Facing the Music of the New Reality: Amazon Pharmacy & One Medical restructure; Walgreens shakes up health exec suites again, cashes out $992M in Cencora; new takes on NeueHealth; Cue Health, Nomad Health layoffs

February 14, 2024 | by

Amazon delivers a Dose of Reality in shrinking Pharmacy, One Medical. Using the “realigning some resources to help accelerate our efforts” meme, there are about 115 to 400 staff who will be ‘transitioned’ out of their present jobs, according to sources (Business Insider, Seeking Alpha). Areas affected were not disclosed. However, the Amazon division likely taking the hardest hit is One Medical, according to these sources.

  • Amazon has already announced that One Medical must reduce operating losses by $100 million this year. A large step they are taking is to close One Medical’s corporate offices in New York, Minneapolis, and St. Petersburg, Florida, reducing its San Francisco office space to one floor. They cited to industry publications that most employees are remote workers.
  • Unsurprisingly, Amazon is targeting major cost reductions. Fixed operating costs that are currently at 41% of total revenue will be reduced to 20% by 2028. Cost per patient visit will be reduced from $372 in 2023 to $322 in 2024, from $372 in 2023.
  • Legal, finance, and technology teams will report to Amazon’s healthcare business structure
  • Operating areas will increase from four to seven, reporting to a new head of operations
  • CFO Bjorn Thaler will move to a new position focused on growth initiatives, reporting to VP of Health Services Neil Lindsay

At the time of the acquisition, industry thinkers were wondering what Amazon would do with the money-losing One Medical clinics, for which they paid $3.9 billion but never turned a profit and lost $420 million in 2022, its last year of independent operations. Neither membership nor revenue has been reported since the 2023 closing. In 2022, One Medical had 700,000 patients, 8,000 company clients and 125 physical offices in 12 major US markets including NYC, Los Angeles, Boston, and Atlanta. Amazon has been promoting One Medical online and on TV, most aggressively to its Prime members with promotional membership pricing. 

Amazon has aggressively cut tens of thousands of jobs and costs since 2023 in its Audible, Prime Video, Twitch and Buy with Prime units, and completely shut down Halo, its entry in fitness bands and sleep trackers. It has also been aggressively challenged on patient privacy and cross-using information by the FTC, most recently around Amazon Clinic.

Not mentioned in reporting was the FTC and DOJ scrutiny One Medical’s acquisition received between Amazon’s offer and the closing. The two agencies declined to move at that time [TTA 23 Feb 23], but FTC is continuing to build its case against Amazon–and One Medical may be a factor. For context on Amazon’s situation, Readers may want to review last December’s assessment of Amazon to date, Has Amazon lost its ‘edge’ in healthcare? Or finally seeing reality?   FierceHealthcare, Healthcare Finance, Healthcare Dive

Walgreens’ Reality includes C-suite reshuffles, scaring up cash. The new president of US Healthcare and EVP reporting to CEO Tim Wentworth is Mary Langowski. She is currently CEO of Solera Health. Her prior experience at CVS was as EVP and chief strategy and corporate development officer. Moving to an advisor position is the current president, John Driscoll. US Healthcare includes VillageMD, Summit Health/CityMD and CareCentrix. In addition, Manmohan Mahajan was appointed as permanent CFO, having held the position on an interim basis from July. Elizabeth Burger was named as EVP and chief HR officer from a similar position at industrial Flowserve, replacing Holly May who departed in November and is now with Petco. Crain’s Chicago Business, FierceHealthcare

Slipping under this was a further sale of Walgreens’ position in Cencora, the former AmerisourceBergen, a highly diversified pharmaceutical distributor. The sale of approximately $942 million of Cencora common stock was subject to the completion of the Rule 144 sale, and included a concurrent share repurchase by Cencora of approximately $50 million for a total to WBA of $992 million. WBA’s position is now 13% versus 15%; partnership and board representation remains in place. From the WBA release, “Proceeds to Walgreens Boots Alliance will be used primarily for debt paydown and general corporate purposes, as the company continues to build out a more capital-efficient health services strategy rooted in its retail pharmacy footprint.”

