Weekly Health Tech Reads | 8/6/23

Welcome to this week’s free weekly newsletter, where we share our perspectives on some of the key healthcare related news of the week.

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NEWS OF THE WEEK

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Sharing our perspective on the news, opinions, and data that made us think the most this week

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News
​CVS beats Q2 2023 earnings amidst mass layoffs and challenges ahead in 2024 / 2025

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Summary: CVS earnings and revenue beat analyst expectations, with revenue reaching $88.9 billion (a 10% increase from Q2'22) and EPS coming in at $2.21. The company posted a net income of $1.91 billion for Q2'23, a 37% decline YoY. In a sign of the headwinds ahead, CVS reduced 2024 EPS guidance and pulled guidance for 2025. CVS also announced this week a broader cost cutting effort, which started with the cutting of 5,000 jobs. Here's a few of the key themes we heard:

• MLR concerns: CVS acknowledged experiencing similar outpatient pressure on Medical Loss Ratio (MLR) in its Managed Care business as other insurers but specified that this pressure was only observed in the MA (Medicare Advantage) segment, not in individual, commercial, or Medicaid plans.

• A focus on supporting Oak Street patient acquisition: CVS executives mentioned a number of efforts to accelerate patient acquisition for Oak Street clinics during the call.

• A shift in Oak Street clinic growth: CVS is committing to open 50-60 new Oak Street clinics in 2024 and also said it is including the losses from those clinics in their updated guidance. A Humana / WCAS style transaction seems less likely. A shift to co-located clinics is in the works, but the call was details on that at the moment.

• Signify seems to be settling into a well defined role in the overall org: Signify was highlighted for its ability to drive membership to the health plan and additional healthcare services, i.e. Oak Street.

• GLP-1s show up again: CVS mentioned that the pharmacy business did well in part because of strong GLP-1 adoption.

• Exchanges are back! CVS sees meaningful opportunity here. Despite having a million members and $5 billion in revenue, exchanges are not currently making a meaningful profit contribution to CVS, but plan to drive more profits here in 2024 and beyond.

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Our Reaction:

• The earnings call discussion, combined with reduction in force this week, make it feel like CVS executives are staring down some major strategic headwinds over the next few years and making some "bet-your-job" type decisions at the moment. The biggest of those decisions seems to be the call to double down on Oak Street growth in 2024, which was highlighted as one of the drivers of reducing EPS guidance for 2024. This seems like a noticeably different tone than the Q1 2023 earnings call, where it seemed like CVS's biggest priority was getting the losses off CVS's income statement via a transaction that sounded conceptually similar to Humana / WCAS. As we discussed in the Slack thread, deciding to double down here, while also shifting to a more co-located model, presents a major risk. Clearly there is long term upside potential - as CVS highlighted in the acquisition there is $2 billion of Embedded EBITDA in those Oak Street clinics - but the question to watch will be whether the long term upside ever actually plays out, or if it gets cut off at the knees by short term financial challenges. It's going to be interesting to watch how this plays out.

​HTN Slack Convo​
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News
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‍Humana continues to reap the benefits of focusing on core MA strategy, posting another strong quarter​

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Summary: Humana raised guidance for full year 2023 MA lives by an additional 50,000 members, adding 825k members in 2023 in total, a 18% growth rate. The company anticipates capturing 40% of the MA industry's overall growth this year, meaning their overall market share will be at 20% at year end. Below are a few key themes we heard:

• Age-in sales: They've seen a significant increase in age-in driving sales, expecting them to come be 75% higher YoY, with full year sales projected to be 44% higher YoY.

• Centerwell growth: Centerwell is now operating 250 centers, serving 272,000 patients. They anticipate adding 27k - 30k patients this year.

• MLR / 2024 Pricing: Humana mentioned that they're seeing stabilizing outpatient utilization levels in April and May, and while inpatient utilization has been higher, overall utilization data now looks better than it did in their June update.

• 2024 Growth: Humana still seems bullish on industry growth in 2024, noting that there's likely to be a "disruption in shopping" due to negative rate environment and STARs headwinds. Humana thinks it's well positioned to continue its growth, and presumably take share from competitors.

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Our Reaction:

• Overall Humana seems very well positioned in the MA space. It's earnings call makes for a refreshingly focused narrative as they seek to execute on the MA playbook. It's interesting to note both Humana and Alignment (below) talking about the disruption in shopping they expect to happen in 2024 - it sounds like they are expecting a good deal of members to shop for plans more in 2024 given the overall industry trends, and at least the two of them will be leaning into taking share from the industry. Will be interesting to watch how that plays out for others.

