Weekly Health Tech Reads | 7/28/24

The week that everyone beat earnings - Centene, HCA, Molina and Tenet

Author

Kevin O'Leary
July 28, 2024

Sponsored by: Candor Health

Candor Health addresses the widespread issue of inaccurate provider information. Their live provider tracking recently revealed that data indicating whether a provider is accepting new patients is accurate just 25% of the time. 

After attempting to solve this issue via provider sites, insurance portals, and claims data, a company building an advanced primary care network turned to Candor for a solution.

Now, Candor’s client is efficiently guiding members to high-value primary care providers, without hundreds of hours of ongoing effort while saving their members time and headaches.

Learn more about how their client leverages Candor’s intelligence platform in their latest case study.

If you're interested in sponsoring the newsletter, let us know here.

MA PRIMARY CARE

Humana’s CenterWell will lease clinic space in 23 former Walmart Health locations

Humana’s CenterWell division will lease 23 former Walmart Clinic locations in Florida, Georgia, Missouri, and Texas. These clinics will be focused on seniors and should open in 1H 2025. Humana’s primary care brands, CenterWell and Conviva, currently serve ~318,000 seniors and operate ~300 clinics.

The news comes only a few weeks after Fortune reported that Walmart was discussing selling the clinics, with Humana being one of the parties reported there. Walmart announced it was shutting down its 51 clinics across five states only two and a half months ago. Humana appears to be moving into some Walmart locations where clinics weren’t yet open — Walmart’s four clinics in Kansas City, Missouri were slated to open later this year. This implies Walmart has another 52 clinic locations available for lease, given it had announced expectations to be in 75 locations at the end of the year.

✍️ Going Deeper

It’s interesting to think about Walmart's strategic process as it evaluated selling the clinics that led to this outcome. It seems less than ideal to announce a partnership to lease 23 of the 75 locations that have been built out (given Humana is leasing Missouri locations, it seems that Walmart Health is looking to lease clinics that haven’t been opened but were in the works for later this year).

That outcome seems to imply at least two things:

  1. there were no strategic buyers interested in purchasing the clinics from Walmart

  2. there wasn’t a national primary care player entity willing to lease all 75 clinic locations in Walmart centers

Both of those seem to indicate the headwinds facing primary care orgs currently. For context, it’s worth bearing in mind that Oak Street and Walmart embarked on a partnership to launch co-located clinics in Dallas back in 2020. Given that CVS has signaled to Wall Street that it intends to continue rapidly expanding the Oak Street model from 200 clinics earlier this year to 300 by 2026, it seems curious that CVS would not have had more interest in these clinic locations, particularly given CVS’s issues in financing the buildout of clinics. It seems like it’d be a pretty logical way to try to short-circuit the J-curve losses.

Given Walmart still has 50 clinic locations sitting empty with apparently very little interest from the scaled national primary care models, I can’t help but wonder if we’ll hear more announcements in the coming months about Walmart partnering with local health systems to take over these spaces.

Q2 2024 EARNINGS

HCA stock jumps ~9% on the week as it beats expectations

HCA nailed its quarter — commercial volume mix was higher, Medicaid volume was lower (due to redeterminations), and inpatient acuity was higher. HCA noted it is seeing demand growth across all different payor types and services. This all resulted in same-facility revenue growth of 10% year-over-year. As a result, HCA increased guidance for the year across all key metrics, including a 9% increase in the EPS midpoint, going from $20.45 to $22.20:

HCA’s Medicaid supplemental payments were a big topic in the Q&A, with HCA noting that it was originally expecting that to be a $100 - $200 million headwind in 2024, and instead, it has become a $100 - $200 million tailwind. They’ve already seen most of that materialize in 1H 2024.

HCA also provided some interesting context on ACA business — they view it as the second most favorable payor after commercial, but ahead of Medicaid and Medicare. HCA has roughly 7% of admissions from the exchanges which equates to 9% of HCA’s revenue.

✍️ Going Deeper

When asked about the lower-than-expected outpatient surgery volume, HCA noted this was explained entirely by Medicaid redeterminations and a drop in self-pay. It was particularly interesting to see this quote from HCA’s CEO:

Again, the volume declines on outpatient surgery are associated with Medicaid declines in that category, as well as uninsured self-pay categories. So both of those categories explained year to date, pretty much 100% of volume declines. I mean, there's a thesis inside of our company, it's not proven yet, that patients who migrated from Medicaid into the exchanges through the redetermination process may be in a different seasonality category with respect to when they access services. So that's a theory we have.

We'll have to see how that plays out as we move through the balance of the year. But I think it's important to understand that the revenue growth -- the service level growth that we've seen in our outpatient surgery business has been solid and produced a pretty good financial outcome for the company. And if, in fact, our thesis is accurate, it should be better in the second half of the year than the first half of the year.

