HTN | Weekly Health Tech Reads | 7/16

July 16, 2023

Weekly Newsletter

Welcome to this week’s free weekly newsletter, where we share our perspectives on some of the key healthcare related news of the week.

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Sharing our perspective on the news, opinions, and data that made us think the most this week

UHG's Q2 earnings call appears to ease analyst concerns about the MLR increase

Summary: UHG's stock jumped ~7% on Friday after the earnings call. Most of the Q&A was spent around questions on UHG's utilization trend. They expect to come in at the high end of MLR guidance for 2023 given the increase in outpatient surgeries in the senior population, specifically ortho and cardiac procedures. They also noted seeing a substantial increase in behavioral health utilization. In addition to impacting MLR in UHC, those trends also had a negative impact on Optum Health's margin in the quarter, coupled with new VBC membership also driving down margin for Optum Health. It appears that G&A spend will become a more important lever for UHG in 2024, as they note that there are significant efforts underway to automate all the operations functions you'd expect with AI / ML / NLP.

Our Reaction:

  • For the first time in what feels like a while, this felt like a more defensive earnings call from UHG. Most of it was spent explaining the changes in utilization and how UHG will navigate that headwind, rather than telling the growth story of Optum Health. Seems like a sure sign of the changing macro landscape and the more tumultuous period ahead in the MA space.
  • The utilization commentary seemed like exactly what you'd expect from UHG in terms of getting in front of the issue and reassuring analysts for 2024 pricing. It was interesting to see the utilization trend negatively impact Optum Health as well as UHC, which seemed to confuse at least one analyst (in a FFS world this would have benefited Optum Health, but it shows how much risk they're taking that it hurts their margin as well).
  • On that front, Elevance's earnings next week is going to be fascinating to watch, as they shared emphatically that they were not seeing this trend in increased outpatient spend. UHG was seemingly able to get ahead of this for 2024 and price it into the product. It would be odd for Elevance to not see any increase in outpatient utilization given what UHC and Humana have indicated, and if they weren't able to price that change into 2024 as a result it seems like a larger profitability problem for them. Stay tuned next week.
  • UHC's commentary about the "very very significant increase" in the number of people looking to access behavioral health services versus even a year ago should tell you all you need to know about the continued VC / PE / strategic investment in mental health platforms (see Octave's raise this week from Cigna and others below for yet another example). That market seems red hot at the moment for investment, which of course is a very strange thing to say when you step back and think about what it implies for the general health of people in the US.
  • Feels like we're going to hear about generative AI and data sets in almost every insurers earnings this quarter. For those looking for practical applications of AI in healthcare, it's worth paying attention here to what the payors are talking about.

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Inbound Health's COO was interviewed on how it spun out of Allina Health

Summary: This is an interview about how Allina Health ended up partnering with Flare Capital to spin out its home health group into what is now Inbound Health. It dives into how Allina spent years evaluating the hospital at home space, going back to partnership convos in 2019. They determined no partners met the needs of a health system, and instead chose to build a new program internally. Then when they started hearing similar feedback from multiple other health systems, it became natural to look at spinning out the program to meet the needs of those health systems, and Inbound Health was born.

Our Reaction:

  • This is a really good look into the process of spinning out a venture-backed org. It's also a good reminder of the years of work that often precedes public funding announcements like the $20 million Inbound raised from Flare late last year. Given the number of VC / health system partnerships that we've seen recently, we expect to see a lot more activity in this regard.
  • For startups that are looking to sell to health systems, it presents an interesting example of how a system thinks about the build / buy / partner decision. If health systems are key to your go to market strategy, finding one who wants to co-create the offering with you can be a really meaningful partnership. Obviously, it also comes with major risks if that partnership doesn't work out.


Sharing our perspective on the news, opinions, and data that made us think the most this week

Pitchbook released a new report looking at the landscape of VC / PE backed VBC enablement startups. When you look at the x-axis of that chart, which displays the number of medium / large independent primary care groups in a state, it's pretty clear why we see so much activity in states like California, Florida, Texas.
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A round-up of other newsworthy items we noticed during the week

McKinsey dove into the changing MA landscape - demographics, reimbursement, and consumer expectations - and suggests ways payors are going to need to think about adapting moving forward - operational efficiency, personalized products, and tailored care delivery networks.
Link / Slack

HealthcareDive featured a good look at the different approaches various states are taking to Medicaid redeterminations. It includes some interesting context like this on how states are prioritizing members for redetermination differently: "South Carolina, for example, is initially focusing on people it thinks may be ineligible or didn’t respond to renewal requests during the pandemic. Virginia is using its regular redetermination dates, while Oklahoma is sorting its members into high- or low-risk groups, with the goal of supporting more vulnerable people like those with chronic conditions."

CVS's PBM and GoodRx partnered to offer a drug discount program to CVS Caremark's members. Very few things are more baffling to me than why a PBM needs to partner with another vendor to offer reduced prices for drugs, given it seems like that's kinda the whole point of a PBM.
Link / Slack (h/t Evan Benkert)

Octave raised $52 million to scale its virtual behavioral health practice to all 50 states. Cigna Ventures was one of the lead investors in the round.

This is a good overview of corporate venture capital activity in healthcare, including a list of investors, by Halle Tecco.

CarePredict, a startup building a wearable sensor / remote monitoring platform for seniors, raised $29 million.
Link / Slack (h/t Michael Ceballos)

Verifiable, a software platform for provider credentialing, raised $27 million. The article notes it has shifted its focus to selling enterprise contracts, noting it signed Humana. Its core customer base currently is digital health companies (Lyra Health, Modern Health, and Wheel, among others).

Affect Therapeutics, a virtual care model for addiction, raised $16 million.

Eureka raised $7 million to be the "yelp" for chronic disease treatments.
Link / Slack

Fold Health, a VBC primary care platform, raised $6 million.