Announcing Differential, an invite-only gathering for 100 of the most promising early-stage health tech founders, hosted by Health Tech Nerds and presented by Oak HC/FT.
What does it take to build a resilient health tech company when AI, policy, capital markets, and buyer behavior are all shifting at once?
We’ll help answer that question through closed-door conversations with Mario Schlosser (Oscar Health), Toyin Ajayi (Cityblock), Kate Ryder (Maven Clinic), Jacob Shiff (CMMI), Vincent Tammaro (Mount Sinai), and more, with many opportunities to connect with other ambitious founders before, during, and after the event.
Apply to join us on October 1 in NYC. Applications close September 9.
Big thanks to our sponsors Oak HC/FT, Davis Polk, Lazard, and Lorikeet.
The No Surprises Act Saga
San Antonio’s No Surprises Act conundrum
I’ve been fascinated by a story I came across from Texas this week, where the city of San Antonio's employee health plan is apparently running $40 million over its $250 million annual budget for 2026. The city believes this is due to Prestige Emergency Rooms, a chain of four EDs in San Antonio, beginning to leverage the NSA IDR process towards the end of 2025.
While Prestige operates only four out of the fifty emergency rooms in the San Antonio area, it accounts for 53% of the ED volume for the city’s 28,000 covered lives. Prestige’s prices have roughly doubled under the IDR process, and it is winning 99.6% of the cases it sends through the IDR. Prestige argues it is simply being paid a reasonable rate now, after being historically underpaid under BCBS rates, a common argument from providers supporting IDR outcomes. Meanwhile, the article suggests there is some gamesmanship potentially occurring by Prestige, as city employees have reported that they use Prestige because it waives deductibles and co-pays for individuals, an effective strategy when you’re able to leverage the IDR process to collect double from the employer.
It all raises a question — what do you do now if you’re the city, as you’re sitting 16% over budget for the year because of a single provider group that all your employees seem to love? The city manager apparently sent a memo to employees in May, letting them know that the plan was already $20 million over budget at that point in the year because so many people were using Prestige. In it, he encouraged employees to use hospital EDs rather than Prestige. That strategy has apparently not worked, as evidenced by the fact that only three months later, the budget deficit has doubled. The city as a whole is also apparently facing a ballooning budget deficit, making this all the more complicated. The city / BCBS are attempting to negotiate to bring Prestige in-network, but given Prestige is winning on both volume and price today, I’m not sure what incentive they really have to negotiate here. So in 2027, the city will begin increasing premiums for members to account for cost increases driven by the IDR process.
It provides a really good example of the real-world implications of the No Surprises Act IDR process. While the No Surprises Act has solved one problem with surprise billing, it is now causing another to crop up, as evidenced here in San Antonio. Providers seem to have realized the process is changing the negotiating leverage they have with payors, and all of a sudden can get double (or more!) the rates by funneling claims through the IDR process.
I’d imagine these types of conversations are only just beginning as well. As the Prestige example illustrates, it only decided to participate in the IDR process starting in late 2025. I’m guessing you could plot IDR participation among providers on an S-Curve, and the court cases legitimizing the outcomes here over the past several months are helping it cross the chasm from early adopters into more mainstream provider orgs as we speak. If you’re running a provider organization and seeing outcomes like Prestige, why wouldn’t you run the exact same play here?
It all gives off risk-adjustment-y vibes on the provider side, as the incentives clearly point to providers playing a game to get paid more, which will continue to overheat until there’s a v28-style change in the program's mechanics.
Medicare Advantage
Devoted Health is worth what? and other Medicare Advantage market moves
Late Friday afternoon, Business Insider reported that Devoted Health is raising additional capital at a $25 billion valuation, coming less than a year after it announced $317 million of funding at a reported $16 billion valuation. Depending on whether you still count Cigna, this would put Devoted as the fifth or sixth largest managed care company if it were public, surpassing Centene:
Source: HTN analysis, with help from Perplexity pulling balance sheet data
It’s an astronomical valuation for a Medicare Advantage insurance business if you look at the numbers today, given that Devoted has just crossed 500,000 MA lives this year. This implies a valuation per MA member at roughly $50,000 ($25 billion / $500,000), which is approaching the valuations we were seeing at the peak-ZIRP era MA. For comparison, Clover Health SCAC’d in 2021 with 57,000 members at a $3.7 billion valuation, an implied valuation of $65,000 per MA member. Today, Clover is worth closer to $2 billion, while it has roughly tripled its membership, implying a much more reasonable $11,000 per MA member. If Devoted were valued similarly, it would be worth $5.5 billion today.