• The Centerwell approach seems to be working well for Humana at the moment, and they're able to bring it up on earnings calls as a point of strength, and mention how many clinics are moving to profitability, and how many are hitting maturity. It's worth comparing and contrasting how they discuss centers with how CVS is discussing centers at the moment. I'd expect we'll see CVS learning from Humana this regard in coming quarters. It's an easy-to-understand narrative.

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CHART(S) OF THE WEEK

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Sharing a visual or two from the week that made us think

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Elevance published a report on the utilization of supplemental benefits among its Medicare Advantage members, looking at differences in uptake between duals/non-duals, geographic location, socioeconomic status, and more. Overall, the usage of supplemental benefits among MA enrollees was significant - with 83% of duals and 75% of non-duals using one or more of the available benefits (e.g. OTC allowances, transportation, and grocery card) in 2022. Further, members who used at least one benefit were more likely to live in areas with scarcer resources, such as food deserts and places with lower socioeconomic status. Notably, this suggests that these benefits are positively impacting enrollees health-related social needs.

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A recent paper published in npj Digital Medicine evaluates 84 foundation models (FM) trained on non-imaging EMR data (e.g. clinical text and/or structured data) to provide a systematic review of the strengths and limitations of LLMs in healthcare to date. The review found that most clinical FMs are being evaluated on tasks that provide little info on the potential advantages of FMs over traditional ML models. The researchers call for broader improved evaluations of these models in order to unlock the full potential of FMs in healthcare.

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OTHER NEWS

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A round-up of other newsworthy items we noticed during the week

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agilon's earnings call featured a lot of excitement about the potential of the ACO REACH program, and mentioned that the 2025 class will have the first partner practice that they've flipped from a competitive platform. Check out our full run down in Slack.
​Link / Slack​

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Alignment Health sounded a lot like a mini-Humana during its earnings call, with a heavy focus on investing in product design, getting sales strategy right, and driving retention. We discussed some interesting commentary around their strategic shift away from global cap towards shared savings arrangements in Slack.
​Link / Slack​

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Privia posted a solid quarter, also announcing this it was entering Washington state this week via partnership with Walla Walla Clinic, a 50 provider multi-specialty practice in Washington.
​Link / Slack​

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Steve Jobs' son, Reed Jobs, launched a $200 million oncology fund, Yosemite. The firm will focus investments on therapeutics, diagnostics, and digital health.
​Link / Slack​

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Signify Health announced an expansion of its services, launching a new in-home testing option for chronic kidney disease. The company will provide the new offerings to its Medicare Advantage members at no additional cost.
​Link​

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Remote patient monitoring company, Tytocare, raised $49 million in Series D funding to expand its chronic care offerings and suite of diagnostic tools.
​Link

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Menopause focused, HerMD, secured $18 million to open more brick and mortar clinics. The startup currently operates one in Cincinnati, three across Kentucky, Indiana, and Tennessee, and is about to open its fifth in New Jersey.
​Link

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Likeminded, a digital mental health startup, raised $6.4 million in seed funding to improve employee burnout.
​Link

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Africa-based Remedial Health collected $12 million in Series A funding. The company is working to improve the counterfeit pharmaceutical industry in Nigeria.
​Link

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Hybrid infusion treatment company, Uptiv Health, raised $7.5 million in seed funding.
​Link​

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Healthmap Solutions raised $100 million to expand its value-based kidney care management platform. Today, the company serves more than 160,000 people across commercial, Medicare and Medicaid.
​Link​

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AI-enabled medication management platform, FeelBetter, raised $5.9 million.
​Link

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Axuall, a healthcare workforce development platform, secured $7 million in Series B-1 financing.
​Link​

HTN WRITERS GUILD

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A collection of good blog posts we read this week from smart folks in the HTN Community

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​Part 3: What about buying clinics rather than opening new ones? by Zach Miller

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Zach wrapped up his 3-part series looking at various revenue growth strategies of healthcare services businesses, with a deep dive of considerations and financial projections of the roll-up strategy.

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​Venturing in Senior Care: What’s Happening in Post Acute Care? Part I: Patients and Payers by Daniel Kaplan

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An interesting look at trends in the post-acute care market, focusing on the evolving interests of the patient and payor stakeholders.

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​Why Identify in Healthcare Sucks by Brendan Keeler

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In this article, Brendan unpacks the big ole' concept of (digital) "identity" in the context of the healthcare industry - looking at the elements that make up our identities, identity workflows, building trust around them, and more.

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‍Why I Won't Invest In Your AI Company by Jacob Brody

This blog post builds the case for the anti-AI investment thesis - a rather contrarian view within the very hyped AI / generative AI market that has blown up in the past year. Jacob constructs his argument around several headwinds the space seemingly faces: the absence of competitive moats, incumbents unbeatable advantage over startups, generative AI's lack of creativity, and more.