What’s next for: Steward CEO now in criminal contempt of Congress; Walgreens’ Pessina’s fortune vanishes by 97%; Masimo’s Kiani now a man without a company

September 26, 2024 | by

Senate unanimously votes to hold Steward Health CEO in contempt. The resolution passed on Wednesday 25 September refers the contempt charges against Dr. Ralph de la Torre, the CEO of Steward Health, to the Department of Justice (DOJ). The Senate Committee on Health, Education, Labor and Pensions (HELP) voted on 19 September to recommend two contempt charges–criminal and civil–to the full Senate. It is the first time since 1971 that a criminal contempt charge has been passed. The DOJ’s actions can include prosecution by the District of Columbia’s US Attorney which can mean arrest and possible incarceration, with a fine that doesn’t exceed $100,000, or civil contempt which usually involves a fine and another subpoena to appear. FierceHealthcare, Becker’s

The threatening language of the HELP committee members such as Bernie Sanders and Ed Markey surely did not encourage de la Torre or his legal counsel to appear on 12 September, with the anger across the board among all members regardless of party. All that it promised to be was, in street language, the worst kind of beatdown. Formally, the appearance was rejected because of Steward’s bankruptcy in adjudication in the US Bankruptcy Court for the Southern District of Texas supervising the sale of Steward assets. There is also a court order that prevents de la Torre from commenting during the sale process. To the press, his legal counsel depicted the HELP committee hearing as “a pseudo-criminal proceeding in which they use the time, not to gather facts, but to convict Dr. de la Torre in the eyes of public opinion.” TTA 14 Sept

Steward Health’s spectacular collapse opens even more Pandora’s Boxes for de la Torre. He possibly faces additional lawsuits attempting to ‘pierce the corporate veil’ to claw back his bank and personal, sizeable maritime and aviation assets–or hold him criminally liable, far more complicated, long-term, and damaging. A cynical view would be that de la Torre would be well advised to get on his $40 million yacht or one of his private aircraft–and depart for a destination that is reluctant to extradite to the US. 

Walgreens Boots Alliance’s troubles drastically shrink executive chairman Stefano Pessina’s personal fortune. Chairman Pessina, who holds 17% of WBA stock and is the single largest shareholder, has seen his holdings shrink in value by 97%, from $12 billion in 2015 to a current $1.3 billion, according to Bloomberg data. The 83-year-old WBA head has seen hard times before. He pulled a rabbit out of the proverbial hat in 2007 by going private with Boots and then merging it with Walgreens in 2015, but time and Mr. Market are not on his side with taking on the debt load necessary.

Is WBA or Walgreens attractive to an acquirer? With stock trading at a record low of around $8 and a market capitalization of about $7.5 billion, it may be a bargain if an investor ignores or doesn’t blanch at the debt load. But those who understand the business cannot buy due to US antitrust regulations, which rules out any retail competitor or PBM. Or the company could be parted out to healthcare providers or a health insurer, but that ignores their miseries, such as reduced Medicare Advantage reimbursements. Their mistakes such as VillageMD and unprofitable locations are in the middle of being worked out and the company is shrinking. Meanwhile, their 15 October full-year earnings report will be dripping with red ink, as their Q1-3 lost $314 million versus prior year earnings of $1.2 billion. Crain’s Chicago Business

Vanishing for Joe Kiani is his day job at Masimo after a dramatic proxy fight. The founder of the audio and health monitor company was voted out of his board seat by shareholders. He followed by resigning as CEO after founding the company 35 years ago. Michelle Brennan, a board member (from Politan) has been appointed as interim CEO. Previously, she was a senior executive at Johnson & Johnson’s companies, including international experience in business development, for over 30 years. She also is on the board of Cardinal Health. Korn Ferry is coordinating the search for a permanent CEO.