At its current reported valuation, it essentially makes Devoted unacquirable in any reasonable sense. Sure, I guess an AI company would be capable, but I would hope it would quickly think better of adding a managed care PR nightmare on top of data centers. As we’ve talked about before in this corner of the internet, Devoted has made its bet pretty clear here — it thinks it can rebuild a modern managed care business that is a more effective partner to CMS than the other names on the list above, and if it achieves that, its valuation will climb to #1 on that list over the coming years as it takes share and becomes the dominant player not just in MA, but in every insurance market. Think a national Kaiser built for the AI-era. To get there, to say Devoted will have to grow quite a bit would be an understatement, and it seems we’ll see Devoted press down the gas pedal in 2027.
In Q2 earnings season, we heard Alignment Health’s CEO speculate that a few smaller carriers will come out of the woodwork in 2027 and attempt to take meaningful market share. This would seem like a pretty good signal that Devoted intends to be one of those carriers, right? I’d hazard a guess that Devoted’s MA book is meaningfully ahead of schedule from a profitability perspective at the moment, providing confidence in this growth strategy, based on two things:
2026 performance across the board in Medicare Advantage has been better than expected, with payors across the board beating and raising guidance, as the industry appears to have its arms around the trend
Devoted shifted heavily towards C-SNP products in 2026, which, along with D-SNP, appear to be a particularly profitable segment of the MA market
While I’m still hard-pressed to think Devoted is profitable at an enterprise-wide level given the level of investment it is making in care delivery, I have to imagine that its investors are quite pleased with where it is sitting halfway through 2026 compared to plan and are feeling confident that it can navigate the tradeoffs of growth and profitability in 2027. In some sense, this feels like a beat-and-raise scenario for a growing business in the private markets.
It all sets up a scenario in which Devoted appears poised to grow very quickly again in 2027, particularly as the incumbents continue to take more cautious positions that prioritize profitability — we’ve already heard both Humana and Centene indicate they will shed membership. We’ve seen this narrative play out before, and largely not well for carriers that attempt to grab share quickly. Devoted itself struggled in 2025 with the unprofitability of new membership. Yet 2026 seems to have performed differently than years past, notably with Humana proving everyone wrong as it has digested an influx of new members without destabilizing the overall business.
The fascinating question will be whether we ultimately look back on the success of 2026 as a mirage or as the new path forward in a post-v28 Medicare Advantage market. Certainly, the vibes are high at the moment as capital rotates back toward managed care, but I can’t help but wonder about how durable the current outperformance is given broader conversations about healthcare affordability.
As I write about all of this, my mind wanders back to CMS and the Advanced Notice / Final Notice kerfuffle from earlier this year. The industry has seemingly quickly moved past the brief crisis that Advanced Notice caused in early 2026, with Chris Klomp imploring the industry to be better stewards of taxpayer dollars while proposing lower payments to the industry. As I recall, the industry suggested Advanced Notice rates would have been catastrophic, and that Final Notice was better but still a challenge. If I’m in Klomp’s shoes and I see MA insurers now beating and raising everywhere, I am most certainly coming right back around on that conversation again for 2027, using 2026 now as a proof point that I can cut deeper than I had previously thought. Look no further than Devoted for a great example of this, as just a few months ago, Devoted’s CEO publicly asked CMS to pay the industry less. What a great opportunity for CMS to do exactly that, no?
On the whole, while I think Devoted presents an interesting theory of transformation for the managed care industry that incumbents should pay close attention to, the valuation here appears divorced from reality in a way that doesn’t make much sense to me. Investors appear to be pricing Devoted for an outcome that is somewhere between three and six standard deviations from the mean, which seems to be the nature of growth capital in the private markets these days. If I’m Devoted’s leadership team, I’m using this opportunity to build a war chest while the market is hot. I’m also telling employees to pay no attention to the noise around valuation, although I think that’s a hard sell when there are presumably large amounts of compensation tied to Devoted's enterprise value growth.
I’m curious what the nerds think of this funding news — if you had the chance to invest here, would you do so? Would love to hear your rationale as well.
If you had access to this round, would you invest your money in Devoted at a $25 billion valuation today?
In addition to the Devoted news late on Friday, there have been a number of other interesting signals on the MA market for 2027 that are worth reading as tea leaves as organizations take different positions on growth and profitability to position themselves for the future:
Centene reportedly shared with brokers last week that it will exit plans with 340k+ lives currently, across 158+ counties, including all of Oklahoma, Tennessee, and Hawaii.
