’s roots as a tech partner for a provider-owned MA plan.

Links:

agilon revises 2024 membership targets downwards as it exits and amends unprofitable capitation agreements

agilon continues to play defense as it attempts to right the ship, taking actions to exit markets and move toward profitability. agilon spent a lot of time on the earnings call talking about how it has revised capitation agreements with payors and the implications moving forward.

Going Deeper:
agilon’s call hinted at the level of change that they’ve been working through with both payors and providers in the last quarter. In opening remarks, agilon shared that they’ve been able to:

  • Negotiate off-cycle rate increases with payors

  • Receive retroactive relief on prior year medical margin losses

  • Exit an unprofitable MA contract in a mature market on June 30

  • Exiting a market and unwinding its payor and provider relationships there

agilon attempted to paint these moves in a positive light, sharing that the decisions were made mutually with payors and providers and will help the business on its path to profitability. But it doesn’t really feel like a satisfactory answer. Ultimately, these are still two counterparties in a negotiation, and the answer can’t really be as simple as “hey we’re on the same side”. Because they’re not. It’s interesting to think about the negotiations that would have led to these results - you can imagine payors want to continue supporting independent primary care as a hedge against health systems from a cost perspective, and so are willing to make adjustments to help out. But how far does that go, particularly if the environment gets worse over the next 18 - 24 months?

It’s going to be worth watching the impacts of these moves over time for an organization like agilon, both for their payor and also their provider relationships.

Links:

Privia highlights a shift away from capitation as it focuses on profitable contracts for PCPs; reiterates 2024 guidance

Privia reiterated guidance for 2024, noting in prepared remarks that it feels well positioned to benefit from a dislocation in the provider enablement market.

Going Deeper:
Privia and Agilon continue to provide for an interesting foil as MSOs taking two very different approaches to VBC. Both companies highlighted the need to renegotiate capitated contracts with payors. And both shared with Wall St that they have successfully done so. But while agilon’s focus was on negotiating better terms within a capitated contract, Privia has been moving away from this concept. This quote from Privia’s CEO during the earnings call I think provides a fascinating insight into how they view taking risk:

And we are happy to take all the risk we can downstream as long as we are getting paid and our providers are getting paid to take that risk. And I think that's where you're going to see some challenges where we clearly see the payers being challenged with the upcoming v28 impact as they revise their bids and so on and so forth.

So while they adjust, it's going to be a discussion on how they are going to enable provider entities like ours downstream and are they willing to share some of the upside and economics from us taking risk. So we are willing and capable of taking as much risk as possible. We just have to be thoughtful and take it as long as we're getting paid to do so and there's a positive adjusted EBITDA and free cash flow impact both for our providers and our shareholders.

- Parth Mehrotra, Privia Health CEO

As I read that quote, it strikes me as a funny definition of risk to me. It sounds like Privia is essentially taking the position that they happy to take “risk”, so long as they know they will be profitable on it. Which… kinda definitionally doesn’t sound like there is any risk.

To be clear, it seems like a smart strategy for Privia, so long as payors are willing to partake. But it also underscores the depth of the financial challenges the VBC market faces when smart provider orgs are only willing to take on “risk” when they know it will increase profitability.

Links:

Other Q1 Earnings Calls Rundown

Rundown of key earnings takeaways

Charts

Compelling visuals that help convey data, trends, or topics

Cerner struggles inside of Oracle

Bloomberg did some solid reporting this week on the current state of Cerner two years after it was acquired by Oracle for $28 billion. The chart above highlights how Cerner revenue has declined substantially, to pre-acquisition levels.

Other News

A round-up of other newsworthy items

Equinox has launched Optimize by Equinox, a new $40,000-a-year membership tier focused on longevity. Equinox is partnering with lab-testing startup Function Health to launch the service. The service will also include personal training, sleep coaching, nutrition planning, and fitness testing. As I mentioned in Slack this week, I understand the logic behind why organizations like Equinox stand up a model like this, but am skeptical that there is enough market demand to sustain these types of concierge offerings over time. Link

Ascension was hit by a ransomware attack this week, resulting in the organization pausing a number of procedures and diverting emergency medical services at several hospitals. Link

Home health provider Enhabit announced this week that its strategic review has concluded and the business will remain an independent entity. The focus of the strategic review was on finding a partner to acquire Enhabit, but no formal offers were submitted to purchase the company. This article does a nice job highlighting some of the headwinds the business and macro environment have been facing, and why some progress internally gives some optimism moving forward.

agilon announced its new provider partnerships for 2025. It is expanding with five new provider partnerships in 2025, four of which are expansions in existing markets. The new market will be Illinois, which agilon is entering in partnership with Springfield Clinic. agilon is adding two partners in Minnesota — Mankato Clinic and Twin Cities Network. It is also adding Graves Gilbert Clinic in Kentucky and an unnamed practice in North Carolina. Link

Steward Healthcare formally filed for bankruptcy as it has over $9 billion in liabilities. Steward is putting its hospitals up for auction over the next couple of months. Link

  • One of the interesting perspectives on this bankruptcy came during the Health Catalyst earnings call. Steward is a client of Health Catalyst, representing <2% of Health Catalyst revenue. Health Catalyst shared with analysts that hospitals are open, Health Catalyst is getting paid, expects to get paid through the bankruptcy proceeding, and then beyond the bankruptcy.

The Vitamin Shoppe is getting into the GLP-1 telehealth business, offering a D2C subscription for GLP-1s including Ozempic and Mounjaro. Link

Funding

Notable startup financing rounds across the industry

Rad AI, an AI company helping automate radiology reports, raised $50 million led by Khosla Ventures. Link

Sift Healthcare, an AI-powered revenue cycle management platform, raised $20 million. Link

Backpack Healthcare, a virtual pediatric practice for mental healthcare, raised $14 million. The company is focused on Medicaid populations and currently operates in Maryland and Virginia. Link

Blackwell Security, a startup providing cyber security solutions to healthcare organizations, raised $13 million. Seems like a very timely capital announcement. General Catalyst led the round and the press release mentions that the Health Assurance network will be a design partner here, but curiously none were mentioned as clients. Link

Humanaut Health raised $8.7 million for a new membership-based longevity clinical model. It appears they’re building physical clinics starting in Austin TX later this year. Link

In-House Health, an AI-powered nurse staffing platform, raised $4 million. Link

Writers Guild

Thought-provoking posts from the broader healthcare community

It’s time to end the Medicare-Medicaid merry-go-round by Rachel Werner
This was an excellent perspective of the state of Duals plans and the challenges patients face from the lack of integration between Medicare and Medicaid. It offers up a few helpful guiding principles for policymakers as they attempt to improve Duals offerings.

50-State Survey of Telehealth Insurance Laws by Nathaniel Lacktman, Jacqueline Acosta, and Jessica Warwick
This Foley & Lardner report highlights changes in telehealth regulation on a state-by-state basis before and after the public health emergency.

The State of Payer Patient Access APIs by Brendan Keeler
A helpful deep dive on how payors and vendors are supporting payor APIs.

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