Is NeueHealth creating its own Reality? At the end of January, Bright Health Group faded to black and relit as NeueHealth, its value-based care medical practice division, and moved its HQ from poky, cold, failing Minneapolis to Doral, Florida. It sold or closed all its health plans in a heap of losses, most of which have bills coming due via CMS Repayment Agreements which come due on or before 14 March 2025. Most of the industry is shaking its head in wonder that NeueHealth has made it this far.

The discussion in MedCityNews is worth reading. It includes Ari Gottlieb of A2 Strategy who points out that the company is $1.4 billion in debt to the likes of investors Cigna Ventures, New Enterprise Associates, and CalSTRS. They owe $89 million to Texas to cover risk liabilities for its shuttered ACA plans. Over $100 million remains in escrow from the Molina sale to cover obligations from its Medicare Advantage plans. Mr. Gottlieb predicts that NeueHealth will be drained and go bankrupt before the Feds come calling in March 2025. Another analyst, Tyler Giesting, director of healthcare and life sciences at West Monroe, takes a sunnier view that NeueHealth is in a sector, value-based care, that payers are interested in and will buy into, as long as the practices perform. This Editor will reiterate her wonder at NeueHealth’s management maneuvers. They’ve managed to play multiple ends against the middle and tie masterful Gordian knots (pick your analogy) to stay alive until, they hope, 2025 and better times. 

More Reality delivered in two layoffs in once-hot companies that thought pandemic les bon temps rouler would last forever:

  • San Diego-based Cue Health, a biotech company that produced Covid-19 tests, is laying off another 245 employees. This adds to the 884 workers in primarily San Diego laid off last year. Cue grew to over 1,500 employees when it got the first FDA approval for its 20-minute molecular test kits to supply the US government, the NBA, Google, and other large companies. Cue IPO’d in September 2021 at $200 million and $16/share, with a valuation of $3 billion. Its shares on Nasdaq are today at $0.25. The company also offers a test for mpox (monkeypox) and is seeking FDA approval for its RSV and Flu test kits. San Diego Union-Tribune
  • New York City-based Nomad Health, a healthcare staffing service that took advantage of the pandemic demand for travel nurses but had not fully transitioned into other temporary healthcare workers, released 17% of staff, from 691 to 572 employees. Nomad was reeling not only from lower demand but also correspondingly lower rates. It raised $200 million to date from investors such as Adams Street Partners and Icon Ventures. Forbes

And the final Reality is how healthcare companies, from providers to digital health, are phrasing what seems to be endless layoffs. Euphemisms such as rightsizing, org change, involuntary career events, corporate outplacing, and offboarding are all being used to sweeten for public consumption that a lot of people, hired so eagerly in 2020-22, are losing their jobs. From the Bloomberg article (paywalled), “They somehow seem to believe that if they use language that is more vague and less emotional, that people won’t get as upset,” said Robert Sutton, PhD, professor of management science and organizational behavior with Stanford University School of Engineering. Instead, euphemisms tend to have the opposite effect. Becker’s  This Editor has been both a survivor and a victim of same, being in marketing which is always vulnerable. Contract and consulting work, which anticipate a stronger market, are like the Sahara–few and dry water holes. Expect layoffs and a dead market for experienced talent to be a major factor in this year’s US elections, despite the reported low unemployment numbers (that no one believes anymore).

2023 was buying time, 2024 is face the music time: Rock Health

February 8, 2024 | by

Rock Health’s year-end wrapup, which usually makes a splash, didn’t this year. It was released this year in conjunction with the JP Morgan Healthcare Conference in the week after New Year’s, which almost guaranteed it would fly below the radar.

Another analogy: if you were doing aerobatics, 2023 for digital health was maintaining a flat spin from altitude if you could (left/above), 2024 would be getting out of the flat spin and into level flight before you and the ground had a meeting, so to speak.

Rock Health’s summary of 2023 was minus their typical frothiness:

