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- Weekly Health Tech Reads | 11/3/24
Weekly Health Tech Reads | 11/3/24
2023 MSSP results released; Alignment, Cigna, and Humana report earnings; digital hypertension solutions evaluated, and more
Kevin O'Leary
November 03, 2024
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MSSP RESULTS
CMS announces MSSP generated net savings of $2.1 billion in 2023
CMS shared this week that the Medicare Shared Savings Program generated $5.2 billion in gross savings, with $3.1 billion paid to providers in shared savings payments, and CMS retaining net savings of $2.1 billion. This represents the highest amount of savings achieved in the MSSP program to date.
The chart below from the Alliant Health Services team summarizes the 2023 performance year results and how it compares to prior years. Gross savings and net savings rates are higher than they’ve previously been, at 4.2% and 2.4% respectively. While savings are increasing, the size of MSSP has declined slightly over the last few years as the total number of MSSP ACOs and aligned beneficiaries are down 12% and 4%, respectively, from 2020.
✍️ Going Deeper
There were a number of perspectives posted on the MSSP results, a few of which I’ll flag here as helpful context on the news:
Brian Machut at Alliant Health shared an in-depth review of the results with some fascinating takeaways, including a helpful discussion of the Initial Savings Position and its role in determining shared savings. This will be important because many ACOs will start new contracts over the next few years, making the new baseline calculation important for future performance.
It’s worth noting that NAACOs echoed this sentiment regarding concerns about benchmark ratchets in a commentary on LinkedIn about the CMS 2025 Physician Fee Schedule final rule, which mirrors concerns it expressed about the proposed rule.
Farzad Mostashari, CEO of Aledade, shared his reflections on X/Twitter about the 2023 performance year results. As usual, it’s worth checking out. Mostashari does a nice job highlighting how primary care-led ACOs did a better job than their counterparts. Aledade generated $540 million in shared savings payments, and saw an average savings rate of 7.2%.
Privia also shared its MSSP performance, noting that 9 of its 10 ACOs generated savings, for a total of $176.6 million in shared savings payments from CMS. This was a 34% increase in savings payments from the 2022 performance year. Privia saw an average savings rate of 7.6%.
Zach Davis of Wakely noted the similarity in results between 2023 and 2024, pondering whether that is a good thing or a bad thing. Either way, if CMS is going to hit its goal of 100% of beneficiaries in value-based relationships by 2030, we’ve got a long ways to go.
Q3 MA Earnings
Alignment and Humana provide a glimpse into Medicare Advantage performance
Alignment and Humana reported Q3 earnings this week, providing an interesting glimpse into the Medicare Advantage market and its strategic direction.
On the one hand, you have Humana telling Wall Street it is questionable whether it can get back to its 3% margin on the business by 2027 and is scrambling to improve its Star ratings. On the other hand, you have Alignment confidently telling a narrative that it has “built a better mouse trap” in the Medicare Advantage space.
Lets dig into each a bit more:
Humana’s Earnings
Humana’s stock briefly jumped on its earnings report on Wednesday as results came in better than expected. The call honed in on four key business drivers: 1. a product experience that meets consumer needs and is priced appropriately, 2. clinical excellence, 3. an efficient back office, and 4. deploying growth capital for Centerwell and Medicaid. It’s a helpful framework to understand how they’re thinking about the business. A couple of takeaways from the call related to those levers:
Humana shared that it sees 2024 EPS performance as the floor of its potential performance heading into 2025, with room for improvement depending on how open enrollment plays out. Humana will give more formal guidance for 2025 in Q4 earnings and at an Investor Day in May 2025. Any margin progression Humana sees in 2025 will be related to exiting unprofitable plans, given the limited ability to expand margins within specific plans in 2025 due to the headwinds the industry faces (v28, IRA changes) and the TBC thresholds.
Humana needs to make “meaningful progress” on its Stars performance to hit its 3% target margin in 2027 and is investing to do so. That investment is already underway, with Humana highlighting during the call that it drove an extra 5,000 primary care visits last week and another 3,000 in the first half of this week in an effort to close gaps in care.
It was interesting to note the first analyst question on this topic, which calculated Humana's investment in Stars (and other internal initiatives) at around $500 million. Part of the question was whether Humana's cuts in admin spending over the past few years went too far and whether it now needs to bring back functions it previously cut. The answer wasn’t super clear, but logically the answer to that would seem to be ‘yes’ given the actions here.
Humana noted that for one of its contracts, H5216, there are three phone calls that its call center received that would need to be overturned by CMS in order to achieve a 4 Star rating on that contract. You can see why so many insurers are filing lawsuits with CMS at the moment when you’re talking about only a few phone calls to your call center driving meaningful changes in revenue for these contracts.
