Weekly Health Tech Reads 2/16/25

Public Company Earnings Reports

• Humana’s Q4 earnings report caused its stock to briefly sink as much as 8% early in the week. Q4 appeared to be pretty solid for Humana, as revenue and earnings were roughly in line with analyst expectations. There is some uncertainty on the timing of Humana’s return to 3% margins on the MA business, which primarily revolves around uncertainty in Stars. The earnings call is definitely one worth perusing, as it includes a lot of interesting Q&A on key aspects of the business. Duals underperformance, specifics on individual MA membership changes, challenges facing the group MA market margin, Stars performance, the path to margin improvement, and more. Here are a few takeaways across Humana’s four key levers:

  • Product experience: Humana expects to lose 550,000 MA members in 2025 (5% of its business). It’s losses in AEP were consistent with its strategy to shed unprofitable plans and shift its membership mix to focus on long-term value. D-SNP was an exception here, as it saw higher-than-expected attrition, and will face more uncertainty in 2025 with changes to the D-SNP special election period. Humana noted in prepared remarks it saw strong overall results in Florida, Illinois, and Texas, and was pleased with a high percentage of sales coming from members switching from peer MA plans.

  • Clinical excellence: Humana noted it closed 650,000 care caps in Q4. This was a race to improve Stars measurement year 2024 for the bonus year 2027. It’s still uncertain whether this effort will impact 2027, and right now, they are putting all of their energy into the measurement year 2025 for the bonus year 2028. Analysts had a lot of questions about the year-over-year improvement in margins and Stars performance as Humana seeks to get back to 3% margin in the MA business

  • Back office efficiency: Humana improved its operating expense ratio by 40 bps in 2024, noting a few key activities — optimizing the care model, unified shipping activities, outsourced non-core capabilities, and streamlined distribution. Humana noted that it achieved better performance in distribution even while driving efficiency.

  • Capital allocation and growth: Growth in primary care and Medicaid remains a key long-term priority for the business, but it is the second priority after recovering margin. Medicaid, while a long-term opportunity, is a short-term drag on margin as Humana has been in six of its ten active states for less than three years. One of the more interesting brief comments in the analyst Q&A was from Humana’s new CFO, who noted that a key priority for the organization is to get better at multi-year planning to drive more consistent returns for shareholders as they aim to get back to that 3% margin.
    

• CVS’s stock jumped 15% after reporting Q4 earnings that beat analyst expectations and presented a reasonable plan for turning around the business in 2025, with areas for outperformance. The earnings call focused heavily on Aetna and how it will return to better margin performance in future years. CVS shared that the low end of MBR guidance in 2025 is 91.5%, which is 100 bps of improvement over 2024, with room to improve that based on MA performance. CVS sees ~$3 to $4 of embedded adjusted EPS in the insurance business as it returns to normal margins — note that the top end of margins for Aetna in 2025 is only 1.5%, compared to 5% in 2023 and 7% in 2022. Here are a few notes by line of business that I shared in the HTN Slack earlier in the week:

  • Individual exchanges: Aetna ended 2024 with ~1.85 million exchange members. The IEX business lost ~10% in 2024 — on $10 billion of premium revenue, it lost almost $1 billion. Aetna made some drastic changes in pricing the business, and it expects to shed 800k+ members as a result in 2025, likely ending the year with <1 million members in IEX.

  • Medicare Advantage: This business is going to shrink in the high-single digit percentage as Aetna anticipated. This will help them get closer to profitability after losing 4.5% - 5% margin on the business in 2024, although it won’t be profitable in 2025. Aetna noted a more pessimistic view on 2026 Advance Notice than I've heard from other insurers - noting the rates aren't responding to utilization sufficiently. The challenges in the Medicare Advantage business are also weighing down the health care delivery business / health care services segment in 2025. They didn't specifically say much on what that meant, aside from it'll be 2026 until healthcare delivery gets back to normal. As an aside, it is interesting to hear that sentiment expressed on the earnings call when combined with the quote from CVS’s CEO below regarding prioritizing pharmacists as central to the model. You can see a strategic shift coming in 2025.

  • Commercial: Commercial also faced pressures as the trend remained elevated. While there was some improvement in the core business, it was more than offset by issues in the stop loss business. Aetna reported the stop loss issues were similar to what others reported, seemingly a nod to the challenges Cigna noted in the market.

• Tenet’s stock didn’t move much despite a solid Q4 earnings report with an interesting story around its success in ASCs and strong potential for growth there. Tenet noted in the earnings call that it is seeing more high acuity volume in its ASCs, evidenced by a 19% increase in total joint replacements in ASCs. This is important because revenue for lower acuity procedures can be 1/9 the revenue of high acuity procedures like TJR. Tenet intends to spend ~$250 million per year on M&A in the ambulatory market, and anticipates 10 - 12 de novo centers in 2025. Despite the uncertain political landscape, Tenet also thinks that its ASC strategy will insulate it from potential challenges facing providers, noting that it has minimal exposure to Medicaid and that its ASCs operate at free-standing ASC rates, which should minimize any impact of site-neutrality changes.

