HTN | Weekly Health Tech Reads | 10/15
October 15, 2023
NEWS OF THE WEEK
Sharing our perspective on the news, opinions, and data that made us think the most this week
Summary: Venture capital firm General Catalyst announced it is launching a new business, Health Assurance Transformation Corporation ("HATCo"). HATCo, which will be led by former Intermountain Healthcare CEO Marc Harrison, will focus on three primary efforts: 1. working with GC's network of 20+ health system partners, 2. building an interoperability model integrating solutions from its portfolio companies, and 3. acquiring and operating a health system to demonstrate the model works.
- The buzz of HLTH this week was this news about HATCo, seemingly by design as General Catalyst released a quite vague press release about the NewCo. The press release invited a lot of speculation about what is going on here, irrespective of whether you think it is an example of a bold visionary approach or a bunch of wonderful nonsense. It seems worth noting that the announcement comes a year after GC announced the launch of the Health Assurance network of 15+ health systems, also at HLTH. The very nature of how these two press releases have come out at HLTH in successive years, without any details or data points in between about the impact of this work, I think naturally invites a skeptical point of view here.
As Marc Harrison undoubtedly knows, the idea of transforming the health system is a complicated and perhaps quixotic task. The organizational design of a health system almost seems purpose-built to resist such transformation. Perhaps the view here is that by taking a different approach to capitalizing a health system, it will allow for a new organizational design that can unlock a new operational model and get things unstuck. It's a plausible theory. It would explain why we haven’t heard any updates about the impact of the Health Assurance network - the magnitude of transformation is too much for any health system within current organizational constraints. It would also hint at why Harrison left his role as a CEO of Intermountain, only to seemingly announce a year later that he is buying another health system, which on its face seems a little bizarre. Why leave the “best job in healthcare” – at a place you were already six years into the transformation journey – to start over on that journey at a different health system?
Regardless of all the speculation generated by the press release, the proof will be in the pudding here as we wait for more details about HATCo and what health system it eventually acquires. Hopefully we’ll learn more about what’s actually happening here before next year’s HLTH festivities.
HTN Slack Convo (h/t Samir Unni)
Q3 earnings season is picking up; sharing some reactions to earnings calls here
Walgreens reported a profitability miss for the quarter; stock still rises on cost cutting initiatives
Summary: Walgreens reported its Q4 FY 2023 results, communicating in more concrete ways the profitability issue. It is targeting FY 2024 adjusted EPS of $3.20 - $3.50, down materially from FY 2023 adjusted EPS of $3.98 - largely due to a long list of key headwinds: lower sale / leaseback contributions, tax rate issues, lower COVID-19 bump, consumer macroeconomics, and a "weak" respiratory season. One of two key growth areas for the business is US Healthcare, which it expects to get the US Healthcare business to be EBITDA breakeven in 2024. This is an improvement of $325 - $425 million over FY 2023 results. Notably, Walgreens shared it plans to shrink the VillageMD footprint, exiting 60 clinics in five markets as part of a $1 billion broader cost cutting initiatives. These clinic exits come in the form of selling those clinics or "hybrid equity agreements".
It was interesting to see Walgreens proactively bring up the Pearl Health partnership during prepared remarks. Cements the idea that this partnership is going to be a key part of Walgreens growth strategy moving forward. They shared they'll initially be taking risk on 9,000 lives in twelve markets.
Walgreens mentioned that it is seeing VillageMD "bend the cost curve" in three mature markets, citing that as proof that the VillageMD model can perform in full-risk arrangements. But given the commentary about focusing on where VillageMD has density and the need to get to profitability, it also raises an interesting question about how many markets VillageMD will remain in over time. At the time of the Summit acquisition last year, Village was in 22 markets. Per this news, it is in process of getting down to 17 markets. So if only three markets have demonstrated performance in a full-risk model, how many more markets is VillageMD going to need to exit in this focus on profitability?
It's worth noting that growth doesn't appear to be the problem in VillageMD clinics. In the analyst Q&A, Walgreens noted that every one of its clinics has been showing month over month growth. The issue is getting fast enough growth to get clinics to profitability.
Summary: Per usual, UHG increased its earnings target for FY 2023 and shared that it expects FY 2024 earnings to be within range of analyst estimates. OptumHealth has grown its full-risk lives by 900,000 for the year and has relationships with over 100 payors. UHG leadership noted that a "substantial fraction" of that full-risk growth came in complex populations, which appears to be different than they expected. They noted that building out capabilities to support these complex populations is one of the factors that drove an elevated MLR (along with the elevated outpatient spend discussed in Q2, and a significant increase in behavioral health costs).
It was interesting to see the emphasis from analysis on GLP-1s - I counted three questions about the impact of GLP-1s on the business. Understandably, UHG leadership was focused on the cost of the medication, noting that list prices in the US are 10x that of Western Europe and including the quip: "innovation that is not affordable is not innovative." It's clear they are hearing from employers that the cost needs to be addressed, although it doesn't actually appear that the weight loss use is driving that much spend for UHC (it was noted that 80% of GLP-1 spend for UHC is on diabetes, only 20% is on weight loss).