Medical costs are in-line with Humana’s expectations, and they noted that some of the efforts underway to control costs are paying dividends. In particular, they cited moving beyond primary care in VBC contracts into kidney disease and oncology are showing good results. If I were a VBC organization taking on these contracts, I’d be asking myself how confident I am in my ability to better manage this risk than Humana, given how pleased Humana seems with the cost containment results.
Humana noted its primary care clinics are hitting clinical and financial targets while mitigating v28 impacts. It expects to add 40 clinics this year, mostly through acquiring underperforming clinics that Humana believes it can turn around.
Alignment’s Earnings
Alignment’s stock was up 14.5% this week on its strong earnings. While much of Humana’s call left a sense that Humana is scrambling to adjust to the new world in Medicare Advantage, Alignment seems much more confident in its position. This quote from Alignment’s CEO in the opening remarks describes Alignment’s positioning well:
Over the past year, CMS has implemented changes that are aligned with its original vision to reward health plans that deliver better care and value to seniors. Many organizations are struggling to adapt to CMS' higher Star standards and tighter reimbursement, creating an opportunity for companies like Alignment who have unique population health management capabilities to take share at an accelerated pace. Alignment's MA platform, which provides visibility and control across the enterprise was built to succeed in this new MA paradigm. Our fully integrated data, health plan and clinical ecosystem capabilities have resulted in consistent Star performance, lower utilization metrics, better retention and superior growth outcomes. Our ability to seize the opportunity ahead of us is further evidenced by the strength of our third quarter results.
Alignment spent some time in the earnings call describing the reasons for its success in areas like Stars while other plans have faltered. It noted it has daily cross-functional reviews of every Stars measure across markets, and its real-time visibility into utilization allows it to manage care and control costs even while driving rapid membership growth.
Alignment noted that the early results from open enrollment indicate it will hit its 2025 target growth of 20%+ while also driving solid margin expansion. The margin expansion is a result of a number of factors: the maturing cohort of members, the further implementation of v28 widening the performance gap between Alignment and its competitors, a weighted average benchmark increase of 5%, and continued operational improvements as it scales clinical operations and IPA performance management.
Q3 Earnings
Cigna writes down value of its $2.7 billion VillageMD investment to $0, nixes talk of Humana merger
Cigna shares briefly jumped almost 8% on a strong Q3 earnings report, particularly in its Evernorth business, which is experiencing strong growth in the specialty pharmacy segment. Cigna’s opening remarks in the earnings call provided some interesting commentary — it spent time defending the value of PBMs and discussing the findings of a recent report (funded by PBMs) that contradicts a recent FTC report. Cigna also quashed the recent rumors of merger discussions with Humana, noting that it intends to continue repurchasing shares with excess cash.
✍️ Going Deeper
In the care delivery world, it’s worth noting that Cigna took an impairment on its VillageMD investment for the second time this year, this time writing the value of VillageMD down to zero. In Q1, it had written the value down to $900 million, a $1.8 billion reduction from its original investment of $2.7 billion. Cigna also noted it no longer expects to receive its dividend from the VillageMD investment, resulting in a $33 million headwind to Cigna’s Q3 investment income.
The move provides a glimpse into what must be some challenging conversations between VillageMD leadership and its various investors. Remember that Walgreens noted on its earnings call a few weeks ago that its “goal is to monetize it, but to do it without destroying value unnecessarily.” I am unsure how to square Walgreen’s statement with Cigna’s decision to write the remaining value of its $2.7 billion investment down to $0, other than these two investors seem to have differing views of the business prospects for VillageMD moving forward. It will be interesting to watch what the next update from Walgreens is here.
DIGITAL HEALTH SOLUTIONS
PHTI releases report on digital health tools for hypertension
The Peterson Health Technology Institute released its latest report on the digital health market, this time looking at the impact of digital hypertension management programs. The summary chart of the evaluation is below, with medication management solutions having the most positive impact, while BP monitoring and behavior change solutions show less impact.
Other Top Headlines
Teladoc’s Q3 earnings call highlighted a company in a transition period — revenue was down 3% and EBITDA was down 6% YoY, which was a better quarter than Wall Street expected. It sounds like a lot is changing behind the scenes at Teladoc under its new CEO to better position the company for future growth. Teladoc sees good opportunity to invest in international growth in the Integrated Care segment, while it noted that US customers, specifically payors, are under pressure.
Aetna and Elevance have cut brokers commissions for some Medicare Advantage plans. Aetna notified brokers on Friday that it’s cutting commissions for 25 of its MA plans and all Part D plans. Brokers are understandably not thrilled about the change, with the NABIP issuing a press release noting the negative impact this will have on consumers by making it harder to access brokers.
