Google-backed One Medical is acquiring Medicare-focused primary healthcare chain Iora Health for $2.1 billion in an all-stock trade deal, the companies announced Monday.
The buy will give One Medical presence in 28 markets, covering about 40% of the U.S. population and is expected to generateannual revenue at $350 million by 2025. The deal will add about $700 billion in total addressable market, according to an investor presentation.
Under the terms of the deal, which is expected to close in the late third quarter or fourth quarter of this year, Iora stockholders will own about 27% of the combined company. One person from Iora will join One Medical’s board and Iora co-founder and CEO Rushika Fernandopulle will become One Medical’s chief innovation officer.
The acquisition aligns two key players in part of the value-based care movement that eschews traditional payer-provider arrangements in favor of a concierge membership model. Iora’s concentration in the Medicare population and related participation in CMS’ direct contracting model could be key reasons for coming under One Medical’s sights.
Jefferies analysts said they viewed the transaction as positive, particularly considering both companies’ tech and data capabilities. “Given tech orientation and emphasis on outcomes, we expect substantial derivative value from combining data and developing better treatment programs with superior outcomes across [longitudinal] care. We see this as a clear clinical and applied advantage,” they wrote.
Both companies base their business on value-based models, which some in the industry worry have suffered during the COVID-19 pandemic as cash-strapped providers avoid the risk of models not based on fee-for-service. The Biden administration’s director at the Center for Medicare and Medicaid Innovation said recently the movement is at “a critical juncture” and that more mandatory models are likely forthcoming.
And on the Q1 call with investors, executives highlighted a membership increase of 31% year over year.
One Medical, founded in 2007, lead the pack of recent healthcare IPOs, going public in January 2020.
The company touts its direct-to-consumer model buts also contracts directly with employers and partners with several health systems. CFO Bjorn Thaler told Healthcare Dive at the time of the IPO its pitch to investors focused on highlighting a differentiated model.
“[W]e provide the member with a very, very valuable service. They don’t have to wait 29 days to get care. They can get care oftentimes in an instant, digitally,” he said.
Boston-based Iora, which was founded in 2011, has raised nearly $350 million over seven funding rounds, according to Crunchbase. It has contracts with major payers including UnitedHealthcare, Cigna and Humana.
The deal extends One Medical into full-risk Medicare reimbursement. Iora began the direct contracting model in April across all its markets. The program ties reimbursement to spending and quality for all Medicare fee-for-service beneficiaries across a geographic region.
About 60% of Iora’s members are in the fast-growing Medicare Advantage program, which has now reached about 40% of the Medicare population.
Iora had expected revenue this year to reach nearly $300 million and as of the first quarter had 38,000 members, compared to nearly 600,000 members at One Medical, according to the investor presentation.
One Medical stock was trending slightly down in early morning trading Monday.
We are better served by a system that seeks to keep people healthy, not wait until they get sick.
If the pandemic has taught us anything, it’s that there’s a much better way to keep people healthy while reducing stress on our health care system at the same time. This will not only help mitigate risks from any future public health crisis, but also improve the well being and health of people in our community.
Utah’s Intermountain Healthcare, along with our community and health care colleagues, are leading a movement to do just that.
We greatly value and appreciate all our government, community and health care partners that coordinate closely with us to address the pandemic and provide care for our communities. It’s been a statewide team effort and will continue to be a team effort.
The roots of a deeply flawed national health care model that had taken hold long ago proved to create both systemic and personal health risks. According to a recent study, the U.S. had far more people hospitalized, more people with chronic conditions, double the obesity rates and the highest rate of preventable deaths among comparable nations. This was before the pandemic ever started. Our national health system was perfectly designed to be overwhelmed under the COVID-19 stress.
Moreover, many people who have died from COVID-19 were in poor health to begin with or were managing preventable chronic conditions.The flawed national health care system was never designed to support their goal to stay healthy. Instead, it was designed to wait until they got sick and then treat them.
Utah has one of the lowest death rates from COVID-19 in the nation. It’s at least partly true that this can be attributed to the superb care by medical providers in the state. But the data show a more interesting story. People in our state are in better health compared to those in other states.
We play outside more, drink less and smoke less than people in other states. Our rate of obesity is far lower than most other states. It’s no surprise that our recorded COVID-19 death rate is among the lowest in the nation. In fact, three of the top five healthiest states also have the three of the top six lowest recordable death rates from COVID-19. We don’t believe that’s a coincidence.
Over the last several years, Intermountain has focused more resources on keeping people healthy and out of hospitals. Vaccines have long been a critical part of this strategy. And while that garners most of the immediate headlines, we’ve geared our entire system’s strategy to focus on keeping people and communities well.