The proxy battle wasn’t even close, according a CNBC report reported by Strata-gee. Quoting an inside source, the Politan slate of two directors, Darlene Solomon and William Jellison, received twice as many votes as Joe Kiani and Christopher Chavez on the Masimo slate. 

The company is continuing ‘strategic alternatives’ (read: sale) of its consumer health and audio businesses, the latter mostly acquired in the utterly snakebit 2022 acquisition of Sound United’s consumer audio brands. Masimo is using Centerview Partners and Morgan Stanley as financial advisors and Sullivan & Cromwell as a legal advisor. Presumably, the Kiani-arranged sales to or joint ventures of these units with unnamed investors is off. Masimo will be retaining their professional healthcare and pulse oximetry products. For Q3 2024, Masimo reiterated its financials from early August, with earlier guidance here.

Whether others will depart with Kiani is too soon to tell. During the proxy fight in July, Masimo’s chief operating officer, Bilal Muhsin, promised to resign if Kiani was forced out, specifically citing that he would refuse to work with Quentin Koffey, a Masimo director and chief investment officer of Politan Capital. Other managers signed similar letters around the same time.  However, in the Masimo release on the Kiani resignation, financials, and management changes, CFO Micah Young and Muhsin stated that would provide more details on an earnings call in October.

The Strate-gee view was that shareholders got tired of hearing promises about Sound United and that Kiani was high-handed with them–treating it as his personal company and not theirs. Healthcare Dive

News roundup: Owlet expands to EU, mPulse buys Zipari, New Mountain PE merges 3 payment integrity firms in $3B smush, Candid Health’s $29M raise, Oura buys Veri, Bloomer Tech’s cardio bra

September 18, 2024 | by

It’s a dogpile of catchup news.

Owlet announced that it’s expanding its European distribution of the Dream Sock. The new countries are Greece, Poland, the Czech Republic, Romania, Slovakia, Hungary and Bulgaria. It is currently, according to its website, available in France, Belgium, the Netherlands, and Luxembourg. It received its CE Mark certification in May. The Dream Sock is a non-prescription device that reports, for babies 1-13 months and 6 to 30 pounds, pulse rate, oxygen, wakings, and sleep trends in real-time via the Owlet Dream App. The app also allows alerts outside of range to be set. Owlet’s financials have improved substantially, though still in the loss column, as detailed in the Mobihealthnews article.

mPulse acquired Zipari for an undisclosed price. Both companies are in the healthcare ‘consumer experience (CX)’ segment which broadly includes using consumer information to ‘personalize health journeys’ that enhance the consumer experience for its health plans. Zipari is apparently more the back end of CX software solutions for insurers, third party administrators, and healthcare payers. There was no disclosure of sale price nor of transition of Zipari staff or the brand name. mPulse now covers 400+ leading healthcare organizations, including 29 of the 30 largest health plans in the country. mPulse is private and controlled by PSG. Release

Private equity company New Mountain Capital, in a $3 billion move, merges three payment integrity companies. New Mountain merged The Rawlings Group, Apixio’s Payment Integrity business, and Varis into a single $3 billion, 2,000 employee company around payment accuracy using various technologies. Rawlings is the largest with over 1,400 employees. It identifies third parties responsible for paying medical claims and is over 40 years old. Apixio provides administration, clinical, and financial program services for payers, previously part of Centene. The remainder of the company–its connected care platform and value-based care services–will be acquired by Datavant. Varis provides overpayment identification solutions including diagnosis-related groups (DRG) and ambulatory payment classification (APC) prospective payments. ‘Smushing’ makes sense if there is one controlling investor and the services dovetail with each other; from the description, the main company will be Rawlings. One hopes that they work out the ‘big bang’ details. FierceHealthcare

In a rare fairly large Series B funding, Candid Health scored $29 million. Candid is a revenue cycle automation and integration platform that simplifies billing for providers through API integrations with current system. The raise was led by 8VC with participation from existing investors First Round Capital, BoxGroup, and Y Combinator. Their total funding since 2019 is $47 million. Release

