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- Weekly Health Tech Reads | 1/14/23
Weekly Health Tech Reads | 1/14/23
UHC earnings, McKinsey healthcare profit pools, Harbor Health raises $95 million, and more!
Amanda DiTrolio & Kevin O'Leary
January 14, 2024
KEY ITEMS FROM THE WEEK
Sharing perspective on the news, opinions, and data that made us think the most this week
News
Summary: UHG's earnings call Friday morning featured a lot of discussion about an uptick in medical costs, which UHC largely attributed to seasonal utilization and higher costs of COVID hospitalizations. Medicare Advantage growth came in light during AEP, which sounds like it was due aggressive benefits from competitors and also hospital network contract discussions going down to the wire for 1/1/2024. UHC expects strong growth outside of AEP this year to hit growth targets of 450k - 550k for the year.
My Thoughts / Reactions:
UHC shared that its Medicare Advantage growth during open enrollment was only 100,000, lighter than it was anticipating driven in part by "one of the more aggressive years of pricing that we've ever seen". They called out the group MA business in particular as seeing very aggressive benefits and higher switching than UHC expected. It has shared previously that its full year growth goal is 450 - 550k members. Last year, UHC grew by 430k members outside of open enrollment, which represented 60% of total growth last year. It will be worth watching how this growth trends this year as well.
UHC shared further details on the increased seasonal utilization, attributing it mostly to seniors showing up to the doctor for the first time in a while in order to get an RSV vaccination. Some seniors end up needing to receive additional care when they receive the vaccination. Increased costs of COVID-related hospitalizations was another factor driving the higher costs. It was interesting to hear the tone of this part of the conversation - analysts seemingly concerned by the increase, UHG sharing that ultimately its a good thing for healthcare because people are receiving needed care.
An analyst asked an interesting question about whether UHC has seen an increase in health systems leaving its MA network. UHC's response was that they're not seeing any increase in hospitals leaving networks, despite the public coverage highlighting contentious negotiations. They did note that more hospitals came down to the last minute negotiations this year, which apparently may have driven some of the lower enrollment in UHC plans during open enrollment. It is also part of why they're confident in enrollment during rest of year, now that those systems are officially in the network. It is interesting to square this commentary with the public coverage of payor / provider negotiations. Just this week we saw more news on this front with Baptist Health leaving UHC and Centene's MA networks (after leaving Humana's MA and commercial network in the fall). I'll be curious to see if at some point this trend does indeed result in more hospitals following through with leaving networks and the impact of that.
One of the details that was discussed in Q&A was around member engagement in Optum Health. In 2023, Optum started with a 20% engagement level of its 900k net new patients. Over the year, Optum was able to get that to 80% of its patients. This year, they'll start the year with a 50% engagement level of its net new patients. That is a huge shift in engagement levels for Optum Health, and UHG leaders made a point to highlight it, although it wasn't entirely clear from the call the mechanism that was driving that increase.
Data
Summary: The McKinsey report digs into where profits are going to be generated across payor, technology, care delivery, and pharmacy segments between now and 2027. As always, if you're interested in understanding how the innovation landscape might shift over the coming years, these analyses are worth thinking deeply about. We'll dive into some of the trends covered below. Between this, public company updates, and investor predictions for 2024 you can certainly start to see some of potential changes ahead - ICHRA taking off, specialty VBC care, Duals population growth, MA slowdown, AI-based platforms for providers / payors, and more. Some of the trends that caught my attention are below.
My Thoughts / Reactions:
On the insurance front, McKinsey seems to think EBITDA growth in the Medicare market on the whole will abate, but the Duals program will see a dramatic increase. It sees MA profit falling to 5% growth between 2022 - 2027, down from 9% growth between 2019 - 2022. This will be driven by margin compression because of regulatory pressure. On the other hand, it predicts that Duals profitability will grow at a 9% clip, an indicator we'll be hearing a lot more about models that target this population specifically in the coming years. It's pretty wild to see the profit pool chart depicting Duals neck and neck with Medicare Advantage as the largest insurance markets (by EBITDA generated) in 2027. McKinsey also notes it expects lives in VBC contracts to double, from 43 million today to 90 million in 2027. The individual market is also anticipated to grow meaningfully with a number of tailwinds at its back, including ICHRA.
On the care delivery side, McKinsey sees health systems getting back to steady growth at a 11% clip through 2027, with many segments of care delivery growing 10%+ (at least in part due to a lower 2022 base because of labor costs). While virtual care delivery appears to be growing quickly, McKinsey estimates it will still only account for 1% of care delivery EBITDA in 2027 ($4 billion out of $366 billion). VBC-staffed models appear to be in a similar category - growing quickly but a drop in the bucket of the broader office-based physician profit pool. That said, penetration of specialty VBC models could more than double in areas like orthopedics and nephrology, underscoring the activity we're likely to see in those models in the coming years.