For example, Intermountain is a world leader in precision genomics medicine that aims to better treat and prevent genetic diseases. The opportunity to participate in the biggest, voluntary research of its kind is available for anyone in our community at no cost. With our community’s help, we can eventually share what we learn with others across the country and the world to help keep everyone healthier.
We are investing in addressing social determinants of health to keep people out of emergency rooms or other clinical settings for unneeded visits. Social determinants of health are influences that affect people’s long-term health, such as stable housing, joblessness, hunger, unsafe neighborhoods and access to transportation.
We’ve been working with and providing funding to multiple local nonprofit agencies that address these issues, and have provided financial support for a three-year pilot in Utah to see how community partnerships can address those influences in low-income ZIP codes. Often, simple and affordable changes can help prevent unnecessary health issues.
We’ve integrated mental health care with primary care because we know that mental health is essential to a person’s overall health. Long before the pandemic hit our shores, we deployed telehealth services that helps care for people closer to their homes and families. It’s not simply a matter of convenience for those we serve, but can lead to better health outcomes for less money.
All of us can’t wait to get back to some sense of normal. But for the nation’s health system, going back to normal shouldn’t be an option. We must do better. And Intermountain is determined to partner with Utahns and do what we all do best – lead the nation and the world by setting a better example.
Many of the Center for Medicare and Medicaid Innovation’s value-based care payment models are undergoing a review, according to the Centers for Medicare & Medicaid Services (CMS).
The statement to Fierce Healthcare comes after CMS quietly updated and delayed several payment models, including pulling a controversial model that ties payments to geographic health outcomes.
“CMS remains steadfast in its commitment to transforming the healthcare system into one that rewards value and care coordination,” the agency said. “The CMS Innovation Center and its alternative payment models help execute that commitment.”
The agency added it hopes to design models that support the adoption of value-based care.
“Many of the CMS Innovation Center’s models are currently under review, and we look forward to providing updates when available,” CMS said.
CMS did not return a request for comment on how many models are under review or which ones are being scrutinized.
The statement comes after CMS has quietly updated the webpages for two payment models to note major changes. The agency made an update to the webpage for the Geographic Direct Contracting Model that said it was currently under review.
A request for applications for the model was posted Jan. 1, and the first performance period was expected to start in 2022 and run through 2024.
The model was intended to improve quality and lower costs for Medicare beneficiaries across a region, and providers in that region can enter into value-based payment arrangements.
Providers can build integrated relationships and invest in population health to better coordinate care, the agency said when the model was released last December.
But the model has gotten pushback from some provider groups. The National Association of Accountable Care Organizations has criticized the model, saying it could confuse patients who may not know whether they are participating in a direct contracting entity.
CMS also quietly pushed back the first performance period for the Kidney Care Choices model, which aims to improve the quality of dialysis care.
The model had an implementation period for 2020 that enabled participants to create the necessary infrastructure for the model, which aims to bundle care from treatment of chronic kidney disease all the way through kidney transplantation and post-transplant care.
Starting Jan. 1, 2021, providers were supposed to start taking on financial accountability including capitated payments.
But CMS posted an update on the webpage for the model, saying the start of the financial performance period will now be Jan. 1, 2022. The agency did not give a reason for the delay.
CMS’ review comes on the heels of a separate analysis conducted under the Trump administration on the value generated by the payment models. The analysis found bundled payment models that gave providers an amount of money for an entire episode of care had mixed results, while global budget models, which give providers a fixed amount for the total number of services given over a certain period of time, were given a more positive review.
It remains unclear whether that analysis is playing any role into the review undertaken by the Biden administration.
COVID-19 accelerated a number of trends already brewing in the healthcare industry, and that’s not likely to change this year, according to a new report from CVS Health.
The healthcare giant released its annual Health Trends Report on Tuesday, and the analysis projects several industry trends that are likely to define 2021 in healthcare, ranging from technology to behavioral health to affordability.
“We are facing a challenging time, but also one of great hope and promise,” CVS CEO Karen Lynch said in the report. “As the pandemic eventually passes, its lessons will serve to make our health system more agile and more responsive to the needs of consumers.”
Here’s a look at four of CVS’ predictions:
1. A looming mental health crisis
Behavioral health needs were a significant challenge in healthcare prior to COVID-19, but the number of people reporting declining mental health jumped under the pandemic.
Cara McNulty, president of Aetna Behavioral Health, said in a video attached to the report that it will be critical to “continue the conversation around mental health and well-being” as we emerge from the pandemic and to reduce stigma so people who need help seek it out.
“We’re normalizing that it’s important to take care of our mental well-being,” she said.
Data released in December by GoodRx found that prescription fills for depression and anxiety medications hit an all-time high in 2020. GoodRx researchers polled 1,000 people with behavioral health conditions on how they were navigating the pandemic, and 63% said their depression and/or anxiety symptoms worsened.