The Oura ring from Finland is not only still around, but is acquiring a metabolic health company, Veri. One of those ‘neat ideas’ which this Editor thought was gone is still around, having sold 2.5 million rings both direct and through Best Buy currently for $69.99 annually plus local tax, and now tracks over 20 biometrics around sleep, activity, heart health, and stress. Oura has had $148 million of funding since 2013, with its last big $100 million Series C back in the Palmy Days of 2021, with a small venture round in 2022. Veri is also Finnish, already partners with Oura, and has an app that via CGM (Abbott FreeStyle Libre) guides users to the right foods and habits for their bodies. Oura will be launching in conjunction with Veri a new feature, Meals, to help members to see how meal timing affects health metrics like sleep, stress, and recovery. Many of Veri’s team will be joining Oura, including their three founders. Release, Mobihealthnews 

An ECG that looks and wears like a bra. That is the device designed by Bloomer Tech, a MIT spinout. This wearable violates the “smaller and less obtrusive is better” dictum to collect more and more accurate data. The bra design places sensors all around a woman’s torso, the best position for heart data, in an accustomed way to collect data on heart function, lungs, hormones, and metabolism. It connects to an app that collects information and sends it to the wearer’s health provider. Bloomer Tech’s market will be women at risk or with heart disease, with the bra as a prescription item. Its first clinical trial was launched in March, funded by a $1.9 million grant from the National Institutes of Health. It comes in 12 sizes from 32B to 44C, Axios Boston

The two women founders, Chong Rodriguez and Aceil Halaby met in the MIT’s masters degree program, founding it in 2018. They named it after Amelia Bloomer, a 19th Century American suffragette, social reformer, publisher/writer, and advocate for less restrictive forms of dress than the whalebone corsets and tight dresses customary of the period. MedCityNews

23andMe settles 6.9M data breach lawsuit for $30M. Breaking–all seven independent directors quit

September 17, 2024 | by

23andMe settles, not fights. And their independent directors just quit. The troubled (understatement) company is paying $30 million to settle a massive class action lawsuit around the 6.9 million data breach that started a year ago. This infamous data breach that TTA timelined here was discovered last October, with 23andMe claiming it only affected 14,000 records. Reality dawned as it rapidly grew to millions through the 23andMe databases of over 14 million. By December, 23andMe then resorted to blaming users reusing previously breached passwords (credential stuffing) which was easily disproved. It was one of the worst corporate faux pas since Bud Light.

The hackers had also specifically targeted people with Chinese or Ashkenazi Jewish heritage which wasn’t disclosed until February, though part of the October 2023 hack. It added to the suspicion that those of Jewish heritage were specifically targeted.

Users as a group will receive $30 million along with three years of credit monitoring called Privacy & Medical Shield + Genetic Monitoring. The settlement reached 13 September requires approval by the Federal District Court in the Northern District of California, San Francisco division.

Notably, 23andMe spokesperson Katie Watson confirmed to The Verge that $25 million will be covered by cyber insurance, so most of the cash is there. The settlement document also refers to the extremely uncertain financial condition of the company and asks that the judge halt any further arbitrations by tens of thousands of other class members. 23andMe’s parlous financial status is publicly well known, but no other buyer since the board’s turndown in August of Anne Wojcicki’s offer of $0.40 per share has stepped up to make an acceptable offer. (Perhaps the board was premature–it closed today at $0.34.) Reuters 

