Weekly Health Tech Reads | 6/23/24

Risant's second acquisition, the FTC prevails in NC, data on insurance coverage, and more!

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Kevin O'Leary
June 23, 2024

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NEWS

Kaiser’s VBC entity Risant is acquiring NC-based Cone Health

Cone Health, a $3 billion revenue health system based in Greensboro, NC, will become the second health system under Risant’s umbrella, following Geisinger. Cone leadership noted that the announcement comes after more than a year of work between the Cone and Risant teams. Cone has a number of assets that made it appealing to Risant, including a ~200,000-patient ACO and an insurance arm.

The two parties expect to close the transaction in the next six months after receiving regulatory approvals. Cone’s management team and Board will remain in place post-closing. Risant shared earlier this year that it intends to acquire four to five health systems over the next five years.

✍️ Going Deeper

The Stat article linked above is a good read on the acquisition. It notes that Risant is not paying anything to acquire Cone, but Risant will become Cone's sole equity holder via a member substitution transaction (explainer here).

While terms weren’t disclosed, presumably this means that Cone's fair market value is being accounted for in an investment from Risant post-closing. That would seemingly mirror the Geisinger acquisition structure, where Risant committed to invest $400 million after closing.

It’s going to be interesting to watch the public reaction to this news in the local market. Back in 2021, public backlash appeared to have derailed a planned merger between Cone and Sentara Health, with concerns over an out-of-state takeover. The structure of this deal with Risant appears designed in part to ensure that Cone is still operated locally and side-step the issues encountered with Sentara.

  • The decision by Risant to leave both the local leadership team and board in place will be fascinating to watch in future years. It seems inevitable that in future years there will be strategic disagreements between what a local Board thinks is best for their community versus what the Risant parent thinks is best. Allowing the local board to retain decision-making rights in those scenarios would seem to hamper the broader transformational goals of Risant, although it is likely a necessary concession to execute the acquisition strategy here.

NEWS

FTC prevails after appeals court injunction blocks Novant acquisition of Charlotte-area hospital

Novant abandoned plans to acquire Charlotte-area hospitals after an appeals court granted an injunction blocking the merger. The three appeals court judges did not unanimously decide, with one judge issuing a dissenting opinion that appeared to agree with the district court judge who originally ruled against the FTC.

✍️ Going Deeper

The case continues to provide a fascinating lens into the world of hospital consolidation. A lot is made in the various court documents about Novant being a bad actor of sorts, funneling money from taxpayers while increasing the cost of healthcare in the state. The Amicus Brief filed in April by North Carolina Treasurer Dale Falwell does a good job of making that case. But it seems like a bit of a red herring in that nobody seems to actually disagree much on that point.

Instead, you have a district court judge and one appeals court judges who believe that these two hospitals are likely to shut down as a result of Novant abandoning these merger plans. As a result, those two judges seem to view allowing the Novant acquisition to proceed as the lesser of two evils. You also have two other appeals court judges who didn’t issue an opinion, but blocked the merger. So if you were a judge in a case like this, which option would you pick:

  • Option A: Allow Novant to acquire the hospitals, resulting in higher prices in the region over time. The hospitals presumably will stay open.

  • Option B. Issue the injunction blocking the acquisition, preventing Novant’s further consolidation of the market. But those hospitals potentially, or even likely, shut down in the near future.

One option risks the affordability of healthcare, one option risks access to healthcare. Neither seems like a great choice to me.

STORIES

Scripps has “no regrets” about exiting MA contracts

This article provides a good case study on the impact of a provider leaving Medicare Advantage, diving into Scripps’ decision to stop accepting Medicare Advantage patients at two primary care practices last year. Scripps says it lost $75 million treating MA patients in 2023, which led to this decision. Medicare Advantage patients made up roughly 10% of Scripps’ patient population, roughly 32,000 people. Scripps has retained ~60% of those patients — they either switched to Medicare FFS or went to other Scripps locations that still accept MA for care.

✍️ Going Deeper

This quote from the article was of particular interest to me, from a consultant describing the high level of health system anxiety over MA contracts:

“I've got a dozen clients. Every single one of them is concerned about Medicare Advantage," said Ellsworth, a former executive at companies including Centene, UnitedHealth Group and Exellus BlueCross BlueShield. “Two of them specifically have me working with them to reduce the number of plans from eight to two or three for 2025, and that's going to happen.”