- Sam Hazen

If I’m interpreting that right, HCA’s CEO seems to suggest that the exchange enrollees could see a utilization spike in the second half of the year, which presumably would put some pressure on ACA insurers. While he notes it is just a thesis they have, they must be pretty confident in it given they’re sharing it with Wall Street.

Q2 2024 EARNINGS

Centene’s stock jumps 10% on the week as it beats expectations

Cetntene beat earnings expectations driven by a strong quarter in the exchanges, partially offset by Medicaid pressure. Centene kicked off the call by noting the same Medicaid acuity dislocation we’ve heard from other payors related to redeterminations. As a result, it expects to finish the year at the high end of its range for its health benefits ratio. Exchange outperformance will help offset the Medicaid pressure driven by membership growth, product design, and favorable risk adjustment.

✍️ Going Deeper

A few more updates on each line of business for Centene:

  • Medicaid. Centene expects the Medicaid business to perform better in the back half of the year as states adjust rates to match the acuity of Medicaid populations. Centene now expects rates to increase 4% in the second half of the year, an increase from their original forecast of 2 - 2.5%. Centene noted that 35% of its business adjusts rates on 1/1, 15% on 4/1, and the remaining 50% on 7/1 and 10/1. This means that 50% of its book of business will receive a 4% rate increase on average, which will help move Medicaid from breakeven to margin positive in the back half of the year (you can see some analysts attempting to do this math in questions on the call).

  • Exchanges. Centene’s exchange platform appears to be performing well, growing as a “strategic complement” to the Medicaid business. Centene filed an 8-K articulating its outperformance on risk adjustment, providing a net positive $600 million impact. Lots of analyst questions were about the risk adjustment number and how to interpret 2024 MLR given the positive impact from risk adjustment. Overall it appears Centene is quite pleased with how the business is performing.

    • It’s worth noting that Centene called out the potential of ICHRA as a future growth opportunity in opening markets, but there was very little update provided beyond that.

  • Medicare. Centene gave an update on its progress towards its three-year objective of getting 85% of its Medicare Advantage membership into 3.5+ star plans by Fall 2025. After CMS’s recent revisions, Centene has 23% of its membership in 3.5+ star plans today and it feels confident that the next Star revision this fall will move it toward that 85% target. Centene shared some updates on the work underway giving it confidence moving toward that target. Centene also noted it will be exiting some markets for 2025 as it “streamlines” the Medicare platform with an eye on aligning it with Centene’s Medicaid footprint.

All in all, Centene seems quite confident about its strategic position as it enters 2025, citing the post-redeterminations Medicaid environment and growth in the exchanges as key tailwinds for the business moving forward.

Q2 2024 EARNINGS

Molina’s stock jumps 16% on the week as it beats expectations

Like other Medicaid insurers, Molina saw a higher MCR in the Medicaid business during Q2 due to acuity driven by redeterminations. This was offset by growth in the business on new contracts and growth in the existing business.

Medicare is running inline with expectations for Molina, and its acquisition of Bright is proceeding as expected.

✍️ Going Deeper

Molina’s Medicaid MCR came in high at 90.8% for the quarter, impacted by two key drivers:

  • 0.7% was due to a one-time retroactive premium adjustment in California, an action it described as “highly unusual”.

  • 0.8% was due to “new store” additions that are running at a higher MCR, but in line with expectations. “New store” membership accounts for 20% of the Medicaid segment for Molina this year

Excluding those two items drops Molina’s MCR for the quarter to 89.3%, which is closer to, but still 0.3% above, its long-term target in Medicaid. For the second half of the year, it expects a Medicaid MCR of 88.4%.

  • Molina noted that it is not seeing any unexpected MCR trends in the core Medicaid book of business beyond the redetermination acuity.

The increased trend in Medicaid is being offset by two things for Molina — premium increases and risk corridors:

  • Premium increases. Molina sees 35% of its Medicaid premium revenue renew in the second half of the year, which it expects to reflect the increased acuity. Molina also has seen four states make off-cycle adjustments that will also improve Medicaid MCRs in the back half of this year, and it believes other states will follow suit. Then the remaining 55% of Molina’s Medicaid business will renew on 1/1 and premiums will be adjusted then.

  • Risk corridors. Molina spent some time during the call discussing the impact of risk corridors, which helped it this quarter relative to other Medicaid plans. It noted that it usually pays into risk corridors and has about 2% of its MCR as a cushion for risk corridors - noting that if they’re reporting 88%, they’re actually performing at 86%. It’s been paying this for the past four years, and that is now acting as a buffer for them until rates adjust.

Q2 2024 EARNINGS

Tenet’s stock jumps 13% on the week as it beats expectations

Have you noticed yet that I’m just copying and pasting the titles of these sections for this week? Everyone beat expectations, Tenet included. Tenet raised its full-year guidance, raising its EBITDA midpoint target by $300 million, or 8%. This is after Tenet has already raised guidance earlier this year after outperforming in Q1.