Funding
Summary: Harbor is intending to build a vertically integrated pay-vidor, focused on the Austin market first. Harbor currently operates eight clinics, two mobile units, and has 50,000 patients, all in the Austin metro area. It is taking risk via a number of channels, including the ACO REACH program, BCBS TX contracts across all lines of business, and multiple other risk contracts with payors and employers. General Catalyst led the funding, and in its announcement it mentioned that Harbor consists of four key pieces - medical group, an insurance arm, a clinically integrated network, and a tech platform. It would appear from the outside that the medical group component is the furthest along at the moment (perhaps alongside the tech supporting it).
My Thoughts / Reactions:
This is going to be a fascinating play to watch as it evolves over the next several years, and one that I think folks should be keeping a close eye on. I imagine every health system exec has thought to themselves at least once or twice over the past few years something like: "what would it look like if we just blew up the model and started over?" While some of the other big efforts to disrupt the health system recently (Risant, HATCo) are more focused on evolving the existing core business, Harbor seems to be a well-financed attempt at starting afresh to build a new approach from the ground up. Check out this LinkedIn post from Harbor’s CMO shared looking to hire specialty leaders across neuro, endo, gastro, pulmonary, and rheumatology. Certainly seems to hint at their health system-esqe aspirations.
It'll be interesting to think about Harbor's growth trajectory here and when/how/if they attempt to enter market two. Harbor seems to be very focused on building density in a market, given it is only operating in Austin and doesn't seem to mention anything about market growth in the press release. The Austin metro area has almost a million people, which means that Harbor already has relationships with ~5% of the market. As a comparison, the data CVS shared in its recent investor day implied it had ~11% penetration in its most heavily penetrated market, Chicago. Given the specialty infrastructure that Harbor is seemingly looking to build, I'd imagine that they'll be looking to (and need to) drive significantly more scale in a local market like Austin, attempting to be akin to a brand name system that attracts a third of a local market.
It is curious to me why Harbor is making a splash with this funding now after flying under the radar for so long. Per LinkedIn, the Harbor Health team has been working on this for two years now. They've been able to drive solid market growth in Austin while flying under the radar. It doesn't look like they've had any issue attracting capital given they had already quietly raised $30 million (the press release notes Harbor has raised $125.5 million to date). So it seems like the most logical explanation would be start building brand awareness in the industry for new market entry conversations, but given all of the points above I'm not sure that seems like a near term ambition for Harbor.
All in all, Harbor seems like an ambitious bet, but it also appears to have some solid footing in the Austin market. I'd keep an eye on this one.
Join the HTN Slack Convo (h/t Michael Ceballos)
Initial thoughts from the activity out of SF this week
As I catch up on all of the presentations from JPM, here are some initial thoughts on the more interesting takeaways from company sessions. HTN members should expect to see a deeper update on presentations next week!
Alignment Healthcare is one of only insurers I've heard talk publicly about their RAF score, citing an overall RAF score of 1.13, and noting that with v28 changes if you're above 1.5, you have a lot of downside in the business, but if you're down where they are already there's actually upside. Alignment was also very excited about the growth it saw in AEP, with 82% of the growth coming from individuals switching plans, calling out that was evenly distributed from other plans and not weighted toward Bright. When asked about growing in new markets, Alignment shared that they'll be looking to grow via co-branded opportunities with leading health systems that are looking to lower Medicare admissions so they can free up beds for commercial admissions.
Kindbody sounded as though it is ready to go public in 2024, but it is being patient as it doesn't want to be the first digital health company to go to market. It would rather let others test the waters first, noting that a number of companies have been eying the market for the past two to three years. Meanwhile, Kindbody shared it is on track to EBITDA positive in 2024 with just under $300 million in revenue.
Oscar saw good growth in the individual market (+38% YoY excluding California) and is expecting the insurance business to be profitable in 2024. The next key growth strategy for Oscar will be ICHRA over the next few years, with Medicare Advantage being a longer term opportunity leveraging +Oscar to enable health systems to offer white labeled plans. Bertolini mentions he's seeing a lot of provider systems leaving Medicare Advantage contracts with insurers today, which runs a bit counter to what UHC mentioned they're seeing, and you can see why that would make Oscar excited about the opportunity to partner with health systems. Bertolini referred to Oscar as a "pirate ship with cannons amidst Spanish galleons filled with gold. They're called big insurance companies."
Privia spent some time discussing its growth aspirations as a multi-specialty model, well beyond its initial focus of supporting primary care. This is in part because of the recognition that 80% of the cost they're attempting to manage in VBC contracts sits downstream from the PCP. So including specialists in the model is a key part of growth for Privia moving forward. As noted in the conversation, all of a sudden Privia might start to look a lot more like a Kaiser-like HMO format in local markets where it is successful in building density. Privia's CEO mentioned that somehow it wouldn't need to restrict access to providers in doing so, although I'm not quite sure I understand how that adds up. Privia also noted that even in the largest state it is in, it only has 10% of independent primary care providers, highlighting the levels of density it has built in markets.
CHART(S) OF THE WEEK
Sharing a visual or two from the week that made us think
Rock Health 2023 digital health funding report
The Rock Health team published their annual digital health funding report looking at funding levels and investment trends in 2023. It won't come as a surprise to readers here that funding came in at the lowest levels since 2019, pulling in $10.7 billion across 492 total deals. That number is down from almost $30 billion in 2021. The report is worth digging into as the authors unpack the story behind the numbers looking at how increased series extensions, unlabeled rounds, and silent rounds and how that impacted the fundraising ecosystem broadly.