  • It was back to 2019 across the board, as if 2020-21 never happened.
    • Full year 2023 raised $10.7 billion across 492 US deals. It was the lowest amount of capital invested since 2019, which finished with $8.1 billion across 413 deals. By comparison, 2022’s total was $15.3 billion across 577 deals.
    • Q4 2023 was the lowest funding quarter since Q3 2019, with an anemic raise of $1.9 billion across 122 deals.
  • M&A was left for dead, unexpectedly so from their earlier projections. (Note to Rock Health–it could be the negative attitude toward deals emanating from Washington)
  • A and B stage companies had trouble raising money in the usual lettered way. 81% of currently active venture-backed startups that raised a round in 2021 didn’t raise a labeled one in 2023. Some resorted to ‘extensions’ that further diluted existing ownership or unlabeled rounds that left more questions about when the next raise was going to be. Unlabeled rounds hit an all-time record of 44% of total raises, double that of 2022. (This Editor notes that there were no analyses of C and D rounds, because there were so few.)
  • “Silent rounds” of financing happened but were hard to gauge–and because they were inside, didn’t measure the attractiveness or competitiveness of the company in the real market. It was pure, simple survival of the company and the investment.
  • Startup shutdowns, in their view, were no higher than usual–less than 5% of venture-backed US digital health companies (i.e., have raised >$2M).

In this Editor’s view, the percentage does not capture the prominence of the startup shutdowns: Babylon Health, Quil Health, Pear Therapeutics, OliveAI, Smile Direct, Cureatr, SimpleHealth, The Pill Club, Hurdle. It also doesn’t count Amazon shutting down Halo, Cano Health’s parting out before this week’s bankruptcy, as well as Bright Health’s (now NeueHealth) divestitures and shutdowns through 2023 leading to their becoming a very different company in 2024. 

For 2024, Rock Health is seeing:

  • The return of labeled raises (A, B, C etc.) In their view, many companies will not be able to manage this without moving into ‘hot’ areas like obesity care (cue the Ozempic), value-based care enablement, or AI. Those that can’t will either have ‘down’ rounds or close (see this week’s closing of Astarte Medical in the NICU segment because they wouldn’t integrate AI).
  • M&A will increase, with acquirers buying low among the now cash-strapped companies. This Editor would add that both DOJ and FTC will have their say about this, having published new Merger Guidelines in December.
  • Publicly traded companies will ‘recalibrate’, which is a polite way of saying a lot of companies will face delisting. As of 31 December 31, 2023, at least 17% of public digital health companies trading on the NASDAQ or NYSE were noncompliant with listing standards. This Editor notes that 23andMe is the latest cracked SPAC in jeopardy. Some will rally, the strongest may IPO. BrightSpring Health IPO’d on 26 January, Waystar’s is pending. 

Their sobering conclusion. Too many companies were created in the last few years of the boom. “2024 will be a year of recalibration and consolidation. Some startups will rally, finding that high capital efficiency and exceptional offerings pay off to secure them their next major fundraise. Others will need to make the tough call to wind down operations or accept lower-than-hoped-for M&A offers, particularly in saturated segments.”

At last, Rock Health and TTA have met on similar ground. This Editor’s take back in December. From ‘Signs of the next phase in 2024’:

“…the board is being cleared of the also-rans and never-should-have-beens. They are like dead plants and brush that need to be cleaned out so that new growth can happen. We are cycling through some of them already as we move to a New Reality and winding this up.”

Additional TTA views on 2024: The New Reality permeating JPM, and Peering through the cloudy crystal ball into 2024

Got a data breach? Blame the victims like 23andMe did!

January 19, 2024 | by

23andMe wished its breached customers Happy New Year by putting the blame…on them!

The hacking that started with 14,000 records and grew to exposing the records and personally identifiable information (PII) of 6.9 million users, about half their customer database, has spawned over 30 class action lawsuits in the US, plus lawsuits in Ontario and British Columbia, Canada. 23andMe, in their responses to law firms and on their blog, told lawyers and users–not unexpectedly–that the data breaches were due to 23andMe users recycling log in credentials, such as passwords, that were used on other–breached–websites, and failed to update them on 23andMe after these incidents.

However, as this Editor noted when this first broke in December, this credential stuffing doesn’t account for the targeting nor the hacking of users who claimed they had unique credentials, including the US National Security Agency (NSA) cybersecurity director Rob Joyce who creates a unique email for each of his accounts (!). It also doesn’t account for how 14,000 brute-force hacked records grew exponentially to 6.9 million records. One reason may be data sharing with a partner, MyHeritage, in adding functionality to Family Tree, or sharing their information by opting into 23andMe’s DNA Relatives feature. 