McNulty said symptoms to look for when assessing whether someone is struggling with declining mental health include whether they’re withdrawn or agitated or if there’s a notable difference in their self-care routine.
2. Pharmacists take center stage
CVS dubbed 2021 “the year of the pharmacist” in its report.
The company expects pharmacists to be a key player in a number of areas, especially in vaccine distribution as that process inches toward broader access. They also offer a key touchpoint to counsel patients about their care and direct them to appropriate services, CVS said.
CVS executives said in the report that they see a significant opportunity for pharmacists to have a positive impact on the social determinants of health.
“We’ve found people are not only open and willing to share social needs with their pharmacists but in many cases, they listen to and act on the advice and recommendations of pharmacists,” Peter Simmons, vice president of transformation, pharmacy delivery and innovation at CVS Health, said in the report.
3. Finding ways to mitigate the cost of high-price therapies
Revolutionary drugs and therapies are coming to market with eye-popping price tags; it’s not uncommon to see new pharmaceuticals priced at $1 million or more. For pharmacy benefit managers, this poses a major cost challenge.
To address those prices, CVS expects value-based contracting to take off in a big way. And drugmakers are comfortable with the idea, according to the report. Novartis, for example, is offering insurers a five-year payment plan for its $2 million gene therapy Zolgensma, with refunds available if the drug doesn’t achieve desired results.
CVS said the potential for these therapies is clear, but many payers want to see some type of results before they fork over hundreds of thousands.
“Though the drug may promise to cure these patients for life, these are early days in their use,” said Joanne Armstrong, M.D., enterprise head of women’s health and genomics at CVS Health, in the report. “What we’re saying is, show us the clinical value proposition first.”
CVS said it’s also offering a stop-loss program for gene therapy to self-funded employers contracted with Aetna and/or Caremark to assist them in capping the expenses associated with these drugs.
4. Getting into the community to address diabetes
Diabetes risk is higher among vulnerable populations, such as Black patients, and addressing it will require local and community-based solutions, CVS executives said in the report. Groups at the highest risk for the disease are less likely to live in areas with easy access to a supermarket, for example, which boosts their risk of unhealthy eating, according to the report.
The two key hurdles to addressing this issue are access and affordability. The rise in retail clinics and ambulatory care centers can get at the access issue, as they can offer a way to better meet patients where they are.
At CVS’ MinuteClinics, patients can walk in and receive a number of services to assist them in managing diabetes, including screenings, consultations with providers and connections to diabetes educators who can assist with lifestyle changes.
Retail locations can also assist with medication costs, creating a one-stop-shop experience that’s easier for many diabetes patients to slot into their daily lives, CVS said.
“Diabetes is a case study in how a more connected experience can translate to simpler, affordable and more accessible care for underserved communities,” said Dan Finke, executive vice president of CVS Health and president of its healthcare benefits division.
The COVID-19 pandemic has accelerated the pace of artificial intelligence adoption, and healthcare leaders are confident AI can help solve some of today’s toughest challenges, including COVID-19 tracking and vaccines.
The majority of healthcare and life sciences executives (82%) want to see their organizations more aggressively adopt AI technology, according to a new survey from KPMG, an audit, tax and advisory services firm.
Healthcare and life sciences (56%) business leaders report that AI initiatives have delivered more value than expected for their organizations. However, life sciences companies seem to be struggling to select the best AI technologies, according to 73% of executives.
As the U.S. continues to navigate the pandemic, life sciences business leaders are overwhelmingly confident in AI’s ability to monitor the spread of COVID-19 cases (94%), help with vaccine development (90%) and aid vaccine distribution (90%).
KPMG’s AI survey is based on feedback from 950 business or IT decision-makers across seven industries, with 100 respondents each from healthcare and life sciences companies.
Despite the optimism about the potential for AI, executives across industries believe more controls are needed and overwhelmingly believe the government has a role to play in regulating AI technology. The majority of life sciences (86%) and healthcare (84%) executives say the government should be involved in regulating AI technology.
And executives across industries are optimistic about the new administration in Washington, D.C., with the majority believing the Biden administration will do more to help advance the adoption of AI in the enterprise.
“We are seeing very high levels of support this year across all industries for more AI regulation. One reason for this may be that, as the technology advances very quickly, insiders want to avoid AI becoming the ‘Wild Wild West.’ Additionally, a more robust regulatory environment may help facilitate commerce. It can help remove unintended barriers that may be the result of other laws or regulations, or due to lack of maturity of legal and technical standards,” said Rob Dwyer, principal, advisory at KPMG, specializing in technology in government.