ACA RISK ADJUSTMENT DATA

CMS released 2023 ACA risk adjustment data

CMS released its annual risk adjustment report for the exchanges on Monday. The headline is highlighted in the chart below — there were some big net payments for some of the larger exchange carriers. Oscar, Kaiser and Aetna are paying over $1 billion, with United and Cigna not far behind. Florida Blue, Blue Shield California, and HCSC all receive over $1 billion.

Wesley Saunders highlighted a nuanced take on this topic on LinkedIn, looking at the year-over-year differences in transfers on a PMPM basis. Many of the big names held flat, but some, like Oscar, saw the PMPM payable drop substantially.


Other Noteworthy News

  • Ahead of earnings this week Molina announced that it has agreed to acquire ConnectictiCare, a subsidiary of EmblemHealth that operates Medicare, exchange, and commercial plans with 140,000 lives in Connecticut. Molina is acquiring it for ~25% of premium revenue, with plans to drive $1.00 in EPS accretion by improving MCRs and rationalizing G&A spend. Molina spoke to its acquisition playbook during its earnings call, and it’s a pretty compelling, straightforward narrative to 1. acquire stable revenue-generating assets, 2. deploy capital efficiently, and 3. apply the Molina playbook to improve margins. You can see all three of those at work here.

  • A STAT report joins the growing chorus of articles questioning United’s market dominance, comparing UHG’s growth to Standard Oil’s growth in the 1870s. It focuses on Optum’s acquisitions of clinical groups, citing interviews with clinicians who recounted various experiences where Optum has pushed providers to prioritize profits over patients.

  • Northwell Health is expanding beyond hospital operations and… getting into the entertainment business? It announced this week it is launching Northwell Studios, a production studio that will produce film and TV content leveraging its facilities, providers, and patients. Northwell has apparently seen success (six Emmys since 2017!!!) with shows including Lenox Hill and First Wave. As any reasonable not-for-profit health system would, Northwell appears to be seeking to capitalize on that success.

  • Occupational health provider Concentra priced its IPO this week, raising $529 million.

  • Business Insider reports that Google has terminated its enterprise contract with One Medical and will work with Premise Health to provide primary care services on Google campuses moving forward.

  • Care Connectors Medical Group, a value-based primary care enabler, has been acquired by Epilog Partners, a PE firm.

  • Astrana Health has agreed to acquire Collaborative Health Systems (CHS), a subsidiary of Centene, for a purchase price of $37.5 million and an earn-out. CHS is an MSO with 129,000 beneficiaries in 17 states. CHS will help Astrana grow its provider presence in Texas and several East Coast markets.

  • Two startups in the Alzheimer’s space are merging as Linus Health acquired Together Senior Health.

Funding Announcements

Great Reads

Academic Medical Centers and Federally Qualified Health Centers: Collaboration for the Care of Underserved Communities by Sarah Conway, Jacob Murphy, and Jonathan Efron
An interesting deep dive into the complexities of a Johns Hopkins initiative to turn a primary care clinic into an FQHC. Read more.

Mainstreaming Value-Based Care by Andy Slavitt and Andie Steinberg (Town Hall Ventures)
Helpful perspective on VBC implications from the proposed physician fee schedule, including advanced primary care management codes, MSSP shared savings prepayments and health equity benchmark adjustments, and an expanded definition of telehealth. Read more.

The State of Telemedicine in 2024 by Chris Turitzin
This article includes some interesting data on the clinician workforce in the telehealth market, including data on the fastest growing telehealth startups since 2022, as measured by the growth of clinicians: Grow Therapy, Charlie Health, Alma, Taliatry, and Rula. The startups experiencing the biggest % decline in clinicians: Found, Noom, Curology, Wheel, and Cerebral. Mental health startups are heavily featured in both. Read more.

EP445: Can a Primary-Care-Only Practice Survive in 2024? With Tom X. Lee, MD by Stacey Richter and Tom Lee
An interesting perspective from primary care entrepreneur Tom Lee (One Medical, Galileo) on the current state of primary care innovation, including his belief that primary care practices should operate in both FFS and VBC worlds. Read more.

Director – Integration and Special Projects at Astrana Health, a value-based care platform. Learn more.

Senior Manager, Strategic Operations at Hopscotch Primary Care, an advanced primary care model. Learn more.

Director of Product at Sidecar Health, an ACA and commercial insurance business. Learn more.

Senior Policy Analyst (Program on Medicaid & Uninsured) at Kaiser Family Foundation (KFF), a health policy research organization. Learn more.

Sales Director at Candor Health, a provider data and intelligence company. Learn more.

Contact us to feature roles in our newsletter.

Want to share feedback with us?

Pick the option that fits best - we read all the feedback!

Login or Subscribe to participate in polls.

Reply

or to participate.