It also does not account for how 23andMe squarely blamed users–that they were negligent in whatever passwords they used, that two-factor authentication was available since 2019 (but optional), that the information taken didn’t include highly sensitive information such as Social Security number, driver’s license number, or financial information. Therefore any lawsuits were futile, per a letter from 23andMe’s Greenberg Traurig to one of the class action firms, Tycko & Zavareei LLP. Afterwards, 23andMe reset all passwords and instituted mandatory multi-factor authentication, closing the barn door after the horse, cow, and goat got out and made it to the next county.

Playing into this is the weakness of US law around what constitutes ‘reasonable security procedures’ for securing personal information–and that is from the wording of the California Privacy Rights Act (CPRA), which may be the US’ toughest privacy law. On one hand, users have responsibility for a decent, unique password every time–but on the other hand, 23andMe bears responsibility for securing its shared data and not letting a breach get wildly out of hand like this one did. And what if next time it’s the actual DNA information?

The insult to injury: In December, 23andMe changed their terms of service to essentially indemnify themselves. Users had to agree, in the terms of service, exactly 30 days to opt out of the right to participate in a class action lawsuit and instead submit to private arbitration in the event of a dispute.

Not owning up to some fault is not the way to build customer confidence. Especially with a company in a faltering sector now trading around $0.70 per share. TechCrunch, ArsTechnica

A timely webinar Fri 12 Jan: Protecting a lifeline – preparing for the digital voice switchover (UK)

January 4, 2024 | by

Free Zoom webinar: Protecting a lifeline, preparing for the digital voice switchover
Friday 12 January, 13:00 (1 pm) GMT
Information and registration

The digital switchover, the 2G and 3G phaseout…these issues are roiling UK telecare services. Will providers be ready for VoIP with enhanced services by the end of 2025? Will their customers be left without crucial services? The Digital Poverty Alliance is sponsoring a webinar with guests Kamran Mallick, CEO at Disability Rights UK, and Dennis Reed, Director of Silver Voices, as they share their concerns for their customers and some experiences of the switchover. This webinar will also consider the practical steps providers should be taking to protect their customer’s needs, and ensure no one is left without crucial services as part of the switch. 

It couldn’t be more timely. As VoIP systems have been implemented, failure incidents of telecare and PERS alarms have escalated to the point where last month Michelle Donelan, the UK Technology Secretary, demanded that telecoms stop forcing the non-voluntary conversion of copper lines to VoIP on the elderly and disabled. Both BT and Virgin Media on Monday 18 December announced that they paused their rollouts. Even The Telegraph has campaigned for a re-think of the “big switch”. Telegraph (via Yahoo Finance Canada)

More about Silver Voices’ campaign to delay the switchover of traditional copper wire landlines to internet-based telephone systems (VoIP or Digital Voice). VoIP is far more versatile but not as reliable as copper (although when copper fails…). Everyone with internet knows the loss of voice and device connectivity when it goes out and how battery backup systems are short-lived at best, if there at all. Cellular/mobile can be used as backup, but many areas of the UK are without reliable cell coverage–which can also fail in storms.

Hat tip to Adrian Scaife via LinkedIn   Also see resources and events available through TTA’s partner, UKTelehealthcare–also linked on sidebar

News roundup: Cano Health gets 2nd NYSE delisting warning; Veradigm acquires Koha Health RCM, faces class-action lawsuit; Bright Health-Molina sale closes; Devoted Health’s $175M Series E (updated)

January 3, 2024 | by

Cano Health gets another billet-doux from the NYSE. Spoiling the confetti and champagne, tech-based primary care provider Cano Health was notified on 29 December that it faced delisting from the NYSE, this time not for the share price (which is above $1 at $5.23) but for its total market capitalization. The NYSE has a pesky rule (Section 802.01B) that a company’s total market capitalization must be above $50 million over a 30 trading-day period and its stockholders’ equity must be above $50 million. The timeline: Cano has 10 business days from the 29th to respond to the NYSE to state intent to cure the deficiencies, and 45 days from that time to submit a business plan to regain compliance within 18 months. If accepted, shares will continue to trade. In its release, Cano announced accelerating its ‘transformation plan’ to further cut costs, divesting operations and terminating underperforming affiliate operations to save approximately $290 million by the end of 2024, which includes the $65 million of previously planned cost reductions. They will also need to pay $30 million in pre-tax charges to resolve exiting leases and staff termination charges. Earlier in December, Cano appointed two independent directors, Patricia Ferrari and Carol Flaton, both with strengths in restructuring companies and their financials. It also established a three-person finance committee, to assist in trimming down the company and exploring a sale. Release

