Industry news short takes: fundings for Qure.AI, Centivo, Rippl, Surescripts; M&A closings for GE Healthcare-Intelligent Ultrasound, LetsGetChecked-Truepill. And is Hinge Health going public soon?

October 3, 2024 | by

The waning days of summer wrapped with a few moderate-sized fundings:

India’s Qure.AI scored a $65 million Series D, bringing their total funding to $125 million. Leading the raise: Lightspeed and 360 ONE Asset, followed by Merck Global Health Innovation Fund, Kae Capital, Novo Holdings, Health Quad, and TeamFund. Qure.AI uses AI to analyze radiology images and ultrasound scans, against billions of clinical image datasets. It currently is used in over 90 countries and 3,100 locations including NHS Trusts. While headquartered in India, Qure.AI has international HQs in NYC, London, and Dubai. The fresh funding will be used to expand its US presence, invest in foundational AI models, and interestingly, acquire medtech companies. Another emphasis of the company is to expand skilled radiology to locations which are resource-constrained, such as healthcare facilities in developing nations or in global rural areas. It is also being used in clinical trials by Johnson & Johnson, Astra Zeneca, and Viatris. MedCityNews 

Centivo added $75 million in equity and debt financing, bringing their total funding to $226.4 million. Centivo provides a primary-care centered health plan directly to employers in all 50 states by partnering with local health systems and direct contracts with ACOs in 18 markets. Centivo replaces traditional health plan and broker relationships. What they offer to employers is an advanced primary care centered model through Centivo Care, an in-house virtual primary care practice. They claimed as of 2023 results of 71% reduction in member out-of-pocket costs compared to commercial plans offered to employers, saving employers 15% or more, and increasing utilization of primary and specialty care. Whether this will “fix America’s broken healthcare model” (a meme we’ve heard many times before) is debatable, but the siren song of reduced healthcare costs for employers is evidently attractive to a raft of funders. It attracted new strategic investors Cone Health Ventures and MemorialCare Innovation Fund, plus existing financial investors including B Capital, Cox Enterprises, F-Prime Capital, Ingleside Investors, and Morgan Health (a division of JPMorgan Chase). Debt financing was provided by Trinity Capital and ongoing banking partner, JPMorgan Chase.  Release, Mobihealthnews, MedCityNews

It’s a $23 million Series A for Rippl to advance virtual on-demand dementia and senior-focused behavioral care. The new funding will be used to expand the company’s geographic footprint, currently Washington, Texas, Illinois, and Missouri, to California, Florida, and Arizona. The company’s key partners are the Alzheimer’s Association, Medicare Advantage Plans, ACOs and other payors and payviders. Rippl is also a participant in the Centers for Medicare & Medicaid Services’ (CMS) eight-year alternative payment model, the Guiding an Improved Dementia Experience Model (GUIDE Model). It started in July with 390 healthcare providers. The Series A was led by Tina Hoang-To, Kin Ventures Founding General Partner, with participation from Rippl’s seed investors ARCH Venture Partners, General Catalyst, GV (Google Ventures), F-Prime, Mass General Brigham Ventures, and 1843 Capital. JSL Health also joined the round. Release 

E-prescriber Surescripts now has a majority investment from private equity TPG Capital. The investment amount was not disclosed and regulatory approval is pending. Its current ownership is 50% by the National Community Pharmacies Association and the National Association of Chain Drug Stores, with the other half Express Scripts and CVS Caremark. It was not disclosed how the ownership shares would be adjusted among the five entities, as CEO Frank Harvey said that all will remain. Surescripts brought in Triple Tree to explore a sale back in April. This Editor noted then that Surescripts has about 95% of the e-prescribing market, enabling it to obfuscate their real business in the vagueness of “health intelligence sharing”. Certainly the PBM owners can use the cash, if cash they’ll get. Release, FierceHealthcare 

Closing M&A deals kick off the fall:

On Tuesday, GE Healthcare closed their $51 million purchase of Intelligent Ultrasound’s clinical AI business [TTA 25 July]. Intelligent already partnered with GEHC on its ScanNav Assist AI technology to power its SonoLystlive and SonoLyst X/IR for GEHC’s Voluson Expert and Voluson Signature ultrasound devices, plus the Voluson Swift. GEHC plans to incorporate Intelligent’s solutions across its ultrasound portfolio through improving workflows and enhancing ease of use for clinicians and patients. MassDevice

And the Optum-arranged ‘marriage’ of LetsGetChecked and Truepill wasted no time in closing on Tuesday. Truepill, a digital/mail order pharmacy, will operate as a subsidiary of LetsGetChecked, an at-home diagnostic with testing kits. Earlier reports indicated that Truepill would be the surviving entity.  Both companies have substantial investments from Optum Ventures and have been losing money for years. Truepill was caught up in the Cerebral and Done Health Schedule II as a fulfillment pharmacy for both and fell under DEA scrutiny with a ‘show cause’ action. TTA extensively analyzed the structure of the “$525 million” acquisition by LGC and the Optum role in it at the time of the announcement TTA 22 August. Interestingly, the closing announcement does not reiterate the acquisition cost. Release, Mobihealthnews

Will virtual MSK provider Hinge Health go public soon? Blake Madden in his Hospitalogy blog 1 October confirms that Morgan Stanley has been hired to run the long-rumored IPO process. Undoubtedly, their management is looking at Sword Health’s nifty recent raise and $3 billion valuation. Investors have been pushing for an exit for some time. In April, the last time that Hinge was on the TTA radar, it had cut 10% of its 1,700 employees yet at that time was rumored to be considering an IPO. Hinge’s last raise was an October 2021 $400 million Series E led by Tiger Global and Coatue Management for a total funding of $826.1 million over 10 raises (Crunchbase). At that time, their valuation was a bubbly $6.2 billion, which despite $400 million in cash reserves (as of April) and its popular niche, in today’s market would be drastically revised downward. Stay tuned….

Two ‘oops’ at VA: OIG finds VA, Oracle performance misalignments, makes 9 recommendations; VP candidates’ EHR records improperly accessed by VA employees

October 1, 2024 | by

Another OIG audit still finds plenty of inconsistencies between VA and Oracle Health in the EHRM implementation–and makes another set of recommendations. The VA’s Office of Inspector General (OIG) conducted a review of the ongoing EHR Modernization (EHRM) at the VA, and once again found shortcomings in processes not addressed in the May 2023 revision of the 10 year contract.