SCAN announced an expanded partnership with Costco to launch a co-branded MA plan in three undisclosed markets that collectively have 5 million Medicare enrollees
Company Spotlight
Virta Health highlights the scale of its clinical model: $200m in run-rate revenue + EBITDA profitability
Source: Virta Health’s HTN Company Presentation
On Tuesday, Virta Health’s president Amit Shah provided an update on the current state of the business to HTN. I always find Virta’s narrative fascinating — it aims to address the root cause of cardiometabolic issues through nutrition, and the clinical results it demonstrates (those are all different links btw) are really impressive. Certainly, GLP-1s have heightened awareness of cardiometabolic health, creating an opportunity for models like this to provide broader cardiometabolic support beyond just the prescription.
It’ll be an interesting company to keep an eye on as it continues to scale over the coming years. Shah noted Virta has the opportunity to 100x its business, growing covered eligible lives by 50x (from 3m to 150m) while increasing client yields by 2x from today. That seemingly indicates its planned course from here — going deeper into its current model across customer types (i.e., expanding beyond the employer segment) rather than taking the Teladoc-y path of attempting to become the digital health solution for employers. In some ways, it seems like a more challenging path, but for businesses that can navigate it, also a path that provides more enduring business (and societal) value.
Upcoming Company Presentations:
Tuesday, August 25, 4:00 PM ET
Bridging enterprise and consumer in women's health: Wildflower Health company presentation with Leah Sparks, CEO & FounderWednesday, August 26th, 4:00 PM ET
Growing MA members 50% while the nationals retreat: Clever Care Health Plan company presentation with CEO Karen Walker JohnsonThu, August 27, 1:00 pm ET
Turning out-of-network pricing into a software problem: Daffodil Health company presentation and Q&A with co-founder & CEO Navin Nagiah
Chart of the Week
The drumbeat of employer cost trend growth continues
On Thursday, Aon released data on the rising cost trend in the employer market, which received national attention in outlets like the WSJ, highlighting the chart below, among others.
Source: WSJ
This data isn’t new to regular newsletter readers here, as we’ve been talking about a high-single- to low-double-digit cost trend for 2027 for some time now, but it's nonetheless interesting to see the national attention it is getting, particularly ahead of midterm election season and a broader national conversation around affordability, generally speaking.
Featured Jobs
Enterprise Sales VP at Garner, using analytics and AI to help employees find better care at lower cost.
$365K - $425K | Remote
Chief of Staff at InStride Health, specialty outpatient care for pediatric anxiety and OCD.
$180K - $215K | Remote
Health Plan Strategy Lead at Abby Care, helping family caregivers deliver high-quality care at home.
$150K - $200K | Hybrid (SF)
Growth GM at Clarity Pediatrics, a virtual pediatric chronic care company.
$155K - $185K | Remote (Texas-based preferred)
Commercial Partnerships & Operations Director at Counterpart Health, Clover Health’s tech platform.
Remote
Contact us to feature roles in our newsletter.
Other Top Headlines
Hims CEO Andrew Dudum joined CNBC’s Andrew Ross Sorkin for an interview on a variety of future-of-healthcare topics this week. As I shared in Slack this week, I came away extremely skeptical of Dudum’s vision of how Hims will transform healthcare, as Dudum spent the first few minutes of the interview articulating how its AI coach will leverage data from things like Whoop and Oura knockoffs manufactured for $10 in Europe and Bluetooth-enabled pill bottles to personalize healthcare experiences. While this narrative appears to have excited the Hims retail investor community, it’s a bit shocking to hear Dudum talk in 2026 about pill bottles as a concept that it is working towards over the next twelve months, seemingly oblivious to the fact that it is a tarpit idea that has been attempted for the better part of two decades now. For a company that has seemed remarkably astute at opportunistically meeting consumer needs in ways the healthcare industry has been either unable or unwilling to, the narrative here strikes me as remarkably out of touch with what has won over that consumer sentiment for Hims. How many current Hims customers do you think have shared feedback that they’d like to purchase a Hims-branded Bluetooth-enabled pill bottle or a knock-off $10 European version of Whoop? I’d hazard a guess that the number is zero. This is for the exact same reason why consumers pay membership fees to Hims to acquire medications they could pay less for elsewhere — consumers will pay more for a branded consumer experience. This is literally why Hims exists as a business! Instead, as Dudum discusses in the interview, those seem like moves you make when you are trying to build a moat around your consumer data.
Now, despite me largely feeling like that principal in Billy Madison chiding Adam Sandler while listening to the first part of this interview, Hims has the benefit of incredibly strong societal tailwinds at the moment, and those remain good reasons to be bullish on the model here. From my vantage point, those tailwinds are 1. “patients as payers” and growing support for giving individuals a budget of HSA / FSA dollars to spend as they see fit (as Dudum rightfully calls out during the interview); and 2. growing consumer mistrust in everything and a corresponding sentiment that providers are middlemen gatekeeping consumers from the medicines they want to access. Note: I don’t think these tailwinds are necessarily good things, but I think they are things, and Hims remains well-positioned to take advantage of them, almost in spite of itself.