Breaking: Wojcicki won’t have to worry about her independent directors anymore. They’ve resigned, effective today, leaving a board of one. The seven directors sent a letter today (Tuesday 17 September) to CEO Wojicki citing that the Special Committee of the board, after months of work, never received from Wojcicki a “fully financed, fully diligenced, actionable proposal that is in the best interests of the non-affiliated shareholders”. It was quite an ask, given that Wojcicki controls the company through a supervoting arrangement. She reportedly holds 22.5% of the company’s outstanding Class A common stock and 59.2% of outstanding Class B common stock (according to analyst TD Cowen)–other reports state that she has in total 49.99% of the voting power. In their letter, they made it clear that the differences were irreconcilable: “Because of that difference and because of your concentrated voting power, we believe that it is in the best interests of the Company’s shareholders that we resign from the Board rather than have a protracted and distracting difference of view with you as to the direction of the Company.” Your move, Anne. Release

(An examination of the board posted online reveals that only one of the resigning members, Richard H. Scheller, ever worked at 23andMe. According to his online bio, he joined 23andMe in 2015 as Chief Scientific Officer and Head of Therapeutics. According to his Caltech board of trustees bio, he retired from 23andMe in 2019.)

Rounding up follow ups: Walgreens shareholder suit on pharmacy performance, Steward CEO no-shows Senate committee, Masimo-Politan proxy fight has court win for Politan–vote on for 19 September

September 14, 2024 | by

Another shovelful topping Walgreens’ Mound of Misery. Filed in the US District Court for the Northern District of Illinois, this shareholder lawsuit points to the poor performance of Walgreens’ pharmacy division. The fault is assigned to Walgreens management, specifically CEO Tim Wentworth and CFO Manmohan Mahajan plus 10 other executives including chairman Stefano Pessina, in overstating the division’s performance between 12 October 2023 to 26 June 2024 . It charges that they “falsely and materially claimed confidence in the brand inflation, volume growth, cost execution, discipline, and overall contributions of [Walgreens’] pharmacy division”, leading to an overvaluation of Walgreens’ share price. In addition, Walgreens “veiled the reality: that (Walgreens’) pharmacy division was not actually equipped to adapt to ongoing hurdles within the industry”.

The shareholder is Mark Tobias, a shareholder since late 2022. Key to the suit is the 12 October 2023 earnings conference call that contained positive comments about the pharmacy operation made by Wentworth, new at that time to Walgreens, and Mahajan. Their tune changed by the 27 June 2024 conference call where they admitted that the pharmacy model was “not sustainable”. Walgreens’ share price on 12 October 2023 was $24.19.  As of 4pm New York time today, 13 September, Walgreens closed at $9.21.

From the Crains Chicago Business article, the lawsuit demands restitution and reforms:

  • Walgreens should be awarded damages and restitution from the individual defendants
  • The company and defendants take steps to reform and improve corporate governance and internal procedures
  • Those reforms may include
    • Strengthening the board’s supervision of operations
    • Permitting Walgreens shareholders to nominate at least five candidates for election to the board
    • Ensure the establishment of effective oversight of compliance with applicable laws, rules and regulations

The Crains article also includes a Scribd copy of the filing.  Also Healthcare Dive

Another very large Mound of Misery buried Steward Health…but CEO Ralph de la Torre doesn’t plan to comply with a Senate committee subpoena. His testimony before the Senate’s Health, Education, Labor and Pensions committee was scheduled for 12 September but last week on 4 September, his attorneys informed the committee that Dr. de la Torre would not appear. They cited the ongoing US Bankruptcy Court for the Southern District of Texas sale of Steward assets (Healthcare Dive update) and a court order that silences him from comment during the sale process. The committee, chaired by Senator Bernie Sanders, is also accused by the CEO’s attorneys of using the bankruptcy and de la Torre’s marine possessions (a $40 million yacht and $15 million fishing boat) and private jets as “a pseudo-criminal proceeding in which they use the time, not to gather facts, but to convict Dr. de la Torre in the eyes of public opinion.”