It’s all about controls and consistency in response. The report identified that VA and Oracle Health still do not have adequate controls to prevent system changes from causing major incidents. Regarding response, both organizations are not uniform nor thorough. Controls were not adequate to mitigate incident impact by providing standard procedures and interoperable downtime equipment. VA lacked a formal process for linking delays to specific major performance incidents.

The auditors analyzed 360 major performance incidents—outages, performance degradations, and incomplete functionality—that occurred between 24 October 2020 and 31 August 2022, plus additional incidents through March 2024. Even though deployments halted in VA facilities except for the joint MHS/VA rollout at Lovell Federal Health Care Center in March, major performance incidents continued, including at Lovell which experienced a major problem in filling 60% of prescriptions.

The OIG made nine recommendations in their report. Grouped together, they include the following actions:

  1. Real-time data sharing to give VA greater awareness of potential problems in system operations
  2. Prioritizing major performance incident response in a clear and consistent manner
  3. Developing and enforcing response and other performance metrics to hold the contractor accountable
  4. Requiring sufficient detail in post-resolution reports
  5. Raising staff awareness of procedures
  6. Acquiring appropriate backup systems for downtime
  7. Better identifying and addressing major performance incidents linked to negative patient outcomes.
  8. Identifying the appropriate backup system and develop a training strategy to ensure clinicians can use the system during downtime.
  9. Assessing facilities’ patient safety reports identified during this audit, determining if additional actions need to be taken and, if so, providing an action plan.

VA release, Healthcare IT News

Some VA employees got very naughty in looking up information on the two VP candidates. Both Ohio Senator JD Vance and Minnesota Governor Tim Walz are both veterans (Marines and Army National Guard, respectively). The breaches were discovered in August during a security sweep of high-profile health accounts held in the VA’s EHR. 

  • 12 employees used their VA computers to access information on Vance and Walz.
  • These included physicians and a contractor viewing for an “extended time”.
  • The curious employees may face charges including dismissal and criminal charges. The length of access and intent will be taken into account.
  • Unknown is whether any of the information was shared outside of VA.

Their respective campaigns were notified and the investigation continues. The VA sent a memo to all employees on 30 August from VA Secretary Denis McDonough with a restatement of official data privacy and conduct directives plus the results of a failure to comply. Original reports were in the Washington Post and CNN. Healthcare IT News, Becker’s

Two follow ups: Steward Health CEO resigns–and sues the Senate HELP committee, Wojcicki will take 23andMe private

October 1, 2024 | by

Ralph de la Torre MD hasn’t sailed the $40 million boat south yet–but he doesn’t have to go into his office anymore, only the lawyers’. Yesterday (30 September), Dr. de la Torre stepped down from his CEO and board positions of the bankrupt Steward Health. He had submitted his resignation on 19 September, the day that the Senate Health, Education, Labor and Pensions (HELP) Committee voted to hold him in criminal and civil contempt due to his failure to appear before the committee on 12 September. The full Senate voted to refer the contempt charges to the Department of Justice (DOJ) on 25 September. [TTA 26 Sept]

de la Torre filed his own lawsuit on 30 September in the District of Columbia US District Court against each member of the HELP Committee, charging them with violating his Constitutional rights, specifically the Fifth Amendment on self-incrimination, in seeking to subpoena him for a hearing which “was simply a device…to attack Dr. de la Torre and publicly humiliate and condemn him” as part of a “coordinated campaign to villainize and scapegoat him.” The lawsuit seeks to have the subpoena and the contempt referral invalidated and declared unenforceable as a result, seeking declaratory and injunctive relief. He had previously asserted his Fifth Amendment rights before the Committee in view of the company’s Chapter 11 proceedings. Given the threatening and extreme language of several of the committee Members and the actions that de la Torre’s filing singles out, the DC District Court hopefully will give this a fair hearing.

It is unknown if anyone will replace de la Torre as CEO even on an interim basis, as the company is selling its assets via the US Bankruptcy Court for the Southern District of Texas.

“While Dr. de la Torre has amicably separated from Steward on mutually agreeable terms, he will continue to be a tireless advocate for the improvement of reimbursement rates for the underprivileged patient population,” a Steward spokesperson said to Becker’s in a 28 September statement. “Dr. de la Torre urges continued focus on this mission and believes Steward’s financial challenges put a much-needed spotlight on Massachusetts’ ongoing failure to fix its healthcare structure and the inequities in its state system.” (Our Readers will not be blamed for being slightly amazed at this last statement, as most of Steward’s troubled hospitals, including two hospitals that no one would buy, were in that state–and Steward’s interests ranged all the way to London and Malta.) FierceHealthcare, Healthcare Dive 

She’ll do it herself, because nearly 50% of voting shares says she can–No Third-Parties Need Apply. Per an SEC regulatory filing yesterday (30 September), beleaguered 23andMe CEO Anne Wojcicki declared that she is no longer seeking proposals from third parties and is moving forward to acquire the company. “It has become even clearer to me that the best path forward for the (company) is for me to take the company private.” Since the board of directors is vacant–except for her–and she holds effective voting control, it is hard to contradict her. While the company is public via a SPAC that cracked hard, with shares hovering around $0.37, her $0.40 bid per share was rejected by the board in no uncertain terms. However, Wojcicki is the only one who counts here, as she has sole voting power over 9.7 million shares and shared voting power over 101.1 million shares of the company equaling 24.8% of the company’s shares. Replacements have not been made for the seven departed independent directors–and this Editor doesn’t expect any until (and if) Wojcicki buys the company [TTA 17 Sept].

In the SEC filing, Wojcicki said “Importantly, I remain committed to our customers’ privacy and pledge to maintain the (company’s) current privacy policy in effect for the foreseeable future, including following completion of the acquisition I am currently pursuing.” This Editor ironically notes that had that position on site and database security prevailed a year or so ago, none of this would have happened.