As I was writing all of that on Hims, Bloomberg reported late on Friday that Hims has been enrolled in Visa’s Acquirer Monitoring Program because of high customer complaint rates. This comes after Hims received a spike in consumer complaints this summer over its weight-loss subscription model billing practices. Hims apparently charges a $39 membership fee for the first month (excluding the cost of branded GLP-1s) and then increases it to $149 thereafter, almost as if Hims has rethought surprise medical bills for consumers from first principles. Stripe notified Hims of this issue, and Hims will have to get its dispute rate under 1.5% of transactions for three straight months to be removed from the program. Each dispute will cost Hims $8, which will amount to a ~$75k penalty in September, which is peanuts to the broader Hims P&L. The bigger issue here is that while Hims tells a narrative publicly about becoming the trusted provider of choice for consumers, this, plus the recent FTC lawsuit around deceptive marketing practices, seems to point to a different underlying reality about what Hims is (or isn’t).
Summa Health and General Catalyst announced the “technology transformation stack” that will transform Summa Health's operations from a struggling local provider into the leading provider of the future, powered by leveraging best-in-class technology. Summa's stack consists of nine of General Catalyst’s portfolio companies: Aidoc, Clarium, Commure, Fabric, Hippocratic AI, Judi Health, Transcarent, Verse Medical, and Percepta. Percepta will apparently serve as the transformation partner overseeing the effort. Having worked in an innovation role at a health system myself, I can only imagine the nightmare that it must be on the ground on both sides of this — for the legacy employees of Summa trying to figure out what their role is in the transformation, and for the GC portfolio companies, many of which I’d imagine are earnestly trying to help, all descending on this system at once. I’d be fascinated to hear the story of how this group of nine was picked and how this was socialized with Summa employees. One of my biggest learning lessons during my innovation days at a health system was that the system leaders generally had a good pulse of startups in the market and preferred partners; they were often just stymied by the system itself. Coming in over the top with nine new partners that have seemingly been selected because they are part of the GC portfolio, irrespective of whether they are the best solution for Summa, seems virtually guaranteed to backfire.
This remains one of the most interesting innovation experiments in care delivery in this country today, although the early returns from the partnership seem to invite good reason for skepticism, which is unfortunate given the opportunity afoot. If system-wide transformation is really the goal here, I’d suggest that the GC/Summa folks consider introducing radical transparency into Summa's operations, so that the industry can learn from all the work currently underway at Summa. Go beyond the typical financial disclosures and share how Summa’s P&L works. Share the details of this transformation stack and the impact it is having both clinically and financially, both on Summa and on the stack itself. What do the intercompany transfers look like between the various GC companies here? Share how and why they were selected versus other vendors. Share the experience of Summa employees on the ground. I’d happily travel down to Akron, interview Summa and GC employees, and share what’s going on there with the industry. RFK has already gotten the invite; why not extend it to others? If industry transformation is in fact a goal here, then more transparency seems like a necessary component.
R1 RCM acquired prior authorization platform Humata on undisclosed terms. Humata got its start in 2023 after it repurchased assets from Olive AI after Olive wound down. Olive originally acquired the Humata assets in 2021 when it purchased Verata Health for $120 million.
We recently hosted Humata’s founder and CEO Jeremy Friese (who also held the same role at Verata) on the podcast for a discussion about the prior auth process and the WISeR program, where Humata is the participating vendor in the state of Oklahoma. It’s an interesting lens into where AI can solve friction points in the prior auth process, the need for transparency, and where humans will still need to sort out issues.
Ascension acknowledged late this week that a medication mix-up in one of its Nashville hospitals led to one patient being paralyzed and three others being injured after being injected with potassium phosphate instead of an anesthetic during routine joint replacement surgeries. It sometimes amazes me that we collectively spend so much energy worrying about the future implications of AI on medicine when stories like this are part of the current state. Hospitals are complex environments, and to err is human, but this story seems eminently avoidable in 2026.
Weave, an agentic AI platform helping medical practices with a variety of front-office patient engagement use cases, is being taken private by Francisco Partners for ~$650 million.
