The Q3 earnings season dumpster fire - Oscar, Bright, Clover, and Oak Street all post poor quarters, & more!
Q3 Earnings Season:
Q3 earnings is getting its own section this week as there was a lot of news. Lets start the earnings convos with Privia so we can begin this week on a good note before going into the dumpster fire that was Bright, Oscar, Clover, and Oak:
Privia's stock actually went up after earnings this week, an incredible feat when compared to some of the earnings announcements below. Privia seemed to have an all around good quarter, including posting a positive Adjusted EBITDA of $13.9 million. Privia's slide deck and earnings call provides some good insight into the model and how it is moving toward helping providers manage risk, including an overview of the operational model as it works with provider groups. The slides also highlight how Privia is collecting revenue in value based contracts (slide 13), and how that revenue is only a fraction of the revenue MA practices like Oak Street are collecting, articulating it as a significant opportunity for the org to move into capitated arrangements. Link (transcript). Link (slides).
Oscar's stock tanked after reporting earnings as they face mounting losses. You can see a shift Oscar's tone in the opening remarks - a focus on balanced growth and profitability for 2022, noting that Oscar is the lowest cost plan in only 5% of its markets next year. The losses remain astonishing - Oscar lost $189 million in EBITDA in Q3 alone, are projected to lose $200 million in Q4, and in 2022 are giving guidance of a $450 - $480 million EBITDA loss. Yet Oscar intends to hit full year profitability in 2023 - it'll be very interesting to watch how they attempt to pull that off without taking a huge membership hit. Presumably, Oscar will have to increase prices to get to profitability (you can see that in their quote about being the lowest cost plan in only 5% of markets). The challenge as always is that the exchange customer generally only cares about one thing - price. The exchanges have always had high churn, with people migrating to the lowest cost plan available. Oscar has a massive challenge over the next few years trying to prove this dynamic wrong and showing that people will buy a higher priced product because its a differentiated brand / consumer experience. If not, Oscar's exchange business is in a lot of trouble. Hopefully they are able to solve this riddle, because I'm not sure I have much hope for startup entrants in the exchanges if Oscar can't make this work. Link (transcript). Link (slides).
Bright Health's stock also tanked after its earnings call as they're also facing mounting losses similar to Oscar. Analysts had some pointed questions for Bright on how it is pricing its product after posting a 103% MLR for the quarter, which Bright attributes to COVID-19 (500 bps) and new SEP enrollment (900 bps). Bright's Adjusted EBITDA loss for the quarter was $246 million, up from $192 million. Bright's investor day is upcoming and it will be interesting to see how they strike the tone of growth vs profitability. You can see the analyst concern about the mounting losses and Bright's need to raise more capital to continue funding these losses. Bright's response to questions that it prices its product correctly and just needs to hit scale isn't exactly comforting, as they're probably going to face a similar challenge to Oscar. But while Oscar is shifting it's language and focus to achieving profitability, Bright still seems to have two feet squarely on the growth train. Link.
Clover Health's stock also fell after earnings after it continued to struggling managing MCR. It posted a 102.5% MCR ratio for the quarter, which is at least better than the 111% MCR ratio Clover posted in Q2. Clover is leaning in very heavily to a health equity play, noting a white paper it released last week on the topic. It was a bit surprising to see them note on thee call that they welcome scrutiny on practices that increase risk adjustment payments. Clover, mind you, is a poster child for risk adjustment gaming via the Clover Assistant. Clover was presented by name as one of the companies taking advantage of the MA Money Machines in the recent Health Affairs papers on the topic. Clover's game is that it pays physicians above market rates to use its Clover Assistant platform, which at least in part is used to identify coding opportunities. Clover's white paper linked above states that it is now paying $200 to any PCP for a visit so long as they use the Clover Assistant (pg 15), which is double the rate of a typical MA visit. Want to get docs to use your technology platform? Paying them double the rate that Medicare is just for using your tech is a good way to do so, as long as you can afford it. It's also worth mentioning that Clover highlighted Georgia as a growth market in the call, with Georgia being mentioned six times, yet there was no mention of Walmart in the conversation. Remember that Clover and Walmart launched a partnership a year ago centered around a joint MA plan in Georgia. It appears those two have quietly parted ways. If you want further proof, check out the difference in Clover's Summary of Benefits for an MA plan in Georgia in 2021 (where the plan was called "Walmart Enhanced") versus 2022 (where there is no mention of Walmart). Link (Transcript).