In the latest Stars rating lawsuit, Elevance has again filed a lawsuit against CMS. This lawsuit centers around CMS’s practice of calculating the overall Star Rating score for a contract to the millionth - i.e. six decimal places. As the lawsuit notes, a score of 3.749999 rounds down to 3.5, a score of 3.750000 rounds up to 4. Elevance’s H3655 contract had an overall score of 3.749565, which thus was rounded down to 3.5 instead of up to 4.0. Elevance thinks this is “arbitrary and capricious” with no statutory or regulatory basis. The rounding issue, as well as an issue with CAHPS calculations, cost Elevance $375 million in quality bonus payments associated with that contract, so you can see why they’re fighting this.
This is a good update in FastCo on Amazon’s healthcare ambitions, which has honed in on three efforts: Amazon Pharmacy, One Medical’s in-person clinics, and virtual care via One Medical Pay-per-visit (the rebranded Amazon Clinic). It notes that One Medical currently has 225 clinics open, with Amazon opening 25 since the acquisition. It has plans to enter Milwaukee and New Jersey soon.
Oracle Health announced that it is applying for QHIN status under TEFCA.
CVS is expanding MinuteClinic’s primary care offerings, with Aetna commercial members able to use MinuteClinic’s for in-network primary care in a handful of MSAs (San Antonio, Houston, Atlanta, and south Florida).
Omada is seeing substantial growth in the GLP-1 market, according to this Business Insider post. This was an interesting quote from Omada CEO Sean Duffy in the article, hinting at how employer priorities have changed as GLP-1s have hit the market: “Weight loss is now at the forefront of their pitches to employers "even if we don't necessarily want it to be," Duffy said, "because it's the thing. There's such a focus on metabolic care for obesity, and then they're like, oh cool, you guys also do diabetes and hypertension."
Scrub Capital, a new early-stage venture firm focused on digital health and medical devices, is launching a $10 million fund. The fund has over 650 clinicians as LPs.
The American Heart Association is launching a new $75 million fund, focused on investing in women’s cardiovascular and brain health.
Virta Health sponsored a study of 122 participants over 5 years looking at the effectiveness of its nutritional ketosis intervention. The study notes that 61.3% of the study participants sustained 5% weight loss over the five year period, and 39.5% of participants sustained 10% weight loss.
HLTH, the leading healthcare conference company, was acquired by Hyve, an events platform.
Starup Funding Announcements
Insightful Perspectives
Medicare Advantage under pressure: How MA-PD plans are responding in 2025 by Julia Friedman
This Milliman white paper provides a helpful summary of Medicare Advantage plan changes in 2025 — decreasing numbers of non-SNP plans, increasing numbers of D-SNP and C-SNP plans, carrier exits, changes in service areas, and changes to deductibles. Read more
Can Startups Thrive in an Age of AI? by Hemant Taneja and Fareed Zakaria
It’s an interesting perspective, if for nothing else than to better understand how Taneja thinks about the AI opportunity. There’s a brief commentary around startups needing to partner more closely with large incumbents in the era of AI for access to data, expertise, and customers. It seems like an insightful glimpse into what GC might be up to between Health Assurance, HATCo, and other efforts bridging startups and incumbents to bring AI innovation to healthcare. Read more
Contributor: Vulnerable Seniors Are at Risk With Looming Medicare Advantage Cuts—Income-Based Programs Can Minimize the Damage by Andrey Ostrovsky and Anna de Paula Hanika
This article in AJMC discusses the plan design changes facing seniors in Medicare Advantage and the disproportionate impact these pland design changes will likely have on seniors. Read more
Do People in ‘Blue Zones’ Actually Live Longer? by Dana Smith
A helpful NYTimes roundup of the latest thinking on Blue Zones, digging into the controversial research that Blue Zones may have been a result of faulty record keeping instead of lifestyle differences. Either way, it includes a rather ominous Dan Buettner quote suggesting that whether or not Blue Zones did exist, they almost certainly won’t exist by a generation from now because of the modern lifestyle. Read more
Recent Changes in Medicaid Financing in Puerto Rico and Other U.S. Territories by
This KFF post does a nice job describing how Medicaid financing is different for US Territories than it is for states. Read more
One to Zero by Benjamin Schwartz
An interesting perspective on Marc Andreessen’s recent tweet about the rapid decline of trust people have in physicians and hospitals. Read more
Medicaid’s Edge Case—Potential Expansion and Work Requirements in Mississippi by Benjamin Sommers, Lauren Gullett, and Shira Hornstein
A JAMA Forum article looking at the potential for Medicaid expansion in Mississippi. It does a nice job looking at various elements of the decision — how many people would be likely to gain coverage, federal versus state funding, and the impact of work requirements on the population. Read more
Dentists Are Pulling ‘Healthy’ and Treatable Teeth To Profit From Implants, Experts Warn by Brett Kelman and Anna Werner
An unsettling read about the rise of dental implants and how people are having teeth removed unnecessarily. Not surprisingly, private equity plays a role here as the industry has spent $5 billion rolling up dental practices into large dental chains. Read more
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