Weekly Health Tech Reads | 1/19/25

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CONFERENCES

The JP Morgan Healthcare Conference comes and goes

All eyes were on San Francisco this week as the annual JPMorgan conference came and went. I’ll share some of my takeaways below, but first here are a few links to the extensive coverage of the conference:

• Modern Healthcare: All coverage, Day 1, Day 2, Day 3, Day 4, Key Takeaways

• Fierce Healthcare: All coverage, Day 1, Day 2, Day 3

• Stat: All coverage (more biotech focused)

• Bailey and Company shared a helpful recap of the conference on LinkedIn

✍️ Going Deeper

Here are a few of the more interesting takeaways from all the above as I read and listened to summaries of the event this week:

• Insurance presentations: A number of sites picked up on this being a light year in terms of insurance presentations, with multiple insurers backing out of the conference in recent weeks. Alignment and Clover both still presented, and I can see why, as both are very bullish about their prospects in Medicare Advantage. Clover touted 27% year-over-year growth as it hit 100,000 MA members for 2025. Clover has a really interesting narrative about the benefit of not having value-based care contracts and focusing on compensating physicians well in a fee-for-service environment while managing a PPO network. Alignment noted that its disciplined approach to bids and general focus on care management will put it in a very strong position over the coming years as the industry continues to work through the headwinds associated with v28 and Stars. It’s interesting to compare / contrast the two different approaches there and see how both seem very optimistic about their ability to win in the MA environment over the next few years.

• Health system presntations: It’s interesting to read through the summaries of health system presentations as it seems like so many are working on new initiatives. A strategic focus on outpatient care seemed like the biggest theme across the presentations. It was particularly interesting to see AdventHealth set a goal of achieving a 6% operating margin on its primary care business by 2030, putting $500 million into primary care between now and then, with a focus on M&A around its existing markets. It feels like health systems have been talking forever about shifting primary care from a loss leader to a profit center; it will be interesting to see if now is actually the time for that. With AdventHealth and others talking about prioritizing outpatient assets, and Sutter and Novant talking about partnering more closely with Medicare Advantage payors, it gives a good sense of how these organizations think about strategy moving forward, with an increasing focus outside of the hospital.

• Digital health M&A: There seems to be a general sense that we will see a lot of M&A activity in digital health this year, as we already have to kick the year off. In many ways it feels like we’ve finally reached the end of the last wave of digital health innovation as companies are reaching the end of their runway with VCs / LPs seeking distributions from previous funds. Public companies like Teladoc are no longer the buzzy growth stories they once were, telling a narrative centered on the breadth and stability of the business while attempting to right the ship.

• Early stage founder energy: As that previous wave of digital health innovation subsides, it’s interesting to note that there seems to be a new wave of founders who are in the early innings of company building. I expect we’ll see that energy increase in 2025 as the tide starts to come in again, inevitably fueled by excitement around AI. As one chapter of healthcare innovation closes, a new one begins.

340B

The 340B program: key lifeline for charity care or profit center for hospitals?

The New York Times published a fascinating that explores the complexity of the 340B program and its growth since its initial implementation. The article does a nice job explaining the history of the 340B program, which was implemented in 1992 to help support safety net hospital financials by purchasing drugs at a discount. The program has seen huge growth, particularly in recent years, which inevitably invites questions as to the profit motive behind that growth.

 Read the New York Times article

✍️ Going Deeper

The article focuses on a company called Apexus, which is a subsidiary of Vizient, a GPO for hospitals that is owned by its members. Apexus built a nice business as a middleman supporting the 340B program, and it has grown substantially alongside the 340B program. The NYT got its hands on a 2022 presentation in which Apexus was projecting $227 million of revenue for that year, double its revenue in 2018. What is more eye-opening to me is that Apexus reportedly has 80% profit margins on the business as it costs very little to operate. That number is so high it almost seems like it has to be gross margin and not net profit margin, but maybe not.

Apexus’s growth tracks along to the general growth of the 340B program, which doubled in sized between 2017 and 2022, growing from $54 billion to $107 billion in 340B sales. See this chart from IQIVIA:

The growth in the 340B program in recent years is opening it up to critique as to whether it is actually achieving its intended purpose of supporting safety-net hospitals, or if other providers are using it as a loophole to increase profits. The NYT article above links this to this white paper from the North Carolina State Health Plan in May 2024 is an excellent example of this critique. It argues that North Carolina’s largest hospitals were using the program as a way to increase profits and over-charging employees of the North Carolina State Health Plan.

It makes for yet another really good case study on the complexity of American healthcare where everyone is balancing how to earn a margin while taking care of patients. It seems pretty clear this program has grown beyond the initially intended scope and has become a massively profitable endeavor for organizations like Apexus. It should come as no surprise that for-profit investment activity has picked up in recent years as the program has grown, or that there are conversations about how to reform the program to have it better serve the interests of patients. At the same time, if the program is opening up access to medications that otherwise might not be accessible for patients, it still seems like a program that is doing good, even if it needs some modifications moving forward.

PHYSICIAN COMPENSATION

A paper on physician compensation finds total physician compensation accounts for 8.6% of total healthcare spending

A fascinating paper was released in the Quarterly Journal of Economics this week exploring the state of physician compensation in the US, using physician tax filings to look at their total income for a given year. It provides some fascinating insight into physician compensation on the whole, but this is a paragraph that will likely stick with me for some time:

Hold on just a second. Physicians were only paid $300 billion out of $3.4 trillion in healthcare spending in 2017? What?

If you had asked me how much of the roughly $4 trillion of healthcare spending in this country went to providers before reading this paper, I’m not sure what my answer would have been, but I’m pretty sure it would have been more than $300 billion. It boggles my mind that less than 10% of healthcare spending in this country goes to physician income.

It’s not that individual physicians aren’t well compensated — the paper finds the average physician in the US makes $350,000, with the top 1% of physician earners making $4 million a year on average. This chart, from the Washington Post’s analysis of an earlier working version of the paper in 2023, highlights the income of top earners, focusing on providers in the 40 - 55 age range:

The discussion of physician compensation and the implication that physicians are motivated by income appears to have spurred backlash to this paper in years past. As the Washington Post coverage notes, when data from the paper was shared on Twitter in 2020 it apparently sparked a debate as some providers viewed the analysis as indicating they’re more concerned about profits than patients. And as in so many conversations about “patients vs profits,” it appears the data suggests that the answer is probably a “yes, and” — physicians care about both their income and patients. That doesn’t seem all that surprising to me — as the author notes in the Post article, it seems like a sign of a normal labor market.

Read an open-access version of the paper from the author

Associate Director of Communications at Boulder Care, an addiction medicine company. Learn more.
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