Funding Announcements
Cityblock, a value-based care model for complex Medicaid and Medicare populations, raised $116 million and announced the acquisition of Homeward Health in an all-stock deal. General Catalyst led the funding round. I chatted with Cityblock’s co-founder and CEO Toyin Ajayi after the news was released on Thursday, and she provided great perspective on the current state of the business and its trajectory moving forward. I get the distinct impression that Cityblock views this announcement as the start of a new chapter for the business, extending the operating platform it has spent the last few years focused on getting in place while navigating VBC market headwinds. Those headwinds appear to be turning into tailwinds for the business, and it now enters a new phase of growth as an AI-enabled partner to states, CMS, and payors seeking to provide high-value care (meaning high-quality, low-cost) to complex populations. Ajayi noted that Cityblock will grow both organically and inorganically moving forward, with inorganic growth priorities being centered around extending into other complex populations, including serious mental illness, substance use disorder, special needs populations, and the capabilities supporting those populations. Cityblock now appears well situated to become an acquirer of assets in this market as it reaches the scale to become a platform play, which if accurate, seems like good news for startups throughout this market.
Deon Health, a managed care model for populations with Intellectual and Developmental Disabilities (I/DD), announced a new strategic funding round from AmeriHealth Caritas. Deon is building a fascinating model supporting direct support professionals (DSPs) via joint ventures with local providers. I had the chance to chat with Deon’s CEO, Sara Ratner, about the approach (the recording will be posted soon for HTN members). She provided a great lens into the specifics of the I/DD population, which is both one of the highest-cost patient populations and has also been generally carved out of managed care efforts in states historically. As Sara shared, moving this population to a managed care model helps address some of the fraud concerns in Medicaid more generally while better supporting the unique healthcare needs of this population, with corresponding cost savings as they’re not showing up in the ER as often. Sara shared that sepsis resulting from a UTI is one of the leading causes of death in this population, because many of these folks are nonverbal and are unable to communicate the issue, which seems like a very solvable problem in America in 2026.
Hopscotch Health, a rural health primary care enabler, raised $53 million. 8VC and Town Hall Ventures led the round. Hopscotch currently serves 15,000 patients, mostly in Western North Carolina. Between these three rounds this week, one can certainly sense momentum in the rural / complex markets at the moment.
What I’m Reading
The internet was abuzz this week after Zeke Emanuel, Abe Baker-Butler, Neal Khosla, and Vinod Khosla jointly published a perspective in JAMA Viewpoint positing that AI will outperform clinicians. The article itself actually seemed pretty tame compared to the reaction it generated, summarizing recent research on the topic before suggesting that AI alone should outperform physician-AI hybrids and that it could be ready for real-world workflows by 2030. The article generated a predictable outcry, with social media experts defending doctors against superintelligence on a variety of different grounds (the studies are flawed, medicine is art and science, AI can’t put hands on people, yada yada).
I personally scratch my head at the usefulness of the arguments against this piece careening through social media at the moment. They appear designed to farm outrage in a way that panders to the algorithms. What do I mean by that? Late last year, Vinod Khosla was discussing this forthcoming article on a podcast with Eric Larsen (~18 minutes in). If you listen to Khosla’s position in that interview, he articulates a world in which physicians manage teams of AI agents acting as residents of sorts on their behalf, extending the reach of a physician (who actually does better financially in this new world, btw). I doubt Khosla has moved far off that position in the 8+ months it took this team to write this perspective piece. So, is that an example of AI acting autonomously or with a clinician in the loop? Khosla’s narrative seems to rhyme with the idea of an FDA-approved AI agent for very specific use cases, which we’re seeing already seeing early signs of. If the Cleveland Clinic prescribes an FDA-approved AI agent to a patient, is that an example of autonomous AI or is it human-in-the-loop? Is it all that different than the next iteration of what digital therapeutics have promised for the last decade+? I don’t think so (and apparently neither does the FDA 510k process given the above), that is where this current argument becomes basically meaningless to me.
Instead the “will AI replace doctors?” narrative increasingly feels like a red herring that is distracting from a much more nuanced conversation that needs to happen. It’s also a conversation where I’d think there is actually a lot more common ground than not if we can move past various parties protecting their profit pools. I read Mark Cuban’s critique, for instance, and think he is actually mostly in agreement with the position of Khosla, Emanuel, et al. There are, of course, important conversations to be had about how this change occurs and what the roles of humans vs AI are in the future. And there will be inevitable disagreements on the specifics of this rollout of AI in clinical medicine. But the rollout seems inevitable, and given that, it seems counterproductive to send people to the poles in this debate. Coming together to discuss the nuances in this conversation productively seems more useful as we hash out what is likely to be one of the key organizational principles for care delivery over the coming decades.
Want to comment or share feedback?
If this newsletter was forwarded to you, subscribe here or see more from Health Tech Nerds.