Wojcicki may be buying a near-empty shell of a company that preferred to blame users versus clean up its security act, but it will be All Hers. There you go. Reuters, The Business Journals, Yahoo News

Now CVS Health may be reviewing ‘options’–including a possible breakup–report

October 1, 2024 | by

Perhaps CVS needs to take a medication for Corporate Indigestion. It turns out that CVS did not entirely avoid the agita that is sickening Walgreens. Instead, it has other reasons. Reuters reported that according to their sources (unnamed), their management, board, and financial advisers are exploring ‘options’ that may lead to a partial breakup of the company. Prominently mentioned: a spinoff of their insurance businesses from their retail business. CVS acquired Aetna for this back in 2018 for a pricey $69 billion. Being debated: where the Caremark pharmacy benefit manager (PBM) unit will reside, under retail or insurance. PBM feeds into both retail and the insurance plans.

Glenview Capital Management is reported to be one of the financial institutions in talks with management on an improvement plan. Glenview owns 1% of CVS stock according to the Wall Street Journal, but that 1% accounts for over $700 million of its $2.5 billion war chest. That gives them cause for concern–and leverage.

CVS has confirmed none of this, going to the Boilerplate Folder to pull copy about “driving performance and delivering high quality healthcare products and services enabled by our unmatched scale and integrated model.”

Industry observers aren’t expressing anything more than mild surprise about this, based on a concatenation of recent events and backwash from their 2022-2023 spending binge.

  • CVS cut its 2024 outlook again in August for the third quarter running…and has lost 25% in share value YTD.
  • The kneejerk of a $1 billion cost-cutting plan is being implemented; this week, about 2,900 corporate jobs will be cut. This is after a 5,000-employee layoff that was announced in October 2023, taking place into 2024.
  • Aetna’s Brian Kane was booted in August after less than one year on the job due to his numbers going the wrong way–and his job filled in and not replaced [TTA 8 August]. Who’s next?
  • The outlook for Medicare Advantage is glum into 2025 and later, with utilization costs soaring, new lower Federal reimbursement rates for diagnoses, and Federal clawbacks on overpayments from 2018 on. 2025 plan exits have multiplied with CVS’ affecting about 10% of their membership.
  • PBMs are under attack. The latest is a 20 September FTC administrative complaint (= suit) against the Big Three (CVS Caremark, Express Scripts/Cigna and Optum/UHG plus their respective group purchasing organizations for inflating insulin drug pricing. Insulin is the prime example of inflated drug costs in the FTC view. The latest action doubles down on FTC’s mid-year report. MedCityNews  Readers should note that drug costs have been consistently under attack in Washington not only with this administration, but the prior one, which makes the current election a continuation of the same negative atmosphere.
  • In May, CVS openly sought private equity partners to expand their Oak Street Health locations to a promised 300 by 2026. No partner nor expansion has been announced to date. OSH was bought for a stunning $10.6 billion only 17 months ago.at the very tail end of the ‘buy anything/FOMO’ boom.  This Editor noted that this summer, there were direct response TV commercials to rustle up members airing on various cable channels that target the mature demographic. OSH was regarded as the runt of the litter of primary care practice groups since the larger ones had already been bought by Walgreens and Amazon. Its drawbacks in addition to small size: its model was overly wedded to Medicare value-based (ACO REACH) and Medicare Advantage models, and it had never turned a profit nor was about to. Even at the time, CVS was heavily criticized as making “a deal that made no sense” and “CVS better have a plan they implement in 18 months or they’ll get slaughtered” by an industry figure. [TTA 2 Mar 2023,16 Mar 2023]  We’re at 18 months. Is OSH quietly on the block?
  • Signify Health was another expensive 2022 buy that sounded good on calls to support the “integration” objective ($8 billion, cash). It put CVS into burgeoning home health and practices–but cost not only the inflated purchase price but also part of the cost of unwinding Remedy Health’s failed Episodes of Care model. CVS also put $100 million into Carbon Health which had to unwind several lines of business including public health before their Series D [TTA 11 Jan 2023], and earlier this year had both their CEO and their president depart. Biotech Networks

Is it time to call healthcare the Sick Man of the American Economy? Or just these big pillars? Crain’s Chicago Business. FierceHealthcare, Healthcare Dive

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.

Evolent Health talking major acquisition by payer Elevance, private equity

August 27, 2024 | by

Management services organization Evolent Health moving down the road in selling itself. Another deal perking below the Labor Day wire to brew into September or October coffee is a full or partial buyout of Evolent Health.  Potential buyers or partners include Elevance Health (the former Anthem), to position against Optum/UHG, and several private equity companies: TPG, KKR, and Clayton, Dubilier & Rice (CD&R). Evolent provides organizational and administrative services for primary plus specialty care physicians and payers for patients with complex conditions, within and outside of value-based care models such as ACOs, utilizing connected care and workflow automation technologies. In June, it agreed to acquire many of the AI utilization management assets of Machinify, not yet closed. 

Evolent’s (EVH, NYSE) current market capitalization is about $3.65 billion; stock price closing yesterday was $31.62 (Yahoo Finance). Industry analyst Jailendra Singh of Truist projected earlier this month, before this news dropped, that the stock was underpriced at the time in the ~$20 range and justified a target price at $33, citing their ability to manage utilization trends and rate adjustments for FY 2024. Seeking Alpha went so far as to state that at an acquisition price of $35, it would still generate a profitable internal rate of return (IRR).

A buyout won’t be cheap. With an estimated $114-116 billion shares outstanding, an outright purchase price at $35/share could approach or top $4 billion. Which means that the buyout lift could be shared. Projections with the information available range from PEs negotiating a leveraged buyout (LBO), a tuck-in by Elevance, or possibly a PE/Elevance partnership. Elevance already works with CD&R in the Mosaic Health care delivery platform partnership.  The shape of the buyout will develop over the next few weeks. FierceHealthcare

Another activist shareholder forcing a sale? Medical Buyer added to the above reports that long-time shareholder Engaged Capital pushed for this, to the degree that the board of directors needed to settle with them by forming a strategy committee focused on “value creation initiatives”.  As far back as 2021, Evolent was courting suitors or partners–at that time, Walgreens Boots Alliance, which may have been a far better but more complex buy than VillageMD. Hat tip to HIStalk 8/26

Evolent’s potential sale complicates the outlook for other MSOs such as Aledade, Optum, Privia Health, Health Catalyst, Accolade, Alignment Health, and Collaborative Health Systems (now part of Centene–disclaimer, CHS was this Editor’s former employer). In addition, a payer buying a large MSO with provider contractual relationships may pique the interest of FTC and DOJ, which already have Optum on their radar.