Healthcare and pharma companies seem to be more bullish on AI than other industries are.
The survey found half of business leaders in industrial manufacturing, retail and tech say AI is moving faster than it should in their industry. Concerns about the speed of AI adoption are particularly pronounced among small companies (63%), business leaders with high AI knowledge (51%) and Gen Z and millennial business leaders (51%).
“Leaders are experiencing COVID-19 whiplash, with AI adoption skyrocketing as a result of the pandemic. But many say it’s moving too fast. That’s probably because of current debate surrounding the ethics, governance and regulation of AI. Many business leaders do not have a view into what their organizations are doing to control and govern AI and may fear risks are developing,” Traci Gusher, principal of artificial intelligence at KPMG, said in a statement.
Future AI investment
Healthcare organizations are ramping up their investments in AI in response to the COVID-19 pandemic. In a Deloitte survey, nearly 3 in 4 healthcare organizations said they expect to increase their AI funding, with executives citing making processes more efficient as the top outcome they are trying to achieve with AI.
Healthcare executives say current AI investments at their organizations have focused on electronic health record (EHR) management and diagnosis.
To date, the technology has proved its value in reducing errors and improving medical outcomes for patients, according to executives. Around 40% of healthcare executives said AI technology has helped with patient engagement and also to improve clinical quality. About a third of executives said AI has improved administrative efficiency. Only 18% said the technology helped uncover new revenue opportunities.
But AI investments will shift over the next two years to prioritize telemedicine (38%), robotic tasks such as process automation (37%) and delivery of patient care (36%), the survey found. Clinical trials and diagnosis rounded out the top five investment areas.
At life sciences companies, AI is primarily deployed during the drug development process to improve record-keeping and the application process, the survey found. Companies also have leveraged AI to help with clinical trial site selection.
Moving forward, pharmaceutical companies will likely focus their AI investments on discovering new revenue opportunities in the next two years, a pivot from their current strategy focusing on increasing profitability of existing products, according to the survey. About half of life sciences executives say their organizations plan to leverage AI to reduce administrative costs, analyze patient data and accelerate clinical trials.
Industry stakeholders are taking steps to advance the use of AI and machine learning in healthcare.
The Consumer Technology Association (CTA) created a working group two years ago to develop some standardization on definitions and characteristics of healthcare AI. Last year, the CTA working group developed a standard that creates a common language so industry stakeholders can better understand AI technologies. A group also recently developed a new standard to advance trust in AI solutions.
On the regulatory front, the U.S. Food and Drug Administration (FDA) last month released its first AI and machine learning action plan, a multistep approach designed to advance the agency’s management of advanced medical software. The action plan aims to force manufacturers to be more rigorous in their evaluations, according to the FDA.
This week Brookdale Senior Living, the nation’s largest operator of senior housing, with 726 communities across 43 states and annual revenues of about $3B, announced the sale of 80 percent of its hospice and home-based care division to hospital operator HCA Healthcare for $400M. The transaction gives HCA control of Brookdale’s 57 home health agencies, 22 hospice agencies, and 84 outpatient therapy locations across a 26-state footprint, marking its entry into new lines of business, and allowing it to expand revenue streams by continuing to treat patients post-discharge, in home-based settings.
Like other senior living providers, Brookdale has struggled economically during the COVID pandemic; its home and hospice care division, which serves 17,000 patients, saw revenue drop more than 16 percent last year. HCA, meanwhile, has recovered quickly from the COVID downturn, and has signaled its intention to focus on continued growth by acquisition across 2021.
In separate news, Optum, the services division of insurance giant UnitedHealth Group, was reported to have struck a deal to acquire Landmark Health, a fast-growing home care company whose services are aimed at Medicare Advantage-enrolled, frail elderly patients. Landmark, founded in 2014, also participates in Medicare’s Direct Contracting program.
The transaction is reportedly valued at $3.5B, although neither party would confirm or comment on the deal. The acquisition would greatlyexpand Optum’s home-based care delivery services, which today include physician home visits through its HouseCalls program, and remote monitoring through its Vivify Health unit.
The Brookdale and Landmark deals, along with earlier acquisitions by Humana and others, indicate that the home-based care space is heating up significantly,reflecting a broader shift in the nexus of care to patients’ homes—a growing preference among consumers spooked by the COVID pandemic.
Along with telemedicine, home-based care may represent a new front in the tug-of-war between providers and payers for the loyalty of increasingly empowered healthcare consumers.
Even though signs point to a post-COVID spike in health system mergers, retailers, insurers, and other healthcare industry players already far exceed health system scale. Even the largest of the “mega health systems” pale in comparison to other healthcare companies up and down the value chain, as shown in the graphic above. And with the exception of pharma, these other industry players have seen revenues surge during the pandemic, while health system growth has stagnated.