Oak Street's stock tanked after it shared it is being investigated by the DOJ for potential False Claims Act violations related to giving patients free rides to clinics and relationships with third-party marketing agents. Oak didn't provide much detail on the call as the DOJ inquiry came in a week ago. It will be interesting to see what, if anything, comes out of the investigation regarding what the DOJ views as appropriate ways to incentivize the acquisition of patients, whether via digital marketing or purchasing leads via agencies. Those two things are likely more intertwined than people think and certainly these activities are more widespread than just Oak in this MA space. Call me crazy, but I'm not sure I'm all that worried about the ill effects caused by Oak giving patients free rides to clinics. The earnings call also highlighted how Oak believes that lower engagement of older, lower income adults with their model is resulting in both higher medical costs and lower revenue because risk scores are lagging for a population with increased disease burden. Link.
American Well's earnings announcement seemed to perplex analysts, as urgent care visit volume went up, but specialty care and behavioral health visits missed expectations. Interesting to see them mentioned they conducted a survey that found that 56% of health systems plan to invest more in virtual health over the next two years. And... just what exactly are the other 44% planning on doing?!? Meanwhile 88% of health plans intend to add more virtual care programs. Average contract value for health plans is now above $700k, while health systems is above $300k. Lots of discussion of AmWell's new Converge platform in the call. Link.
GoodRx's earnings call highlighted the GoodRx Health effort, a new health information resource for patients. Interesting to note how they expect it to impact the company - larger top of funnel traffic, better relationships with existing users, and M&A for additional services to increase customer lifetime value. Of course that last one will be the most interesting to watch - what sort of M&A will this lead to? Link.
Carbon Health launched a downstream referral partner network called Carbon Health Connect, featuring John Muir as its initial partner. I can't help but wonder if there is a financial exchange is between John Muir and Carbon in this relationship that isn't discussed in the article. If this is simply an agreement to share data and send each other referrals, it seems like a bit of a distraction for Carbon during this phase of rapid clinic growth. Of course from a patient experience perspective it's presumably a good thing - having coordinated downstream care is obviously a helpful concept. But from a financial perspective, this isn't the sort of initiative you generally see Fee-for-Service primary care providers investing in, because there is really no financial incentive for them to do so. So why is Carbon focusing on it? In a Fee-for-Service world, you either have to believe this helps attract / retain patients for each party (tough sledding if its this), or you have a One Medical-esqe financial relationship (the article doesn't indicate this). Of course, this all makes significantly more sense if Carbon is going down the path of taking risk for managing patients, which I don't believe they have mentioned doing to date. Perhaps a sign that they're at least thinking about moving in this direction? Link.
Tenet continues to lean into shifting from hospital operator to ASC operator, announcing it is acquiring an ownership stake in 92 ASCs for $1.2 billion. The ASCs are focused on the MSK market, with 80% of their cases in MSK. The profitability of this business is worth pausing on after all the public company earnings conversations above - Tenet is making the acquisition at 11x EBITDA and expects that to be 7x once a number of recently opened ASCs are fully ramped up. Tenet now expects 42% of its consolidated EBITDA in 2021 to come from ambulatory assets. Link (press release). Link (slides).
Ro is in talks to buy men's fertility startup Dadi, apparently at an $100 million valuation. Not surprising that Ro is continuing down the acquisition path, and doing so in a space adjacent to the recent Modern Fertility acquisition. Link.
Anthem announced it is acquiring Integra Managed Care, a plan that serves 40,000 Medicaid members in New York. Link.
Telehealth startup Thirty Madison bucks the trend of staying entirely virtual and has now built a bricks and mortar clinic for hair transplants. Not all care journeys can or should go virtual, as this is a reminder of. I have a feeling 5-10 years from now everyone will have blended these models and we'll look back on the distinction of "virtual only" care models as a short-lived phenomenon. Get your build / buy / partner analyses ready! Link.
Health system data platform Truveta has now raised $200 million, up from the $95 million it announced earlier this year. It has 20 health systems contributing data to the platform and appears to be targeting COVID as an initial use case. Link.
Color, a population health platform, raised $100 million at a $4.6 billion valuation. Link.