Sidebar: Revealed yesterday was Evolent’s CEO Blackley Seth cleaning up his stock option portfolio. According to Investing.com, he “sold shares totaling approximately $5.6 million at an average price of $30.00, with transactions ranging from $30.00 to $30.02. Additionally, the CEO acquired shares worth roughly $1.6 million through option exercises with prices between $6.87 and $10.27.” The sales were prearranged on 29 February under SEC Rule 10b5-1 to avoid insider trading charges. Both the sale and buy were over 100,000 shares.

Are patients and physicians ready for generative AI? How will it be most acceptable?

August 22, 2024 | by

As the flood of news will ebb over the next two to three weeks or so (and your Editor takes annual leave), some reading for your pondering.

Gimlet EyeBain and Company, the well-known (and well-feared when they come to your company) management consultants (and investors), recently published results from March’s “US Frontline of Consumer Healthcare Survey“ taken from 500 (undefined) respondents. Unfortunately, with the article, there is no opportunity to download the full survey or review the methodology. From their featured toplines, though, we can savvy that there are still many patient and clinical doubts around generative AI. 

Bain’s article generally spins positives from the results. For instance, their lead is that patients are ‘more comfortable with generative artificial intelligence (AI) analyzing their radiology scan and making a diagnosis than answering the phone at their doctor’s office.’  Their second lead is that clinicians generally have ‘a positive view, recognizing generative AI’s potential to alleviate administrative burdens and reduce clinician workload”.

Your Editor takes a more Gimlety view. First, let’s review consumer comfort with generative AI in five functions:

  • No ‘comfortable’ response is above 37%. Adding in ‘neutral’ at 18%, the only area breaking 50% is “taking notes during appointments to send follow-ups” at 55%. Consumers are not comfortable with generative AI “providing medical advice, treatment plans, and prescriptions” at 21% (11% and 10% respectively).
  • ‘Not comfortable’ is lowest for notes for follow up at 45%. The highest is for medical advice at a eye-blinking 79%. In between, the range is 52% to 68%–indicating strong consumer resistance across the board.
  • As to analyzing radiology scans, there is a lot more comfort with that report going to the doctor for review than AI making a diagnosis. For reports to the doctor, the ‘comfortable’ response is 31% but falls to 21% for diagnosis. ‘Not comfortable’ notches from 52% to 62%
  • For answering calls for providers or insurers, there is definite unacceptance at 68% with only 33% ‘neutral’ or ‘comfortable’.

Provider perspectives are split between physicians and (undefined) administrators. (No neutral in these responses)

  • They both believe that administrative burden and workload will be reduced, with admins far more hopeful than physicians at 43% and 35% by area respectively.
  • What neither group likes is the potential to undermine the patient-provider experience: 19% negative for the physicians and the admins not far behind at -17%.

The takeaway: Generative AI is following the telehealth curve in initial low acceptance. The responses and proportions resemble the early days of telehealth and to a lesser degree, remote patient monitoring. Information didn’t fit into workflows, wasn’t seen as critical, and increased administrative burdens. With acceptance languishing for over a decade, it took a black swan event called the Covid Pandemic to overcome–and in the end it reshaped telehealth, as Teladoc and Amwell have learned.

But in present time, if your Editor as a consultant were presenting this to an AI developer, a physician group, or investors, she would advise preparing for a long, hard road. A road which needs validation, real revenue models, demonstrated accuracy, acceptances, and proven value in solving crucial problems and cost reductions. Natural-language processing (NLP) is being touted as a tool for most of this–but it is only part of the picture. 

Views at variance: Healthcare IT News (NLP interest), MedCityNews (LLMs losing to humans on medical knowledge), MedCity News (on proving value)

“I will survive” updates: NeueHealth survives Q2 with small net loss, Steward sells off Stewardship Health practices to private equity firm for $245M

August 16, 2024 | by

Mid-August’s pre-Labor Day news deluge was so chock-full of developments that your Editor missed these two survival specials:

NeueHealth, a New Reality casualty that’s decided to create its Own New Reality (or the equivalent of the Twinkie Defense), reduced its Q2 net loss, eked out positive EBITDA.  NeueHealth, which has made an art form of Dodging Disaster, notched Q2 revenue of $226 million with a net loss of $53 million and a slight positive adjusted EBITDA of $3.96 million. Diluted loss per share was reported as $8.65, more than $5.00 worse than Q1. Revenue and losses were reduced as expected from Q2 2023 as their business model drastically changed with the sale or closure of its health plans by close of last year. Their covered lives are slightly down (value-based consumers meaning patients) or way up (enablement services lives, a fancy term for non-clinical support services such as health education and care coordination).

Their forecasts for 2024 are oh-so-rosy, with total revenue of $950 million, segmented for NeueCare (primary care in Florida and Texas plus affiliates) at $320 million plus NeueSolutions (management services including ACO management) at $640 million, with adjusted EBITDA in the $15-20 million range.

CEO Mike Mikan touted the $150 million debt financing round from Hercules Capital, which in this Editor’s view had more hedges than France’s Bocage [TTA 26 June]. Stock, which had a brief bump to over $6.60 in July, languishes in the $5.00 range. There is no update on the 16 June NYSE non-compliance notice for a market cap below $50 million that had a 45-day deadline for a plan to remediate within 18 months. Market cap is presently at $41 million. There is also no update on their ticking time bombs: the CMS Repayment Agreements due on or before 14 March 2025 nor $89 million owed to Texas from last year to cover risk liabilities for its shuttered ACA plans [TTA 14 Feb]. It’s those Gordian Knots again! Yahoo Finance, NeueHealth release, Fierce Healthcare

A bright spot in the messy bankruptcy unwinding of Steward Health Care is the pending sale of Stewardship Health, its practice arm, to be reviewed today. The teed-up proposed buyer offering $245 million is a new company, Brady Health Buyer, set up by private equity company Kinderhook Industries, LLC, on behalf of its existing investment, Nashville-based Rural Healthcare Group.

  • Kinderhook is a $8.5 billion PE with investments across healthcare services, environmental/business services, and automotive/light manufacturing sectors.
  • RHG has 14 clinics in rural North Carolina and Tennessee.
  • Stewardship operates practices in nine states, has 5,000 doctors, and serves 400,000 patients.
  • They will have to move facilities from Steward hospital properties. There are no location or state overlaps with RHG.