According to a recent report from Kaufman Hall, hospitals saw a three percent reduction in annual total gross revenue in 2020.The majority of the decrease stemmed from a six percent decline in outpatient revenue, as volumes plummeted during the pandemic.
The largest companies listed here, including Walmart, Amazon, CVS, and UnitedHealth Group, continue to double down on vertical integration strategies, configuring an array of healthcare assets into platform businesses focused on delivering value to consumers.
To remain relevant, health systems will need to increase their focus on this strategy as well, assembling the right capabilities for a marketplace driven by value, at a scale that enables rapid innovation and sustainability.
Fourteen of the nation’s largest health systems announced this week that they have joined together to form a new, for-profit data company aimed at aggregating and mining their clinical data. Called Truveta, the company will draw on the de-identified health records of millions of patients from thousands of care sites across 40 states, allowing researchers, physicians, biopharma companies, and others to draw insights aimed at “improving the lives of those they serve.”
Health system participants include the multi-state Catholic systems CommonSpirit Health, Trinity Health, Providence, and Bon Secours Mercy, the for-profit system Tenet Healthcare, and a number of regional systems. The new company will be led by former Microsoft executive Terry Myerson, who has been working on the project since March of last year. As large technology companies like Amazon and Google continue to build out healthcare offerings, and national insurers like UnitedHealth Group and Aetna continue to grow their analytical capabilities based on physician, hospital, and pharmacy encounters, it’s surprising that hospital systems are only now mobilizing in a concerted way to monetize the clinical data they generate.
Like Civica, an earlier health system collaboration around pharmaceutical manufacturing, Truveta’s launch signals that large national and regional systems are waking up to the value of scale they’ve amassed over time, moving beyond pricing leverage to capture other benefits from the size of their clinical operations—and exploring non-merger partnerships to create value from collaboration. There will inevitably be questions about how patient data is used by Truveta and its eventual customers, but we believe the venture holds real promise for harnessing the power of massive clinical datasets to drive improvement in how care is delivered.
Nearly a year after the first confirmed case of COVID-19 in the U.S., some of the nation’s largest health systems made a case for the need to accelerate toward value-based arrangements and potentially acquiring or partnering with health plans to become an integrated system.
Amid new records for deaths and cases from the novel coronavirus, executives gathered virtually for J.P. Morgan’s 39th annual healthcare conference, which typically draws prominent healthcare leaders to San Francisco at the start of each year.
The pandemic has been a heavily discussed topic during the digital gathering. One theme has been health systems either acknowledging they are on the hunt for health insurer acquisitions and partnerships or advocating for such arrangements as result of the challenges.
Anu Singh, managing director and the leader of the mergers, acquisitions and partnerships practice at consultancy Kaufman Hall, said it’s a natural migration for health systems, though it does come with some risk.
“If you want to move into the realm of being a population health manager, and take greater responsibility for your patient bases, you’re going to have to be thinking about maintaining their health,” Singh said. “And that’s typically something that, at least traditionally and historically, has been driven a little bit more by the health plan.”
For Utah’s Intermountain Healthcare, the lessons of the pandemic are clear: The industry needs to move away from a system that rewards volume. Intermountain is a fully integrated system that manages both providers and an insurance unit.
“It is becoming increasingly apparent that systems that are well integrated, especially systems that understand how to take risks, have prospered in the face of the terrible burden, caring for people in the midst of the first pandemic in 100 years,” Intermountain CEO Marc Harrison said Monday.
From his vantage point, Harrison said it has been interesting to watch the consternation around telehealth visits.
“Lots of folks who are really still caught in the volume-based system are actively switching patients back from tele- or distance to in-person visits so they can maximize revenue,” he said. “I understand that. But that’s a really great example of poorly aligned incentives.”
Intermountain has managed to stay in the black as many other systems have struggled financially as a result of the pandemic driving down patient volumes. It reported net income of $167 million through the first nine months of 2020, compared with $919 million the year prior.
Another integrated system, Baylor Scott and White Health, the largest nonprofit system in Texas, said such diversification has helped buoy its finances as hospital and clinic operations bottomed out in the spring due to the virus.
Baylor Scott and White illustrated this point by showing how operating income for its clinical segment took a nosedive in the spring while operating income for its health plan remained relatively steady.
The theme of integrated health systems also seemed to be on the minds of investors. CommonSpirit Health executives were asked during their presentation if buying or creating a health plan was on their radar as the system has a sizable footprint of 140 hospitals across the country.
“I think this is a interesting question, one that of course we’ve discussed many times strategically,” CFO Daniel Morissette said, noting the system does have a number of regional plans. “At this time, we have no plan of having a national CommonSpirit branded plan.” However, Morissette said the system would consider a partnership opportunity.