Veradigm buys Koha Health, which specializes in orthopedic/musculoskeletal (MSK) revenue cycle management (RCM). Acquisition cost and management transitions were not disclosed. The purchase of Koha adds to Veradigm’s RCM portfolio in ambulatory health. Koha, based in Merrimack, New Hampshire, was still owned and run by younger members of the founding family.  Veradigm is still working out over a year of trouble with its Nasdaq listing and has changed out its CEO and CFO recently [TTA 14 Dec]. Release. Also HIStalk 1/3/24   

Updated  Veradigm faces a shareholder class-action lawsuit on its share price. As is typical in these cases, there is a lead plaintiff (John M, Erwin) represented by a law firm (in this case Robbins Geller Rudman & Dowd LLP of San Diego) which is filed on behalf of a class, in this case individuals who bought shares between 26 February 2021 and 13 June 2023 and suffered losses. It charges Veradigm as well as certain of its current and former top executive officers with violations of the Securities Exchange Act of 1934.  This centers around Veradigm’s ongoing problems in stating its financials from Q3 2021 and overstating its earnings from there through 2023, negatively affecting the share price. The lawsuit was filed 22 November 2023 in the US District Court for the Northern District of Illinois. Robbins Geller is now seeking other plaintiffs to join in the suit. Release, Justia Dockets & Filings, Mobihealthnews

Wrapping up another continuing story, Bright Health closed the sale of its California plans to Molina Healthcare on New Year’s Day. With the proceeds, reduced to $425 million [TTA 20 Dec 23], Bright as predicted cleared what was owed on its credit facility with JP Morgan, reduced on Friday by $30 million to approximately $298 million. The remaining funds will go to their cash position ($90 million in unregulated cash plus approximately $155 million in excess cash surplus after reserving for expenses) and $110 million from escrow, and now on its sole continuing value-based primary care business, NeueHealth. Cash reserves do not include CMS Repayment Agreements which come due on or before 14 March 2025, sufficiently far in the future (?). No mention of repayments to their lender New Enterprise Associates (NEA) or the Texas Department of Insurance clawing back money owed out of its insolvent Texas plan. You have to hand it to Bright Health. They’ve managed to play multiple ends against the middle and tie masterful Gordian knots (pick your analogy) to stay alive until, they hope, 2025.  [TTA 5 Dec].  Release 29 Dec. Release 2 Jan   FierceHealthcare

Updated  And one more bright spot: $175 million raised by Devoted Health. Devoted is a combination of Medicare Advantage (MA) plans with in-house telehealth and in-home care delivered by Devoted Medical. The Series E was funded by a lead syndicate composed of The Space Between (TSB), Highbury Holdings, GIC, Stardust Equity, Maverick Ventures, and Fearless Ventures with an arms-length list of other participants. Devoted was started by two brothers, former athenahealth and government IT leaders Ed and Todd Park, CEO and executive chairman respectively. Devoted release, Becker’s. Fierce Healthcare, Mobihealthnews

What a difference a little over two years makes. At the time of their hefty $1.15 billion Series D, raised in the heady days of October 2021, they were considered one of the smaller, more specialized ‘insurtechs’ along with Alignment Health. Now they are walking tall in a field of damaged or expired payers: Bright Health, Oscar, and Clover among the survivors, and Friday Health Plans deceased. Devoted now states that its MA plans serve 140,000 members in 299 counties across 13 states, as of December 2023. Most impressively, 94% of their members in Star-eligible plans are in 4 to 5 Star plans. Their HMO plans in Florida and Ohio were all 5 Star plans. 

Some thoughts on the insurtechs, why the hype didn’t quite pan out, and the damage they may have done [TTA 7 July 2023].