Their prior sale arrangement to Optum preceded the bankruptcy and was withdrawn after a DOJ challenge. The only other offer from 57 potential bidders approached, other than Kinderhook/Brady/RHG, were their FILO lenders.

Judge Christopher Lopez, the bankruptcy court judge in Texas, is expected to rule on the sale today (Friday), along with a separate sale of up to six Massachusetts hospitals. Regulatory approvals are required. WBUR, Healthcare Dive

News roundup: SleepioRx clears FDA 510(k), Caregility adds AI fall detection, Otsuka releases Rejoyn depression app, MD Ally’s $14M Series A, Alcove launches CallConnect247 (UK), Health Catalyst buys Lumeon for $40M

August 15, 2024 | by

Big Health’s SleepioRx digital insomnia therapeutic gains 510(k) FDA clearance. The 90-day treatment is based on a prescription device delivering Cognitive Behavioral Therapy for Insomnia (CBT-I). The treatment adjunct is tailored to symptoms and provides daily sleep tracking, enables goal setting, and content for help falling asleep. Sleepio was originally developed in the UK (we covered in 2013!) but moved to San Francisco in 2015.  Their original Sleepio is marketed to employers and health plans to support treatment for sleep disorders and insomnia, along with other products for digital support for anxiety and depression. Their last funding was a Series C of $75 million raised in the palmy days of January 2022 and a year later acquired Limbix, provider of SparkRx, a depression management app targeted to adolescents. Release, Mobihealthnews

In my home state of NJ, Caregility announced an AI-powered fall detection upgrade to their acute care clinical observation platform. iObserver is used by hospital care teams for observation of patients at risk for falls or self-harm. Interestingly, the fall detection system is run on computer vision, which means it runs entirely on telehealth edge devices in the patient room with the AI capable of identifying and deriving information from objects and people in images and videos. Edge device use means that processing is done within the devices themselves, which eliminates bandwidth issues and upstreaming to the cloud, a failure point for privacy and as we now see, hacking risk. According to the release, the computer vision capability is available for use on every one of the more than 15,000 Caregility edge devices currently installed in hospitals around the globe. 

Otsuka Precision Health (OPH) launches Rejoyn digital therapeutic for depression.  As previewed earlier this summer [TTA 29 May], OPH launched Rejoyn, the first and sole prescription digital therapeutic cleared by the FDA for the adjunctive treatment of major depressive disorder (MDD) symptoms. Rejoyn was developed in conjunction with Click Therapeutics. It is for use by those aged 22+ on antidepressive medication. After being prescribed from the patient’s provider or Wheel Health, the Rejoyn app can be downloaded from major app stores after keying in an access code that is furnished to the provider by BlinkRx. It is currently being priced on a cash-pay basis at $50 for the six-week course, which will increase later to $200 for insurer coverage, though it is not yet covered. In a six-week trial, the use of Rejoyn reduced depression symptoms and improvement across multiple scales typically used by patients and clinicians to track depression improvement. The Otsuka release and commitment are significant as it’s also the first true involvement of a major pharmaceutical company in telemental health with a highly targeted clinical app that isn’t tied to one of their medications. It’s a long road with a lot of bumps, as Otsuka experienced with Proteus Digital Health’s smart pill tech for its Abilify MyCite, as well as failed companies like Pear and Babylon Health.  Release, Healthcare Dive

In funding news, emergency services telehealth company MD Ally now has $14 million in a Series A to add to its previous $11 million.  The raise was led by Frist Cressey Ventures, founded by Senator Bill Frist and Bryan Cressey, and anchored by General Catalyst, with participation from Techstars, Seae Ventures, Red & Blue Ventures, and Alumni Ventures. MD Ally’s value proposition centers on the non-emergency 911 call. Dispatchers and first responders, after determining the non-emergency status, can divert the call to other telehealth and community-based resources to assist the person plus a ‘care assistant’ for treatment plans and long term outcome management. MD Ally is currently in test in Phoenix and locations in Florida, Arizona, and California serving about 5 million patients. Release, Mobihealthnews

In UK related news:

Alcove expands TEC services with CallConnect247. It is a state-of-the-art 24/7 Alarm Receiving Centre (ARC) designed for communities and local authorities who are modernizing their call services for alarm management to incorporate virtual care and video welfare calls. It includes AI-powered and automated services to reduce false alarms and minimize the ‘white noise’ calls that often inundate traditional ARCs. It’s expected to grow coverage up to 8,000 users by October. Alcove release, Thiis.co.uk

Health Catalyst buys US/UK care management company Lumeon Ltd for $40 million. The $40 million purchase price was funded with a mix of $2.5 million in stock and $37.5 million in cash plus a potential recurring revenue-based earn-out of up to $25 million that, if achieved, would be paid solely in cash. (page 42 of SEC Form 10-Q). No information was provided concerning staff transitioning at Lumeon’s current HQs in Boston and London, where it adds a UK/EU footprint to Health Catalyst’s current data analytics and software businesses. Lumeon’s Care Orchestration automates care coordination processes for providers in outpatient, acute care, and post-acute settings.

Health Catalyst’s earnings were also reported in the 10-Q. Revenue for Q2 was up slightly from last year to $75.9 million, but burdened with a net loss of $13.5 million which was more than 50% reduced from Q2 2023’s $32.6 million. Q2 adjusted EBITDA improved to $7.5 million versus $3.5 million in prior year. Release, Mobihealthnews

23andMe drops drug discovery group, expands Lemonaid into GLP-1 weight loss medications, loses $69M in Q1–and board rejects CEO’s buyout offer

August 14, 2024 | by

Troubled 23andMe disbands drug discovery group, moves into weight loss meds, loses $69 million in FY25 Q1–and soundly rejects CEO buyout offer. The next shoes have dropped in the 23andMe drama.