On the other hand, Midwest-based Advocate Aurora Health said it is actively on the hunt for a potential insurer deal as part of its long-term strategy.
“We do believe that having health plan capability, not necessarily having our own, but partnering for health plan capability, is going to be critical to our success, and we are taking steps to do that,” CEO Jim Skogsbergh said during the virtual conference.
Kaufman Hall said in its latest report that it expects more payer-provider partnerships as a result of the pandemic. “Limitations on fee-for-service payment structures exposed by the pandemic may increase the number of payer-provider partnerships around new payment and care delivery models,” according to the report.
Singh of Kaufman Hall said it’s not surprising that some may lean more toward a partnership due to the risks of starting a new venture, especially an insurance unit that can have “catastrophic loss”. Systems with less experience of moving toward implementing value-based initiatives may be more vulnerable to such risk.
It’s why he thinks partnerships may be a good fit, at least at first. Payers and providers can work together to improve the health of certain populations and then share in the cost savings.
Sitting in the dark before 6 am in my Los Angeles house with my face lit up by yet another Zoom screen, wearing a stylish combination of sweatpants, dress shirt and last year’s JPM conference badge dangling around my neck for old times’ sake, I wonder at the fact that it’s J.P. Morgan Annual Healthcare Conference week again and we are where we are. Quite a year for all of us – the pandemic, the healthcare system’s response to the public health emergency, the ongoing fight for racial justice, the elections, the storming of the Capital – and the subject of healthcare winds its way through all of it – public health, our healthcare system’s stability, strengths and weaknesses, the highly noticeable healthcare inequities, the Affordable Care Act, Medicaid and vaccines, healthcare politics and what the new administration will bring as healthcare initiatives.
I will miss seeing you all in person this year at the J.P. Morgan Annual Healthcare Conference and our annual Sheppard Mullin reception – previously referred to as “standing room only” events and now as “possible superspreader events.” What a difference a year makes. I admit that I will miss the feeling of excitement in the rooms and hallways of the Westin St. Francis and all of the many hotel lobbies and meeting rooms surrounding it. Somehow the virtual conference this year lacks that je ne sais quoi of being stampeded by rushing New York-style street traffic while in an antiquated San Francisco hotel hallway and watching the words spoken on stage transform immediately into sharp stock price increases and drops. There also is the excitement of sitting in the room listening to paradigm shifting ideas (teaser – read the last paragraph of this post for something truly fascinating). Perhaps next year, depending on the vaccine…
So, let’s start there. Today was vaccine day at the JPM Conference, with BioNTech, Moderna, Novovax and Johnson & Johnson all presenting. Lots of progress reported by all of the companies working on vaccines, but the best news of the day was the comment from BioNTech that the UK and South Africa coronavirus variants likely are still covered by the BioNTech/Pfizer vaccine. BioNTech’s CEO, Prof. Uğur Şahin, M.D., promised more data and analysis to be published shortly on that.
We also saw continued excitement for mRNA vaccines, not only for COVID-19 but also for other diseases. There is a growing focus (following COVID-19 of course) on vaccines for cancer through use of neoantigen targets, and for a long list of infectious disease targets.For cancer, though, there continues to be a growing debate over whether the best focus is on “personalized” vaccines or “off the shelf” vaccines – personalized vaccines can take longer to make and have much, much higher costs and infrastructure requirements. We expect, however, to see very exciting news on the use of mRNA and other novel technologies in the next year or two that, when approved and put into commercialization, could radically change the game, not only as to mortality, but also by eliminating or significantly reducing the cost of care with chronic conditions (which some cancers have become, thanks to technological advancement). We are fortunate to be in that gap now between “care” and “cure,” where we have been able with modern medical advances to convert many more disease states into manageable chronic care conditions. Together with today’s longer lifespans, that, however, carries a much higher price tag for our healthcare system. Now, with some of these recent announcements, we look forward to moving from “care” to “cure” and substantially dropping the cost of care to our healthcare system.
Continuing consolidation also was a steady drumbeat underlying the multiple presentations today on the healthcare services side of the conference – health plans, health systems, physician organizations, home health. The drive to scale continues, as we have seen from the accelerated pace of mergers and acquisitions in the second half of 2020, which continues unabated in January 2021. There was today’s announcement of the acquisition by Amerisource Bergen of Walgreens Boots Alliance’s Alliance Healthcare wholesale business (making Walgreens Boots Alliance the largest single shareholder of Amerisource Bergen at nearly 30% ownership), following the announcement last week of Centene’s acquisition of Magellan Health (coming fast on the heels of Molina Healthcare’s purchase of Magellan’s Complete Care line of business).