The committee plans to decide on 19 September among two options: whether Dr. de la Torre will be brought up on criminal contempt charges that would be referred to the District of Columbia US Attorney, or civil contempt which usually involves a fine and another subpoena to appear. Several Senators on the committee–Sanders, Elizabeth Warren, and Edward Markey–have called de la Torre’s no-show “outrageous”. Sanders has issued threats of de la Torre being held accountable for his greed, but exactly how much of this is for the press and what the committee will do is unclear.  More of concern to the CEO would be whether further lawsuits would attempt to ‘pierce the corporate veil’ and claw back his bank and personal assets–or hold him criminally liable. Healthcare Dive, AP

The ugly Masimo-Politan Capital proxy fight continues–with a win for Politan. The attempt by Masimo, a consumer audio company that branched out into professional healthcare and pulse oximetry products–and last year won a big patent infringement decision against Apple on pulse oximetry—to further postpone a shareholder vote on giving control to activist shareholder Politan Capital ended in a loss yesterday. The US District Court, Central District of California denied Masimo’s request for a preliminary injunction to block Politan’s nominees for the Masimo board. Unless Masimo’s motion asking the same court to find Politan in contempt due to breaking the court’s sealing order on the decision, and the court grants a further delay, the shareholder vote will be held next Thursday 19 September. The likely outcome, according to Strata-gee which is covering this from the consumer audio perspective, is that shareholders will turn the board over to Politan by electing their representatives to the two open seats, booting CEO Joe Kiani–and total corporate chaos will ensue. Strata-gee has all the gory details. Background in TTA 8 August and prior.

US telehealth controlled substances prescribing waiver may expire at year’s end; DEA may further restrict

September 13, 2024 | by

Current waivers end 31 December without DEA, Congressional action. The Drug Enforcement Administration (DEA) apparently through inaction, will allow the current virtual prescribing flexibilities impacting Schedule II and higher drugs to expire at the end of year. These waivers which removed the in-person examination requirement under the Ryan-Haight Act were instituted during the Covid pandemic and extended twice [TTA 11 Oct 23, 11 May 23] with a final expiration of 31 December 2024.

Reportedly, the DEA is not only wishing to reinstate the status quo ante, but also reportedly wants to institute additional restrictions. However, any draft rule that would reimpose or changes restrictions has not been put out for the public comment period, review, and final rule implementation which typically takes anywhere from 60 to 120 days, well past year’s end. Last year, when a draft rule was released for comment, nearly 40,000 comments were received.

At the time of the 2023 extension that kicked this particular can down the road into the end of a presidential election year, DEA had stated that they would use 2024 to finalize telemedicine prescribing rules, but no action has been taken. Since then, the Department of Justice has filed multiple charges of Medicare and Medicaid fraud and illegal distribution of controlled substances against seven Done Global employees [TTA 3 July and prior], with investigations pending on practices by provider Cerebral and pharmacy Truepill. 

Under the aegis of the American Telemedicine Association (ATA), a coalition of 330+ organizations have again written as of Tuesday 10 September to the current administration and both houses of Congress to 1) extend the waivers for two years, as part of the end of the Federal fiscal year (starting 1 Oct) package, and 2) use the time for DEA to “to fulfill its congressional mandate to establish a special registration pathway that balances access to medically necessary care with appropriate enforcement.” The rationale centers on the lack of time, but strongly around the availability of psychiatrists throughout most of the US–there are none in half of US counties especially in rural areas. (The average MD psychiatrist is well over 50, nearing retirement, and not well reimbursed for his or her time–which is why med school grads in heavy debt don’t gravitate to the specialty.) What is not stated is that many if not most telepsychiatry providers do not have models that will support in-person evaluations as required without waivers.

There are no public actions or responses either by Congress or by the DEA as of today (13 September).

ATA press release, Biden Administration letter, House letter, Senate Leadership letter, Healthcare Dive

ATA Action, ATA’s trade organization and advocacy arm, has also formed a political action committee (PAC), ATA Action PAC. Its stated purpose is to support incumbent Federal candidates including Congressmembers who support their goals in virtual care policy. Candidates on the Federal or state levels will not receive support.  Release