Rising cancer rates among younger adults
The WSJ highlighted the rising incidence of some types of cancer among younger adults in the US, including colorectal. It's striking to look at the graph above displaying the cumulative change in cancer cases by age brackets - while we're making significant progress in older populations, the spike since the late 1990s in the 15 - 39 year group is scary.
MedPAC debates whether MA is a good thing
The MedPAC meeting on Friday sounds like it got heated as attendees debated the merits of MA and the impartiality of MedPAC's analysis. MedPAC has routinely called into question MA spending, with charts like the one highlighted above from the session showing an estimated $350 billion in MA payments above FFS between 2020 - 2024.
ACA enrollments jump to 20+ million in 2024, up from 11 million in 2020
A solid KFF report highlights the jump in ACA enrollment in 2024, which it attributed in part to Medicaid disenrollments. The 2024 data is only through December 23rd, so that number will increase as well as open enrollment continues into January. The report also noted that as a result of Medicaid disenrollments that ACA enrollment actually grew in 2023 outside of the open enrollment period, which is unusual for the market.
OTHER NEWS
A round-up of other newsworthy items we noticed during the week
Amazon Health and virtual care provider Omada Health announced a new partnership during JPMorgan as part of Amazon's new Health Condition Program. Amazon's new model appears designed to connect Amazon members with digital health companies offering access to diabetes, pre-diabetes, and hypertension programs via insurance. It is notoriously challenging for digital health companies to get employees to adopt available benefits, and it seems like this relationship is aimed at testing how much volume Amazon can drive here. Will be interesting to watch how quickly Amazon Health adds other providers into the model, including its own One Medical chronic condition programs.
Link / Slack (h/t Katie Chlada)
New York State Medicaid announced the approval of its Section 1115 waiver, which will provide $7.5 billion in funding over the next 3 years to increase access to primary and behavioral health care and advance health equity issues for Medicaid recipients in the state.
Link / Slack (h/t Jordan Lowmark)
Cityblock announced a new partnership with Buckeye Health Plan, a managed Medicaid plan and subsidiary of Centene, to provide Cityblock community-based health services to the plan's 10,000 members in the Cleveland-Akron-Canton region. Cityblock also shared this week at JPM that it hit $1 billion of revenue in 2023, up from $500 million in 2021.
Link / Slack (h/t Lisa Bari)
Uber Health announced a partnership with Socially Determined, a SDOH analytics platform, to help payors and providers identify members/patients in need of resources like transportation to medical appointments, grocery and prescription delivery, and more.
Link
Commons Clinic, a value-based MSK provider, announced a new $100 million initiative called the Center for Spine Economics, Outcomes & Research. The effort will research new models aimed at taking spinal care out of the hospital and moving it into community-based accountable care networks.
Link
FUNDING
A collection of notable startup financing rounds across the industry
WellBe Senior Medical secured a strategic investment from and partnership with CVS Health Ventures to expand its national presence. The company currently operates across seven states, serving 107K+ MA members.
Link / Slack (h/t Michael Ceballos)
Artisight raised $42 million for its AI-based smart hospital platform.
Link / Slack (h/t Brendan Keeler)
Vita Health, a suicide intervention startup, raised $22.5 million in Series A funding to support its national expansion efforts.
Link / Slack
Avante Health, a stealth company in the employer market, raised $10 million.
Link / Slack (h/t David Cooper)
Arbital Health, an adjudication startup, acquired Santa Barbara Actuaries, a VBC-focused consulting firm, and secured $10 million in Series A funding.
Link / Slack (h/t Samir Unni)
Care Continuity, a care coordination platform, raised $10 million in Series A-3 funding. The new financing will help integrate AI capabilities and enhanced patient care journeys.
Link / Slack
XRHealth, a virtual reality mental health company, secured $6 million in funding. The company provides VR technology to treat various mental and physical conditions at home and plans to use the fresh capital to support its merger with Amelia Virtual Care.
Link / Slack
Credo Health, an AI-enabled VBC platform, secured $5.25 million in Seed financing. The startup's platform performs risk analysis, clinical summaries and HEDIS Gap Closure.
Link / Slack (h/t Carm Huntress)
QuantHealth, an AI-powered clinical trials platform, secured strategic investment from Accenture.
Link / Slack
WRITERS GUILD
A round-up of posts from the broader healthcare community this week that made us think
Should providers steer toward or away from GUIDE? by Milliman
A group at Milliman penned an interesting piece looking at the GUIDE program, a new CMS model designed to support individuals with dementia. The paper discusses the opportunity at hand, and also the risks for providers in entering the program.
2024 Healthcare and Life Sciences Predictions by Bessemer Venture Partners
The BVP team shared ten predictions for 2024 plus some additional thoughts from their portfolio companies. It hits on a lot of the themes were seeing from the public markets - specialty care delivery models, Medicare Advantage pressures, and commercial VBC, among other things.
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