On the mental health side – a core focus area for Magellan Health – Centene’s Chief Executive Officer, Michael Neidorff, expressed the common theme that we have been seeing in the past year that mental health care should be integrated and coordinated with primary and specialty care. He also saw value in Magellan’s strong provider network, as access to mental health providers can be a challenge in some markets and populations. The behavioral/mental health sector likely will see increased attention and consolidation in the coming year, especially given its critical role during the COVID-19 crisis and also with the growing Medicaid and Medicare populations.There are not a lot of large assets left independent in the mental health sector (aside from inpatient providers, autism/developmental disorder treatment programs, and substance abuse residential and outpatient centers), so we may see more roll-up focus (such as we have seen recently with the autism/ABA therapy sector) and technology-focused solutions (text-based or virtual therapy).
There was strong agreement among the presenting health plans and capitated providers (Humana, Centene, Oak Street and multiple health systems) today that we will continue to see movement toward value-based care (VBC) and risk-based reimbursement systems, such as Medicare Advantage, Medicare direct contracting and other CMS Innovation Center (CMMI) programs and managed Medicaid. Humana’s Chief Executive Officer, Bruce Broussard, said that the size of the MA program has grown so much since 2010 that it now represents an important voting bloc and one of the few ways in which the federal government currently is addressing healthcare inequities – e.g., through Over-the-Counter (OTC) pharmacy benefits, benefits focused on social determinants of health (SDOH), and healthcare quality improvements driven by the STARS rating program. Broussard also didn’t think Medicare Advantage would be a negative target for the Biden administration and expected more foreseeable and ordinary-course regulatory adjustments, rather than wholesale legislative change for Medicare Advantage.
There also was agreement on the exciting possibility of direct contracting for Medicare lives at risk under the CMMI direct contracting initiative. Humana expressed possible interest in both this year’s DCE program models and in the GEO regional risk-based Medicare program model that will be rolling out in the next year. Humana sees this as both a learning experience and as a way to apply their chronic care management skills and proprietary groups and systems to a broader range of applicable populations and markets. There is, however, a need for greater clarity and transparency from CMMI on program details which can substantially affect success and profitability of these initiatives.
Humana, Centene and Oak Street all sang the praises of capitated medical groups for Medicare Advantage and, per Michael Neidorff, the possibility of utilizing traditional capitated provider models for Medicaid membership as well. The problem, as noted by the speakers, is that there is a scarcity of independent capitated medical groups and a lack of physician familiarity and training. We may see a more committed effort by health plans to move their network provider groups more effectively into VBC and risk, much like we have seen Optum do with their acquired fee for service groups. Privia Health also presented today and noted that, while the market focus and high valuations today are accorded to Medicare lives, attention needs to be paid to the “age in” pipeline, as commercial patients who enroll in original Medicare and Medicare Advantage still would like to keep their doctors who saw them under commercial insurance. Privia’s thesis in part is to align with patients early on and retain them and their physicians, so as to create a “farm system” for accelerated Medicare population growth. Privia’s Chief Executive Officer, Shawn Morris, also touted Privia’s rapid growth, in part attributable to partnering with health systems.
As written in our notes from prior JPM healthcare conferences, health systems are continuing to look outside to third parties to gain knowledge base, infrastructure and management skills for physician VBC and risk arrangements. Privia cited their recent opening of their Central Florida market in partnership with Health First and rapid growth in providers by more than 25% in their first year of operations.
That being said, the real market sizzle remains with Medicare Advantage and capitation, percent of premium arrangements and global risk. The problem for many buyers, though, is that there are very few assets of size in this line of business. The HealthCare Partners/DaVita Medical Group acquisition by Optum removed that from the market, creating a high level of strategic and private equity demand and a low level of supply for physician organizations with that expertise. That created a focus on groups growing rapidly in this risk paradigm and afforded them strong valuation, like with Oak Street Health this past year as it completed its August 2020 initial public offering. Oak Street takes on both professional and institutional (hospital) risk and receives a percent of premium from its contracting health plans. As Oak Street’s CEO Mike Pykosz noted, only about 3% of Medicare dollars are spent on primary care, while approximately two-thirds are spent on hospital services. If more intensive management occurs at the primary care level and, as a result, hospitalizations can be prevented or reduced, that’s an easy win that’s good for the patient and the entire healthcare system (other than a fee for service based hospital).Pykosz touted his model of building out new centers from scratch as allowing greater conformity, control and efficacy than buying existing groups and trying to conform them both physically and through practice approaches to the Oak Street model. He doesn’t rule out some acquisitions, but he noted as an example that Oak Street was able to swiftly role out COVID-19 protocols rapidly and effectively throughout his centers because they all have the same physical configuration, the same staffing ratio and the same staffing profiles. Think of it as a “franchise” model where each Subway store, for example, will have generally the same look, feel, size and staffing. He also noted that while telehealth was very helpful during the COVID-19 crisis in 2020 and will continue as long as the doctors and patients wish, Oak Street believes that an in-person care management model is much more effective and telehealth is better for quick follow-ups or when in-person visits can’t occur.
