Weekly Health Tech Reads 6/9/2024

The federal government takes lawsuit Ls, Oscar's investor day, BCBS KC exits MA, and more

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NEWS

CMS is sued over broker compensation rule changes

Per the HealthcareDive report, this is the fourth lawsuit over CMS changes to broker payments. In this lawsuit, AmeriLife, an FMO in Florida, argues that ambiguity about CMS’s rule on broker payments has torpedoed the FMO business model. The case seeks to distinguish payments that FMOs receive from insurers for broker training purposes versus payments that go directly to brokers. It acknowledges the latter (payments to brokers) can be curtailed by CMS, but argues that the payments to FMOs for training purposes should still be allowed.

  • Ambiguity around whether those payments are allowed by CMS is leading payors to hold on agreeing to make these payments for the 2025 plan year, which form a key part of AmeriLife’s revenue.

✍️ Going Deeper

Page 15/16 of the case provides an interesting strategic glimpse into the ripple effects of this change. AmeriLife’s lawyers suggested that CMS’s decision could cause insurers to decide to employ brokers — something we’ve already seen CVS do via its acquisition of Hella Health. Here’s the section of the case that suggests this:

Unsurprisingly, AmeriLife argues that this shift back towards a captive model would be counter to the public interest because brokers would be incentivized only the insurance plan that they work for. It seems like CMS would have an interest in avoiding that outcome, as noted in the case.

Still, I’m not sure I fully buy the argument that the payments to AmeriLife are a public good because AmeriLife spends those dollars on training brokers. It seems that AmeriLife has built a nice business relying on a revenue stream from payors, and that revenue stream is now in jeopardy for 2025 given the ambiguity of the CMS rule. Either way, will be interesting to watch what unfolds here.

PUBLIC MARKETS

Oscar’s Investor Day highlights ICHRA growth and more questions than answers on +Oscar

Oscar shared its latest three-year strategic plan with investors at its annual Investor Day on Friday. The strategic plan is centered around driving the business to a 5% operating margin by 2027 while hitting 20+% annual revenue growth. Below are a few initial takeaways from the session; HTN members can expect a full breakdown in the coming days.

✍️ Going Deeper

Two key slides stood out to me as I listened to the session on Friday:

1. The impact of enhanced subsidies and ICHRA on the individual market

The slide above provides a good glimpse into a couple of key topics for the exchanges: subsidies and ICHRA.

  • Subsidies. Eyeballing the slide, you can see that if enhanced subsidies are not extended, Oscar expects the ACA market to shrink slightly between 2024 and 2027, going from just under 22 million lives today to slightly less than that. If subsidies are extended, Oscar expects the individual market could grow by an additional 7 million lives to 31 million lives by 2027.

  • ICHRA. Oscar appears to expect that the ICHRA market will account for two to three million lives in the ACA by 2027 just doing the math based on the numbers below. Oscar notes elsewhere in the investor day that it believes the ICHRA market opportunity is 75 million lives.

2. How important is +Oscar really to Oscar’s strategic plan?

The narrative around +Oscar’s potential was a bit confusing during the session. Bertolini made a point to cite the existing $25 billion market opportunity that +Oscar has to sell Oscar’s technology to other health plans. It’s discussed throughout the investor day as a key strategic focus moving forward — but details are still scant on the commercialization strategy for +Oscar.

  • At one point in the Q&A, an analyst asked about +Oscar commercializing a use case for risk adjustment given the success Oscar is seeing there. Oscar shared it had considered this, but decided against it as Oscar doesn’t want to give away too much of a competitive advantage to other insurers. It seems like a telling answer in terms of the complexity at hand here.

The waterfall chart above was notable to me because it combines +Oscar with investment income as a category. It’s a bit odd to see a core strategic initiative lumped into the same category with money that is being earned on cash in the bank. Add on top of that, Oscar expects both of those levers combined to have less than one percent top-line growth over the next three years. How does a core strategic initiative with a product already in market contribute less than one percent to growth in a three year strategic plan?

The investor day continues to highlight that the +Oscar technology seems lightyears ahead of the rest of the insurance industry, but no real clear path to commercializing it in a meaningful way for the business. At some point +Oscar starts to feel like a distraction from the core narrative of a business that is performing well and has a huge opportunity in front of it in ICHRA.

WHITE PAPERS

KFF’s Medicaid 101 Explainer

A team at KFF put together an excellent explainer of the Medicaid program. It covers a number of topics on the basics of Medicaid. The chart above highlights the huge variation in Medicaid payments by state. Minnesota and Virginia are both over $11,000 per month, while Tennessee is the lowest at under $4,000 per month.