The latest from both the Q1 earning announcement and their SEC filing, both 8 August:

  • 23andMe has abandoned its drug discovery dreams and closed the unit, terminating 30 employees in the Therapeutics Discovery unit including Bill Richards, the head of Therapeutics Discovery (package details in the 8-K), effective 9 August.  SEC Form 8-K 
  • 23andMe will retain their Therapeutics Development unit for the two drugs currently in early-stage clinical trials. They are also collaborating with Nightingale Health to pilot a metabolomics blood biomarker panel with a cohort of 23andMe+ members.
  • The Lemonaid telehealth unit is moving into prescribing GLP-1 semaglutide weight loss drugs through a membership program and receive either brand-name or compounded medications. (Editor’s note: why anyone would be a member of 23andMe after their epic user and member data breach last year–that they blamed on users’ passwords–is beyond me.)
  • This is coupled with what the company terms in its Q1 press release “a large-scale genetic research study to help identify the genetic mechanisms that may drive the efficacy and potential side effects of GLP-1 medications”

Their Q1 FY 2025 was singularly depressing, with revenue sinking 34% to $40 million, well below the $52 million projected by Street analysts. The drop was attributed to the loss of the GSK genetics collaboration in mid-2023.  The only bright spot was that losses also shrank 34% to $69 million from $105 million in the prior year. 

Stock delisting pending. ME closed on Tuesday at $0.35. The company received an extension from Nasdaq to 4 November and is seeking shareholder approval for a reverse stock split to raise the price above $1.00 as required. Endpoints, MedWatch, FierceHealthcare

CEO’s buyout rejected. On 2 August, the $0.40 per common share non-binding offer from CEO and controlling shareholder Anne Wojcicki offered on 29 July [TTA 1 Aug] was soundly, roundly rejected by the impressively named Special Committee of the Board of Directors of 23andMe. From the letter:

“We are disappointed with the proposal for multiple reasons, including because it provides no premium to the closing price per share on Wednesday, July 31st, it lacks committed financing, and it is conditional in nature. Accordingly, we view your proposal as insufficient and not in the best interest of the non-affiliated shareholders. Therefore, we are not prepared to move forward under the terms provided. Importantly, we request that you immediately withdraw your stated intent to oppose any alternative transaction so that we can fully assess whether there is interest from third parties in a transaction that would maximize value for all shareholders.” (Editor’s emphasis)

It closes with a demand:

“In the absence of a revised offer at a more appropriate price per share that meets the other requirements set forth above, we will pursue other alternatives in striving to maximize value for all shareholders. In that regard, given both the lack of certainty regarding a path forward with you and your potential investors and the current liquidity position of the Company, in parallel with your work to submit a revised bid, we intend to immediately begin the process of engaging a consultant to advise the Special Committee on a revised business plan that would provide the Company with a path to a more sustainable financial profile and achieving profitability. In your capacity as CEO, we expect your full support in these efforts.“

Given that 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–that is quite a defiant statement. Based on her supervoting privileges–a trick picked up from her Silicon Valley tech friends back when–Wojcicki could kill any buy not in her interest. Or any interest, period. Developing.  

Short takes: both Clover and Oscar in the black; Aetna prez booted after 11 months; Ava-VSee bedside robot; updates on Change, OneBlood ransomware, Masimo proxy fight

August 8, 2024 | by

Clover Health’s milestone–a first-ever profitable operating quarter. Not only that, but it was an impressive turnaround from the prior year. With results in their Q2 operating net income of $7.2 million, versus a $28.9 million loss in 2023, these results were far more favorable directionally than the adjusted EBITDA which was $36.2 million versus $9.9 million for the prior year. Insurance revenue was also up 11% to $349.9 million, attributed to member retention and an improved medical cost ratio (MCR) of 71.3%, down from 77.9% in the prior year. Additional revenue from other operations, such as the recently introduced Assistant AI, is minimal. The 2024 forecast stays ‘in the clover’ with raised forecast revenue of $1.35 to $1.375 billion and adjusted EBITDA of $50 million to $65 million. Also helpful is their lifted Star rating from 3 to 3.5 for 2025. FierceHealthcare, Clover earnings release

Rival Oscar Health also stayed Back in Black for the second quarter running–CEO Bertolini wouldn’t have it any other way (or else–see below right). Q2 net income rose to $56.2 million which was a a $71.7 million improvement versus prior year. Adjusted EBITDA also nicely improved to $104.1 million, a $68.6 million improvement. Revenue increased to $2.2 billion, a 46% increase over the prior year. Their MCR went down .9 points. The overall forecast for the year wasn’t provided. Membership was up over 600,000 in their main business of individual and small group insurance, with Bertolini pointing out that this was powered by plan growth in 80% of the states where they operate. Oscar exited Medicare Advantage at the end of 2023, and is shifting to marketing ICHRA, or individual coverage health reimbursement arrangements that permit small businesses to offer employees individual health plans subsidized by employer contributions. After this year, the 58,000 members left in the unprofitable Cigna co-branded small group program will exit [TTA 10 May]. Oscar release, FierceHealthcare

Back in Mr. Bertolini’s old stand, Aetna, results weren’t so cheerful–and their president walked the plank after less than one year. The reorganization announcement was made on the earnings call yesterday, effective immediately. CVS Health CEO Karen Lynch will oversee the daily operations of the health benefits segment along with Aetna’s CFO. CVS VP/chief strategy officer Katerina Guerraz will move over to become Aetna’s chief operating officer.

What initiated it: while health benefits’ revenue stayed in the black, going the wrong way were operating income decreasing 39.1%, the medical benefits ratio (MBR) soaring to 90% from 86% in prior year and the medical loss ratio (MLR) going up to 89.6% from 86.2%. These were attributed to increased utilization, the decline in Medicare Advantage Star ratings, Medicaid acuity, and a revised risk adjustment in the individual exchange business. Something in this immediately doomed now former president Brian Kane, who joined only last September. His last post was at Humana as chief financial officer and leader of their primary care business. CVS Health release, FierceHealthcare, Healthcare Finance

Marrying robots with telemedicine, VSee is partnering with Ava Robotics to create an autonomous robot for telepresence use in hospital intensive care units. This would enable remote emergency physicians to be present at the point of patient care, interact with patients, consult with onsite staff and make treatment decisions. The projected market is smaller regional hospitals and ICUs.  VSee already markets telemedicine carts and portable diagnostic and home care kits. Availability is not disclosed. VSee release, Mobihealthnews

VSee also announced a partnership with Wichita, Kansas community health provider Stand Together for its Aimee telehealth services. Telehealth at their centers will be available to participants for a monthly charge of $4.99 or a single virtual urgent care appointment for $9.99. VSee release