It will be interesting to watch whether the time is now for health systems to actually act on the strategy articulated above — i.e. choosing two MA plans to partner with and going out of network with the rest. It seems that health system leaders have been talking about this strategy for some time now, but perhaps the broader changes in the Medicare Advantage market in 2025 will encourage more systems to act. We’ll see.

The Scripps experience actually highlights the logic here — if 10% of your patient population is in MA plans, rather than losing half of those patients, why not seek to partner with MA plans (or launch your own plan) in a way that improves your economics and allows you to retain those patients?

DATA

CBO estimates on insurance coverage over the next decade

The chart above highlights changes in insurance coverage over the next decade across various age groups. While only 7.2% of the population was uninsured in 2023, the CBO projects that number is going to steadily increase to 9.2% by 2028.

✍️ Going Deeper

The CBO projects that one of the biggest shifts in insurance coverage over the next decade will come when (/if) enhanced subsidies expire on the exchanges at the end of 2025. The CBO projects that subsidized exchange membership will drop from 21 million in 2025 to 16 million in 2026 and 13 million by 2030. Exchange membership overall would drop from 23 million to 15 million over that same period. As touched on recently in my review of the Oscar Investor Day, it will be worth watching what happens to this membership.

DATA

More data highlighting the post-pandemic drop in telehealth utilization

This was a nice chart visualizing data from the National Center for Health Statistics highlighting how much telehealth utilization dropped by age group between 2021 and 2022.

Other Headlines

  • ShareCare is being taken private by a PE group, Altaris. The transaction appears to value ShareCare at just over $500 million, an 85% premium to the closing stock price on Friday. ShareCare went public via a SPAC offering back in 2021.

  • The Washington Post highlighted patient safety concerns at Amazon’s One Medical. The issues stem from a call center in Tempe, AZ, known as “Mission Control” where contractors are apparently being hired with no medical experience. The article notes this has been an issue in One Medical Seniors, formerly Iora Health, providing some examples of seniors calling in with medical issues that were mishandled.

  • Priority Health Plan will acquire Physicians Health Plan of Northern Indiana. Priority will enter Indiana and Ohio, adding another 52,000 members to its existing 1.3 million members focused on Medicare and Medicaid.

  • Eli Lilly sued six companies for selling products that contain the active ingredient in Mounjaro and penned an open letter to the industry this week regarding off brand use.

  • HOPCo partnered with Watertown Regional Medical Center in Wisconsin. HOPCo will support Watertown’s MSK service line in managing VBC contracts.

  • Obesity care provider knownwell acquired Alfie Health and will integrate Alfie’s AI-based technology into its care model.

  • Palantir signed a $19 million contract with ARPA-H (the Advanced Research Projects Agency for Health) to deploy Palantir’s AI platform.

  • Amazon is expanding its $5 monthly prescription program to Medicare beneficiaries. The program gives subscribers access to sixty generic drugs.

Funding Announcements

  • Behavioral health provider Talkiatry raised $130 million in equity and debt. Talkiatry, which employs 300+ psychiatrists, has delivered over one million patient visits since 2020 and is now an in-network provider with 60+ insurers, covering 70% of the commercial population in the US.

  • Pomelo Care, a virtual maternity care model focused on Medicaid populations, raised $46 million. In 2024, Pomelo increased the number of covered lives on its platform from 2 million to 3 million.

  • Humata Health, an AI for prior authorization, raised $25 million. Humata got its start after acquiring back the prior authorization assets out of Olive AI in 2023.

  • Nomad Health, a staffing platform for traveling nurses, raised $22 million.

  • Marigold Health, a peer support model for substance use disorder, raised $11 million.

  • Marble Health, a group therapy model for teens, raised $5 million.

  • Positive Development, a care model for neurodivergent children, raised funding from Healthworx.

Reads from the community

This proposed bill in California could have a big impact on digital health by Christina Farr
Farr discusses how proposed legislation in California may eliminate the friendly PC model that so many for-profit entities use to invest in care delivery. Read more.

Vertical Integration in Healthcare: Benefits and DOJ Task Force Concerns by Peter Orsag
An interesting argument made by Orsag suggests that it is logically inconsistent to be for value-based care but against vertical integration in health care, as different branches of the federal government appear to be at the moment. Read more.

How We Live Longer by Daisy Wolf and Vijay Pande
This is worth reading to get a sense of how Andreessen Horowitz is framing the investment opportunity in healthcare. The narrative is very focused on helping industry outsiders disrupt consumer health. I must admit I don’t really understand the definition of “consumer health” versus "enterprise” here, but nonetheless, I think it’s worth checking out the perspective of a leading investor in the space. Read more.

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