CHART(S) OF THE WEEK
Sharing a visual or two from the week that made us think
A new article from Peterson-KFF looking at how US life expectancy compares to other countries reported some disheartening, yet not all that surprising news. Below are a few of the report's top findings:
- In the US, life expectancy continued to decline while rebounding in other comparable countries between 2020 and 2021.
- The life expectancy gap between men and women has widened more in the US than in other countries. The US gap increased to a 5.8 year difference in 2021, up from 5.1 years in 2019 - this compares to other countries a 4.3 year gap (2019) and a 4.6 year gap (2021) in similar countries.
- As highlighted in the chart above, America continues to have the lowest life expectancy compared to other wealthy nations while spending the most amount of healthcare services. Notably, this relationship between life expectancy and spending was actually similar across the US and similar nations, but has since drastically diverged in recent decades.
2024 Star ratings were released this week, and only 31 contracts received a 5 Star rating this year, down from 57 in 2023. This tree map that Peter Yates shared in Slack we thought was an interesting way of visualizing Star ratings by contract.
Join the Slack convo (h/t Sarah Hagan)
The Rock Health team released its 2023 Digital Health Startup Benchmarking Survey. The report surveyed 87 bootstrapped and early-stage digital health startups to help understand benchmarks for key business indicators, such as LTV and CAC, sales & marketing spend, and more. The chart above highlights vastly different CACs that startups reported across customer types.
A round-up of other newsworthy items we noticed during the week
Evernorth, the health services arm of Cigna, is purchasing virtual care platform Bright.MD. It'll be integrated into MDLive to offer asynchronous virtual care starting in 2024. Bright.MD historically has sold to health systems, including UnityPoint Health, Presbyterian, and Baptist Health among others, but it appears this acquisition is more about leveraging the technology for MDLive providers.
Oscar announced it is expanding within thirteen of the eighteen states if offers insurance in 2024, adding 165 new counties in total. They also announced a new plan design targeting individuls with COPD and asthma, and will be expanding its HolaOscar offering, which is targeted at expanding its Hispanic and Latino membership.
Link / Slack
Amazon shared at HLTH this week that it has no specific growth targets for One Medical business moving forward in terms of clinic growth or new markets to enter. Amazon leadership noted that challenges recruiting physicians are part of what is driving this approach, which is a very different sentiment than UHG noted on its earnings call (UHG noted it was having no problem hiring clinicians). Regardless, it seems like a notable shift in strategy from ONEM's public company days.
Link / Slack
Rippl, a dementia-focused healthcare company, is partnering with McLean Hospital (part of Mass Brigham) to build a dementia training program, which aims to improve training and development for clinicians focused on treating dementia and other neurocognitive diseases.
Link / Slack (h/t Maria Thomas)
California announced plans to begin its move towards universal healthcare coverage in the state. This comes as Governor Newsom recently approved legislation to direct the state's HHS to outline requirements for a federal wage application focused on universal coverage.
Link / Slack (h/t Marissa Pittard)
Included Health and Walmart announced at HLTH that Walmart will be expanding Included's virtual primary care offering to Walmart employees nationwide. Walmart reported seeing 10% lower medical costs in the population of patients who used Included in a trial, although the commentary in the article seems to indicate it was on a low N (from the article: She declined to say how many people used the virtual primary care option, but she wants to increase the number. “I’m gonna tell you, it’s not enough, and we would love to see more.”)
Walgreens appointed its next CEO, Tim Wentworth. He joins with an extensive background in healthcare services and PBMs, having previously served as CEO of Evernorth and prior to that as CEO of Express Scripts, the largest PBM in the US.
Link / Slack (h/t Rik Renard)
Another key leadership change this week came with Humana's announcement to transition the helm from Bruce Broussard to COO and CEO Successor, Jim Rechtin. It's the end of an era at Humana, as Broussard joined the business back in 2011 and most recently led a strategy to refocus the business on the core MA offering, one that has seemingly left the business in a good spot for a transition.
Link / Slack (h/t Jack Stoddard)
A collection of notable startup financing rounds across the industry
Main Street Health, a VBC provider, raised a whopping $315 million to expand its care model across 26 states. The company partners with primary care clinics in rural parts of America, providing health navigators that help with care coordination and SDOH initiatives.
Link / Slack (h/t Samir Unni)
A round-up of posts from the broader healthcare community this week that made us think
Food For Thought: The Potential Ripple Effect of GLP1s by Zachariah Reitano
It's abundantly clear GLP-1 medications are having a huge impact on our healthcare system today, but what about tomorrow? This was a thought provoking article from Ro's co-founder & CEO digging into the various downstream effects of GLP-1s. The article raises some interesting "what happens if...?" type questions for several major sectors of the healthcare industry, including surgical, pharmacy, med devices, insurance, and more.
Modern Care Delivery Library by Betty Chang and Tanooj Luthra
This is a pretty neat (and free) resource aggregating data on 150 (and growing) digital health vendors - including info on digital health companies condition categories, customer channels, and more.
Hospitals invest in private equity, too by Merrill Goozner
This is a unique take on private equity's impact on healthcare - specifically digging into how hospital systems themselves are allocating capital to private equity investments. Of course, data around these investments is quite obscure, with only one of the seven major health system analyzed in the article reporting a $ amount to PE investments. Nonetheless, an interesting angle to the very commonly discussed topic.