Ransomware strikes again. Non-profit blood donation organization OneBlood was hit on 29 July by a despicable ransomware attack that disabled much of its blood collection services for over 250 hospitals in the southeastern US. They continued to operate at reduced capacity and called for donors of O positive blood, O negative blood and platelet donations. The perpetrator, ransom demands, and breached information were not disclosed. On Monday 5 August, systems were partially restored in time for Tropical Storm Debby’s assault on many southeastern states. From a OneBlood spokesperson: “Our critical software systems have cleared reverification and are operating in a reduced capacity. As we begin to transition back to an automated production environment, manual labeling of blood products will continue. Additionally, we are beginning to return to using our electronic registration process for donors.” DataBreaches.net, FierceHealthcare, HealthcareITNews

Hard-hit Change Healthcare is still playing games with reporting to HHS’ Office of Civil Rights (OCR). Parent UnitedHealth Group reported the ransomware shutdown and data breach to OCR, a full five months after its occurrence. The number reported is the OCR minimum of 500, when it is well known that it affected millions of patients. UHG started direct patient notification on 31 July after weeks of delay, but stated to OCR that they are still determining the number of individuals affected. Provider notifications started in late June [TTA 21 June]. This followed after a hostile dispute earlier that month where UHG tried to push patient notifications onto providers, which HHS decided was 100% UHG’s responsibility. [TTA 5 June]. OCR FAQ update, HealthcareITNews

Masimo and activist shareholder Politan Capital continue to slug it out down to the 19 September shareholders meeting. Back in mid-July, Masimo postponed the meeting, originally scheduled for 25 July. At that time, Masimo filed a complaint in the US District Court for the Central District of California against the two Politan representatives on their board of directors plus Politan’s two nominees that proxy materials contained false statements and violations of the Exchange Act. The suit added that board member Quentin Koffey, also Politan’s chief investment officer, was secretly conspiring with a plaintiffs’ bar law firm currently in litigation with Masimo.

The latest revelation per Strata-gee 7 August: Politan’s countersuit in the Delaware Court of Chancery states that the charges filed by Masimo in the District Court are based on ‘unnamed sources received from a third-party opposition research firm…’ and Masimo’s outside counsel does not know the identity nor ever spoke to the sources. This was filed against CEO Joe Kiani, independent director Craig Reynolds, and director Bob Chapek as a breach of Delaware law.

To date, Masimo has not confirmed their sources to the Delaware court. 

As previously reported [TTA 17 July], the proxy fight was triggered by the value of the company, reduced substantially after Masimo’s snakebit 2022 acquisition of Sound United’s consumer audio brands, Politan’s move to control the company, and kick out the CEO Joe Kiani.  The fight on the Masimo board of directors for two open seats pits the Masimo slate of CEO Joe Kiani and outside candidate Christopher Chavez, against Politan’s Darlene Solomon and William Jellison. Politan already holds two seats and with a win of two additional seats will control the company. Masimo plans to sell the consumer audio and healthcare (baby monitoring) businesses to another unnamed investor, retaining their professional healthcare and pulse oximetry products.

Stay tuned to the next episode of this soap opera.

Midweek wrap: Walgreens sells off $1.1B Cencora shares, R1 RCM goes private for $8.9B, Steward’s unwinding with 2 hospital closures, 1,200+ laid off, $30M state funding, bids due for physician group, CEO Senate hearing

August 7, 2024 | by

Retrenching is the theme this (crazy) week.

Walgreens sells another 2% of Cencora shares, raising $1.1 billion of much-needed cash. Walgreens reduced its ownership share of the drug distributor formerly known as Amerisource Bergen to 10% by selling the remainder of their unencumbered shares, approximately 2% of the common stock. Known as a Rule 144 sale of restricted or control stock, the proceeds as of 1 August are $818 million followed by a concurrent share repurchase by Cencora of $250 million. This is the third sale this year: in May Walgreens sold 1% for $400 million and in February 2% for $990 million. All these sales were to fund operations and pay down debt. Despite the further reduction, Ornella Barra, COO International of Walgreens Boots Alliance, will continue on Cencora’s board. The partnership agreement remains in place. Release, Healthcare Dive, Reuters

Revenue cycle management company R1 RCM finally found investors to take it private.  TowerBrook Capital Partners and Clayton, Dubilier and Rice are the winners, acquiring R1 for $8.9 billion. They will purchase outstanding shares at $14.30 per share in an all-cash deal expected to close by the end of 2024. Private equity investor TowerBrook already owns 36% of the company. This shuts out rival New Mountain Capital as their 23 February bid was offered at a lower $13.75 per share. At that time, New Mountain owned 32%; that bid valued the company at nearly $6 billion. The purchase will be financed with a combination of committed debt financing and equity from investment funds affiliated with TowerBrook and CD&R. Large shareholders Ascension Health Alliance (also R1’s major customer) and Coliseum Capital Management were not mentioned in the acquisition release.

In March, a special committee was formed by their board to evaluate strategic alternatives, code for ‘we believe it’s undervalued’. The company is currently traded on Nasdaq and closed today at $13.96. R1 closed 2023 profitably with net income of $3.3 million, flipping a $63 million 2022 loss, on a revenue increase of nearly 25% to $2.3 billion. Q1 and Q2 2024 are a more mixed picture. Q1 had revenue of $603.9 million, up 11% year-over-year, but with a net loss of $35.1 million caused in part by $10 million in losses created by the Change Healthcare ransomware attack. Q2 continued the trend, with revenues of $627.9 million up 12% versus prior year, but a widening net loss of $7.6 million versus $1 million in the prior year. Q2 earnings release, Q1 earnings release, FierceHealthcare, Healthcare Dive

Seeking ‘strategic alternatives’ for current investors and going private seems to be the new fashion in the crowded healthcare business process outsourcing (BPO) and RCM sectors. Profitable but problematic companies such as Veradigm [TTA 28 May] and GeBBS [TTA 17 Apr] both up for sale or investment. To date, Veradigm has not gone public with any offers, but GeBBS was scheduled last month to have binding offers submitted by Carlyle Group, Hillhouse Investment, and CVC Capital Partners. ChrysCapital, India’s largest private equity firm, owns 80% of GeBBS. Economic Times (India)

The messy unwinding of Steward Health Care in the US Bankruptcy Court for the Southern District of Texas continues.