WHITE PAPERS

PHTI releases a relatively positive report on virtual MSK models

This report follows the PHTI’s widely circulated report questioning the clinical and financial impact of many virtual diabetes care models. Peterson’s findings here were much more favorable to MSK models, and in particular PT-solutions like Hinge, Omada, RecoveryOne, Sword, and Vori. The report goes way in depth on the market, offering some interesting tips for driving the further adoption of virtual MSK models: 1. integrating into medical benefits, 2. coordinating with providers, 3. tailoring solutions to patient needs, 4. taking value-based contracts, 5. publishing more evidence.

Other Noteworthy News:

  • BCBS Kansas City is exiting the Medicare Advantage market in 2025. It’ll instead focus on employer, individual, and Med Supp markets. BCBS KC cited regulatory and financial pressures as the drivers of the market exit, making it challenging to operate a sub-scale MA plan, with only 30,000 lives in the market.

    • Jared Strock posted a nice deeper dive into BCBS KC, noting that they ran at a 110% MLR on the MA business in 2023 and lost almost $40 million on the book of business. BCBS KC’s premium per member was also substantially lower than other plans.

  • This was a great perspective in Endpoints on Walmart’s decision to shut its care delivery business. The report suggests Walmart lost $230 million on the business last year, meaning it lost $4.5 million across each of the 51 primary care clinics it opened. Walmart expected to have almost 10,000 attributed Medicare Advantage members by January 2025, but it has struggled with patient acquisition and as of March 2024 only had 930 attributed MA members. That equates to roughly 18 members per clinic. And of those 930 members, only 546 had an encounter with Walmart in the last year.

  • SCAN Health Plan won its “tukeygate” lawsuit against CMS. This will bump SCAN’s Star rating for 2025 back up to 4 Stars, meaning it will receive an extra $250 million in quality bonus payments from the government. If you recall, much of the lawsuit centered around a single secret shopper phone call that went over a time limit that dinged SCAN.

    • This Modern Healthcare article was a good read on the potential widespread implications of the decision. Elevance has already won a similar case against CMS, and Zing Health and Hometown Health Plan have also both filed suit against CMS. It would appear every insurer is now evaluating whether it has a similar opportunity at hand.

  • A federal judge ruled against the FTC, finding that Novant can move forward with a $230 million acquisition of two Charlotte-area hospitals from CHS.

  • The New York AG and Northwell issued a joint press release sharing that under- and uninsured New Yorkers will have free access to care at Northwell and that Northwell will add staff to help patients apply for financial aid, reducing medical debt collections.

  • Senate Finance Committee Chairman Ron Wyden sent a letter to HHS Secretary Becerra urging HHS to take immediate steps to enforce cybersecurity standards for large healthcare organizations.

  • Waste Management is acquiring Stericycle, a medical waste disposal management company, for $5.8 billion.

  • Evolent acquired the utilization management assets of Machinify.

  • Health Catalyst acquired CareVive, an oncology platform.

  • Cohere Health partnered with Medical Mutual and Rhyme for utilization management technology.

Funding Announcements

  • Virtual MSK provider Sword Health raised $130 million at a $3 billion valuation. $100 million of the raise is a purchase of secondary shares from employees and early investors. The remaining $30 million will be used to fund growth.

    • Sword’s CEO commented that Sword’s eventual IPO could come in 2025 or 2026, dependent on macro-environment and Sword’s execution. Given the secondary sale here, it certainly appears that Sword shelved plans for a potential IPO this year, choosing to go this route instead. It’s a sign that while the market is showing some positive signs with Waystar and Tempus AI planning to go public, there is still significant uncertainty.

  • Eko Health, the maker of a digital stethoscope for the early detection of heart and lung disease, raised $41 million.

  • Sware, a software validation platform for life sciences companies managing the FDA software update process, raised $6 million.

  • Keragon, a HIPAA-compliant no code automation platform, raised $3 million.

Good reads from around the community

A New Kind of Primary Care Comes to America by The Tradeoffs Podcast
This is an interesting look into a new primary care model being built in Baltimore called Neighborhood Nursing, modeled after an effort first attempted in Costa Rica.
Read more.

Handicapping the Players in the Quest for Healthcare Affordability by Paul Keckley
Keckley shares his perspective on which healthcare players are the best equipped to address healthcare affordability. He rates insurers as the best equipped, and physicians and drug manufacturers as tied for the least equipped.
Read more.

10 lessons learned on fundraising ops by Betty Chang
A helpful practical resource for founders going through the fundraise process. Read more.

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