Oak Street also spoke to the topic of Medicare Advantage member acquisition, which has been one of the more difficult areas to master for many health plans and groups, resulting in many cases with mergers and acquisitions becoming a favored growth vehicle due to the difficulties of organic membership growth. Interestingly, both Oak Street and Humana reported improvements in membership acquisition during the COVID-19 crisis. Oak Street credited digital marketing and direct response television, among other factors. Humana found that online direct-to-consumer brokers became an effective pathway during the COVID-19 crisis and focused its energy on enhancing those relationships and improving hand-offs during the membership enrollment process. Humana also noted the importance of brand in Medicare Advantage membership marketing.
Staying with Medicare Advantage, there is an expectation of a decrease in Medicare risk adjustment revenue in 2021, in large part due to the lower healthcare utilization during the COVID crisis and the lesser number of in-person visits during which HCC-RAF Medicare risk adjustment coding typically occurs. That revenue drop however likely will not significantly decrease Medicare Advantage profitability though, given the concomitant drop in healthcare expenses due to lower utilization, and per conference reports, is supposed to return to normal trend in 2022 (unless we see utilization numbers fall back below 90% again). Other interesting economic notes from several presentations, when taken together, suggest that while many health systems have lost out on elective surgery revenue in 2020, their case mix index (CMI) in many cases has been much higher due to the COVID patient cases. We also saw a number of health systems with much lower cash days on hand numbers than other larger health systems (both in gross and after adjusting for federal one-time stimulus cash payments), as a direct result of COVID. This supports the thesis we are hearing that, with the second wave of COVID being higher than expected, in the absence of further federal government financial support to hospitals, we likely will see an acceleration of partnering and acquisition transactions in the hospital sector.
Zoetis, one of the largest animal health companies, gave an interesting presentation today on its products and service lines. In addition to some exciting developments re: monoclonal antibody treatments coming on line for dogs with pain from arthritis, Zoetis also discussed its growing laboratory and diagnostics line of business. The animal health market, sometime overshadowed by the human healthcare market, is seeing some interesting developments as new revenue opportunities and chronic care management paradigms (such as for renal care) are shifting in the animal health sector. This is definitely a sector worth watching.
We also saw continuing interest, even in the face of Congressional focus this past year, on growing pharmacy benefit management (PBM) companies, which are designed to help manage the pharmacy spend. Humana listed growth of its PBM and specialty pharmacy lines of business as a focus for 2021, along with at-home care. In its presentation today, SSM Health, a health system in Wisconsin, Oklahoma, Illinois, and Missouri, spotlighted Navitus, its PBM, which services 7 million covered lives in 50 states.
One of the most different, interesting and unexpected presentations of the day came from Paul Markovich, Chief Executive Officer of Blue Shield of California. He put forth the thesis that we need to address the flat or negative productivity in healthcare today in order to both reduce total cost of care, improve outcomes and to help physicians, as well as to rescue the United States from the overbearing economic burden of the current healthcare spending. Likening the transformation in healthcare to that which occurred in the last two decades with financial services (remember before ATMs and banking apps, there were banker’s hours and travelers cheques – remember those?), he described exciting pilot projects that reimagine healthcare today. One project is a real-time claims adjudication and payment program that uses smart watches to record physician/patient interactions, natural language processing (NLP) to populate the electronic medical record, transform the information concurrently into a claim, adjudicate it and authorize payment. That would massively speed up cash flow to physician practices, reduce paperwork and many hours of physician EMR and billing time and reduce the billing and collection overhead and burden. It also could substantially reduce healthcare fraud.
Paul Markovich also spoke to the need for real-time quality information that can result in real-time feedback and incentivization to physicians and other providers, rather than the costly and slow HEDIS pursuits we see today. One health plan noted that it spends about $500 million a year going into physician offices looking at medical records for HEDIS pursuits, but the information is totally “in the rearview mirror” as it is too old when finally received and digested to allow for real-time treatment changes, improvement or planning. Markovich suggested four initiatives (including the above, pay for value and shared decision making through better, more open data access) that he thought could save $100 billion per year for the country.Markovich stressed that all of these four initiatives required a digital ecosystem and asked for help and partnership in creating one. He also noted that the State of California is close to creating a digital mandate and statewide health information exchange that could be the launching point for this exciting vision of data sharing and a digital ecosystem where the electronic health record is the beginning, but not the end of the healthcare data journey.