  • The court approved the closure of two Massachusetts hospitals, Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer, at the end of August. Neither hospital received qualifying bids in the sale process and both hospitals, serving primarily low-income patients, are among the worst performers in Steward’s anemic portfolio.
  • Based on WARN notices filed with the state, over 1,200 people will lose their employment as well as communities losing services. 
  • Yesterday, the Commonwealth of Massachusetts agreed to provide $30 million to keep the six remaining hospitals in the state running in two tranches: $11.3 million on 9 August and $18.7 million on 16 August. 
  • Those hospitals are being handed over to NYC-based Apollo Global Management, a global alternative asset manager, to facilitate their sale from current landlords Medical Properties Trust and partner Macquarie Infrastructure Partners to new operators.
  • Auctions pushed forward include the Arizona hospitals, with a new bid deadline of 12 August with a 19 August sale objection deadline and a 22 August sale hearing. Other hospitals in Ohio, Pennsylvania, Arkansas, and Louisiana have not been rescheduled after their canceled auctions.
  • The Stewardship Health practice group now has a bid deadline of 6 August, with the sale objection deadline now 9 August and the sale hearing set for 13 August. Optum walked away from its deal back in April with the Chapter 11 filing and there is no word if they are bidding in bankruptcy.

Additional updates: the Senate investigation of Steward is going forward with a subpoena issued to CEO Ralph de la Torre. The public hearing of the HELP Committee and his appearance are scheduled for 12 September. FierceHealthcare No further developments in the US Attorney’s Boston office investigation of violations of the Foreign Corrupt Practices Act about Steward’s business dealings in Malta between 2018 and 2023. One wonders whether Dr. de la Torre will sail off on his 190-foot superyacht to one of the few places where extradition is difficult, such as Ecuador, Bolivia, Venezuela, or Iceland.

Healthcare Dive, Becker’s 31 July, Becker’s 6 August  Most recently in TTA 2 July, 18 July, 25 July

Breaking: Teladoc’s Q2 sinks on $790M BetterHelp impairment; Wojcicki files to take 23andMe private

August 1, 2024 | by

Teladoc posts Q2 loss of $838 million, takes $790 million impairment on BetterHelp’s sinking performance. New CEO Chuck Divita had nothing but bad news to deliver to Mr. Market (right below). It was so bad that they withdrew their FY2024 outlook for both consolidated operations and BetterHelp stated in April and all three-year outlooks. TTA Q1 Teladoc results and outlook  

  • Q2 revenue declined 2% versus prior year to $642.4 million. Integrated Care (main business) segment revenue increased 5% to $377.4 million while BetterHelp declined 9% to $265 million. Readers will recall that previous CEO Jason Gorevic assured investors that BetterHelp would carry Teladoc to profitability. Au contraire, along with his job.
  • The bright spot was that adjusted EBITDA increased to $89.5 million, up 24% versus prior year, but adjustments reflect all sorts of financial legerdemain, including impairments.
  • First half results were essentially flat versus prior year, with revenue up 1% to $1,288 million with Integrated Care up 7% to $754.5 million–but BetterHelp again sinking results with a decrease of 7% to $534.0 million.

BetterHelp’s rolling failure is almost inexplicable, with telemental health being the ‘IT’ clinical category in digital health funding. Spring Health just scored a $100 million Series E [TTA 31 July]. Younger companies such as Talkiatry and Brightside Health seem to have no problem raising funds or gaining partners/customers. One would think that with established customers in the enterprise space, Teladoc would have no problem adding on telemental services. This Editor has previously analyzed the problems that have led to the decline of both Teladoc and Amwell, but Teladoc stands apart in one factor. It is still recovering in its huge failure in buying and failing to integrate Livongo. But in the telemental health space, the profitable companies are largely in the enterprise and payer space. Even DTC, they have slicker solutions and extensive networks. It’s a cost-sensitive market, both to benefit admins and to prospective members. 

Here’s the pivot. On the earnings call, CEO Divita and CFO (former acting CEO) Mala Murthy announced a pivot for BetterHelp to international, non-English-speaking markets, where customer acquisition costs are lower. (This Editor would add that competition is also less.) They also blamed advertising cost inflation and jacked-up acquisition costs during a US election year–something that is completely predictable and should be baked in the 2024 marketing expenses. Unbelievably, if advertising costs remain high, Murthy stated that they expect a low double-digit revenue decline, whatever that means.

The shocker here is that it finally dawned on them that the big problem with BetterHelp is that it does not accept insurance and has a high DTC cost. Their leavers in research cite both as reasons why. Hellooooo? What took so long?  So their fix is to negotiate insurance coverage–but that won’t take effect till 2025. 

From FierceHealthcare in an on-point close of their article: “Divita was adamant that Teladoc runs BetterHelp well and that it’s an important part of the company.”  Morningstar (Teladoc release)  How much more can Mr. Market stomach? This story is developing.

As we predicted, CEO/founder Anne Wojcicki has made an offer to take 23andMe private. She has filed with the Securities and Exchange Commission (SEC) amendments to their Schedule 13D form that confirm that on 29 July, she sent a non-binding proposal to the Special Committee that has been looking at alternatives since late March [TTA 20 April]. The Exploding Plastic Inevitable offer of $0.40 per share is to shareholders of Class A and B common stock. It became public yesterday (31 July). The current price is around $0.40, so there is no premium. 23andMe is also on a six-month delisting deadline with Nasdaq from November, which they have since passed but may have been extended due to the Special Committee formation.

Wojcicki holds supervoting privileges that have always given her effective control of the company. According to analyst TD Cowen, she currently holds 22.5% of the company’s outstanding Class A common stock and 59.2% of outstanding Class B common stock. In going private, she would be right in line to be paid out by outside funders (Other People’s Money). Other alternatives to her buyout, such as Chapter 11 or 7 bankruptcies, are even more bleak and would leave shareholders with effectively 0.

As TTA noted in our April coverage, the company is yet another cracked SPAC (2021) hitting a $4.8 billion valuation, acquiring companies, and falling precipitously. It never found a recurring revenue model, being largely ‘one and done’ on ancestry and genetic reports. Recently, it lost a lucrative contract with GSK for research data. It stumbled badly after a major data breach in Fall 2023 that exposed 6.9 million records. Then, they blamed members for their poor cyberhygiene and lack of security. This once bright light has burnt out; is it even relevant anymore other than giving the CEO a job? Yahoo Finance, CNBC, MedCityNews  Developing. Our recent 23andMe coverage: 29 May (FY24 earnings and the committee’s poor choices), 2 Feb (data breach timeline, financials)