Sirona Medical raised $40 million for a radiology software platform. Link.
AppliedVR, a virtual reality platform for pain management, raised $36 million. Link.
Infinitus raised $30 million to automate customer service phone calls from patients. A+ for the Buzz Lightyear reference in the announcement. Link.
Signos raised $13 million to develop a weight loss platform leveraging DexCom's continuous glucose monitor. Link.
HealthSnap raised $5 million for its remote monitoring platform. Link.
Videra raised $3 million for a behavioral health remote monitoring platform. Link.
This Dallas Morning News article is an excellent look at disparities in healthcare across the Dallas metro area, with some people receiving world class care and some people receiving no care at all. It looks at many of the dynamics that are driving massive differences in health outcomes across different areas in Dallas, touching on many social determinants of health including broadband access. In one census tract in Dallas, only 16% of people have broadband, versus 90% in another. While it's Dallas highlighted here, this is going to be something we're all grappling with over the coming years. Link
Also on the topic of disparities, this is a good read on rural maternal health, and the challenges rural hospitals face with low patient volumes. How do we think about the tradeoffs of access and patient safety when volumes are really low? How do we provide access to care in "maternity deserts" where there are no obstetric services? The article does a good job discussing the tradeoffs at hand. Although, as always, the economic realities of the situation seem like they will dictate the answer more than anything else. Link.
This is an solid, quick podcast from the Gist folks looking at whether current valuations are at risk of repeating issues of physician practice management companies in the 1990s. Gist interviews a former PhyCor executive, and its hard not to draw parallels between what was happening in the 1990s and today. Will be interesting to see how the market evolves over the next few years. Link.
Scott Shreeve of Crossover Health penned a good piece on the healthcare platform wars, and why a next-gen medical group that is closest to the patient is what we really should be aiming for in all this primary care innovation. It's hard to disagree with that. Link.
Speaking of platform wars, this is a fascinating read on the Livongo / Teladoc merger and the aftermath one year in from the Business Insider folks. It's a bit worrisome to hear all the talk about how Teladoc is going to be building the health system of the future... only to get a glimpse under the hood, where it all sounds very far removed from caring about patients, and much more about hitting ambitious growth targets for public markets. I'm not sure that's the sort of environment we want for care delivery in this country. Of course morale is going to be a challenge in an environment where leadership team is setting aggressive targets, but the problem here seems much larger than just that. Link (behind BI paywall).
McKinsey published a brief overview of the Medicaid landscape heading into 2022 for managed care organizations. Features some good insights into growth and profitability of Medicaid plans, including the chart below breaking down profitability by plan size. Link.
KFF released its Employer Health Benefits Survey. In news that will surprise nobody, costs continue to go up - deductibles have increased 92% over the last decade. Interesting to see that 39% of employers with 50+ employees reported making changes to mental health / substance abuse benefits since the pandemic started - highlights why we've been seeing so much investment activity in the space. Link.
Here's more research, this time from Richard Kronick, arguing that Medicare is overpaying health plans. Kronick found that risk adjustment caused Medicare to overpay insurers more than $100B over the last 10 years, with $34 billion of that coming in 2018 & 2019. It's yet another shot across the bow at MA plans indicating they've figured out how to game the system. Seems like we're in for a very large political battle moving forward. Link.
Morning Consult released out a consumer survey on on-demand / virtual care, finding that 53% of people still would prefer care in-person moving forward, even though most folks seem to enjoy their virtual care experience. The last section is the most interesting teasing out the path of on-demand (D2C) offerings into the more traditional healthcare ecosystem. Link.
Trilliant Health released data suggesting consumers are not as loyal to health systems as they might think - people receive care across 4.2 health systems on average. Link.
The Crossover Health team published data on virtual care utilization during the pandemic. Link.
The Lown Institute published data suggesting that Medicare could save $8 billion if hospitals were more cost efficient. Link.
Huckleberry, a startup building a pediatric sleep platform, is hiring a User Experience Researcher. Link.
Notable, a startup building a platform to automate and digitize every physician-patient interaction, is hiring a Growth Marketing Lead. Link.
Pearl Health, a startup helping PCPs take risk via Direct Contracting, is hiring a Data Scientist. Link.
Story Health, a startup using virtual care and AI to help optimize specialist care for patients during and in-between visits, is hiring a Software Engineer. Link.