Other Top Headlines

• Kaiser Permanente reported its 2024 financials last week, reporting net income of $12.9 billion on total operating revenues of $115 billion, with net income jumping significantly from $4.1 billion last year. Kaiser’s operating income has relatively little to do with its net income — operating income for 2024 was $569 million, up from $329 million in 2023. The big drivers of net income are $5.5 billion of financial investment returns and $6.8 billion of one-time gains from the acquisitions of Geisinger and Cone Health.

• Accolade filed its proxy statement related to its acquisition by Transcarent, which includes both the background of the merger discussion and the fairness opinion of Accolade’s financial advisor, Morgan Stanley. Both are worth reading through if you’re interested in understanding the financial rationale of the deal — it appears that Accolade was contemplating a transaction for some time, and that the sale process was hampered by a business facing steeply declining financial performance (check out the update from the October projections to the December projections, which cut future cash flow projections in half). The proxy document was referenced in this article by Arundhati Parmar in MedCity News exploring some of the challenges Transcarent apparently has faced as the broker community pushes back against it.

• An Oracle Executive Vice President penned the strangest piece of corporate communications I have ever read, making the case that Epic initiated a smear campaign against Seema Verma because of disagreements over interoperability. The most logical reason I’ve seen explaining the over-the-top nature of the post is that it has an audience of one in the new administration as Oracle attempts to make a move in the EMR market. Will be worth watching how this battle between Oracle and Epic plays out in the coming years.

• Bloomberg reported this week that Walgreens has brought in advisors to support with a sale and/or restructuring of VillageMD. Given the advisors reported to be involved in the process, including AlixPartners and Alvarez and Marsal, it would appear this is headed toward restructuring.

• Massive cuts are expected to Medicaid and other government programs after House Republicans asked the Energy and Commerce Committee to find $880 billion in savings in the programs it oversees, which include the ACA, Medicare, and Medicaid. The HealthcareDive article linked above does a nice job describing the various puts-and-takes involved, including staunch opposition from the American Hospital Association, among other groups. Work requirements in Medicaid and cuts to ACA subsidies seem like likely outcomes here, but will face opposition from both providers and payers.

• Primary care MSO Aledade announced it added 500 new practices to its network in 2025, growing to ~2,400 primary care organizations nationwide. Aledade’s press release noted it represents 20% of new practices joining MSSP, which seems like a really impressive market share.

• The NHS is implementing an AI tool from a startup to identify people at high risk of health issues while on waiting lists for care. Waiting lists are ballooning in the NHS, resulting in £900 million a year in negligence payouts. The article notes that the mortality risk of some patients might increase from 15% to 45% while they’re sitting on a waiting list that is 7.5 million people long. It presents some interesting perspectives on a system struggling with meeting demand, as it’s getting into some hard conversations about how to prioritize some people versus others.

• Hims and Hers, fresh off a controversial Super Bowl ad last weekend that caused its site traffic to jump by 650% percent, saw its stock price jump ~40% this week. The stock jump, which now has Hims & Hers market cap sitting above $13 billion, was apparently driven by a short squeeze.

• Walgreens has been ordered to pay $987 million in damages to PWNHealth, known as Everly, over COVID-19 testing.

• Humana and kidney care provider Monogram Health announced they are expanding their VBC partnership for in-home kidney care to four new states — Tennessee, Alabama, Mississippi, and Louisiana.

• knownwell announced it is opening six cardiometabolic practices in the Chicago area, with virtual access for patients across the midwest. Knownwell’s first clinic is in the suburbs of Boston, and it opened its second clinic in Dallas last year. Opening six clinics at once in Chicago feels like an interesting experiment in building density in a market, with the press release noting knownwell intends to partner with local health systems in Chicago.

• Virtual mental health provider Zeera, formerly known as Real, announced it has been acquired by Hazel Health.

• Premise Health and Centivo announced a partnership to launch a new health plan featuring Premise Health’s primary care model and Centivo’s clinically integrated network, targeting employers and unions.

Featured Jobs

Quote of the Week

CVS’s CEO seemed to imply an interesting potential strategic pivot in its health services business during an interview with Yahoo Finance this week, noting that it will be a key priority in 2025 to elevate the role of the pharmacist into an integrated model that is complemented by MinuteClinic and Oak Street. The quote below summarizes the shift well:

It will also be fascinating to watch how they communicate this to the street over the coming quarters — it didn’t seem to come up on the Q4 earnings call earlier this week. I’m particularly curious about what this change implies, in particular for Oak Street. The quote comes about two years to the day after the acquisition — if you go back to the communications around the acquisition announcement, it was very much positioned as not changing the Oak Street model but rather accelerating it.

A lot has changed during the past two years between the Medicare Advantage headwinds, the issues the Aetna business has faced, and the leadership turnover at CVS. I can understand why a new CVS leadership team might be inclined to follow a similar path to Walgreens here as they attempt to right the ship in the eyes of investors by focusing on an under-utilized asset the organization has internally. When you compare that to the uncertainty of funding losses in the MA business for the potential of unlocking future embedded EBITDA, it feels like a risky proposition in the near term.

Chart of the Week

I’ve spent a good chunk of this week looking at North Carolina State Health Plan’s Board of Trustees presentation from last Friday. It included a plan to prevent the health plan from falling off a financial cliff, as it currently projects a shortfall of $500 million in 2026 and $800 million in 2027. One of the biggest potential savings levers is the Clear Pricing Project (CPP), as the state health plan could save between $30 and $150 million by modifying it in 2026, as described by this slide:

You might recall that the state health plan introduced the CPP program in late 2018 to implement a reference-based pricing model via a new network in the state. The model was described as a key part of the effort “to keep rising health costs under control while promoting transparency, affordability, and quality care.”

The model was expected to potentially increase costs in the first few years as it paid primary care and behavioral health at enhanced rates but then drive meaningful savings after that. Yet here we are now, six years after the model was implemented, and the state is suggesting that eliminating the program entirely would save the health plan $150 million in 2026. Aetna, the SHP’s new TPA, is apparently not accepting providers into the CPP network.

It provides another counterintuitive example of what happens when a health plan pushes for transparency and lower costs. Inevitably, costs still seem to go up.

Funding Announcements

• Prenuvo, a preventive MRI-screening company, announced it raised $120 million in 2024. Its screenings are currently available in Silicon Valley, Los Angeles, and New York, with more locations to come.

• Harrison.ai, an Australian AI medical imaging platform, raised $112 million for international expansion.

• Candid Health, a platform helping telehealth providers with medical billing, raised $52.5 million.

• Keragon, a HIPAA-compliant automation platform for providers, raised $7.5 million.

• VitalChat, an AI-powered virtual nursing platform, raised $6 million.

• Cerula Care, a behavioral health and care navigation model for oncology patients, raised $3.7 million. Cerula launched in 2024 with partnerships with three oncology practices.

• Sol Health, a mental health model for Gen Z, announced that it raised pre-seed funding.

Good Reads

2025 Trends Report: Strategy is (finally) back in the driver’s seat by Vizient
This is a fascinating piece looking at care delivery strategy as we enter 2025. It highlights four key opportunities: increasing access points, outpatient pharmacy, analytics and AI, and Medicare Advantage. Highly recommend checking it out. Read more

A Reinsurance Program To Mitigate Selection In Medicare Advantage by Daniel Shenfeld, Ezekiel Emanuel, and Ravi Parikh.
This Health Affairs piece suggests a reinsurance program as a way to reduce overpayments in Medicare Advantage due to favorable selection. Read more

Doctor Wanted: Small Town Offers Big Perks To Attract a Physician by Daniel Chang
This KFF piece explores how a small town in Florida is struggling to attract a physician to practice in the town and the challenges that towns like this face more generally. The fact that the town had multiple applications from NPs to practice there but wanted to hold out for a PCP I think is indicative of the challenge, and a potential solution. Read more

Industry Voices—Understanding the legal pitfalls of virtual 2nd opinions by Nathaniel Lacktman
A good look at the potential legal risks providers face in using virtual second opinions with the understanding they are “educational” only and not practicing medicine. Read more

AI is impersonating human therapists. Can it be stopped? by Sigal Samuel
An interesting look at a new piece of legislation being introduced in California that would ban companies from developing AI that pretends to be a healthcare provider. The bill appears to have the support of big players in the healthcare industry, including SEIU California and the California Medical Association. No surprise there, really, but it seems to be a good indicator of the types of political conversations we’ll be having in the coming years regarding the use of AI in clinical settings. Read more

Experiences of Telehealth Reimbursement Policies in Federally Qualified Health Centers by Thalia Porteny, Sorcha Brophy, and Emily Burroughs
A qualitative study in JAMA Network Open exploring how Medicaid telehealth reimbursement policies impacted FQHCs in New York. It’s interesting to see the themes of the interviews with FQHC staff, with challenges in telehealth policies making inequities worse. It has some eye opening examples — i.e. an FQHC that had a 700 patient waiting list for behavioral health after going from 8 practitioners to 4 when they were required to work from the office versus remote. Read more