Breaking: ban on sale of Apple Watches 9 and Ultra 2 stayed by federal appeals court Wed 27 December

December 28, 2023 | by | 2 Comments

Apple Watch 9, Ultra 2 available again for sale–at least well into January, as appeals court decides. It should come as no surprise that Apple quickly appealed the US International Trade Commission (ITC) ruling of 26 October that prohibited Apple from importing either model and won a temporary stay of enforcement. The ITC ruling found that Apple in the Series 6 and later violated Masimo’s patents on pulse oximetry (SpO2) sensors and software. ITC rulings are sent to the US president in a 60-day process that ended in no presidential veto and thus final approval on 25 December. Apple, anticipating compliance and moving in an orderly fashion, pulled both models from online sale 3 pm Eastern Time on Thursday 21 December, while Store sales ended on Christmas Eve. [TTA 21 Dec]

On Tuesday 26 December (Boxing Day), Apple filed for an emergency stay of the ban in the US Court of Appeals for the Federal Circuit which was granted almost immediately, on Wednesday 27 December. This prevents Homeland Security’s Customs and Border Protection (CBP) from enforcing the import ban until the court can consider Apple’s motion to stay the ban pending its full appeal. The timeline now, after this emergency stay, is that the ITC has until 10 January 10 to file its opposition, with Apple’s reply due on 15 January. If the court grants Apple its desire for a full appeal after that and to stay enforcement of the Limited Exclusion Order (LEO) until that appeal is decided, the enforcement timeline then typically pushes forward another 18 months. Masimo is contesting the action saying there was no emergency as Apple had already stopped selling their watches with pulse oximetry features. Apple, as the infringer on Masimo’s patents as found by the ITC, has to show the court that the stay is justified.

With the Court of Appeals ruling in place, Apple is resuming online sales today (Thursday 28 Dec) at noon Pacific Time (3pm Eastern Time).

Yet another wrinkle is that Apple has proposed a modification to both of these watches to the CBP. They are now seeking a judgment that the modified version is outside of the ITC Limited Exclusion Order. The ban also affected owners of older Apple Watches with pulse oximetry readings, as out-of-warranty watches’ hardware would not be considered repairable. 

The most legally comprehensive article on this is by Dennis Crouch at Patently-O. Bloomberg, Axios, and The Guardian. The New York Post has a backgrounder on the relationship between the current president and Masimo’s CEO, which appears to be a close one but, based on another company’s history that follows, is likely to not be pertinent to the ITC decision or approval. (This Editor notes that Apple for decades and currently has been considerably influential in government matters and business policy. It is not unusual here in the US or elsewhere for that matter that company leaders play the donation game. We eschew additional comment.)  

Apple and others’ patents–not perfect together. AliveCor is in a similar situation in its own patent legal actions with Apple: winning in an ITC patent determination approved by the White House, negative PTAB actions, then Apple appealing. AliveCor is currently engaged in an antitrust court action with Apple in the US District Court of Northern California [TTA 19 July and prior] with a decision expected in 2024. Unlike Masimo, Apple licensed AliveCor’s ECG technology in early Apple Watches, then took action when Apple introduced its own ECG in the Apple Watch 4 in 2020.

It also shows that Apple has, shall we say, a certain pattern of updates to its Watch lines that may infringe on the patents of smaller companies. Again, all Apple would need to do is license these patents and pay royalties. It might be cheaper than lawyers and lawsuits.

DOJ and FTC finalize Merger Guidelines, deliver coal for holiday stockings and the New Year (updated)

December 20, 2023 | by

DOJ and FTC deliver a scuttle of coal for healthcare holiday stockings. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) finalized the Merger Guidelines that were drafted back in July [TTA 20 July]. They update prior guidelines first issued in 1968 that have been revised six times since then. They are not legally binding but demonstrate how each agency will examine any merger or acquisition going forward–and are advance notice on how they can and will stop either. US antitrust law is based on three acts passed by Congress: The Sherman Antitrust Act (1890), the Clayton Act (1914), and the Federal Trade Commission Act of 1914, now in US Code Title 15.

After 30,000 public comments in the 60-day period, the published Guidelines are now down to 11, but in context based on this Editor’s read (caveat, not a lawyer nor play one on TV) are not materially different than the July draft of 13, perhaps considered unlucky. The language in each Guideline restates the draft language in substantially more restrictive language and interpretation. The agencies’ stated purpose is that when two companies propose a merger that “raises concerns” on one or more of these Guidelines, the agencies “closely examine” whether the effect of the merger may be to substantially lessen competition or to tend to create a monopoly (sometimes referred to as a “prima facie case”). Two “C” words are repeated throughout–concentration and consolidation. 

The guidelines are verbatim from the 51-page DOJ/FTC document (PDF link) issued 18 December and are grouped on how the agencies use these guidelines. They are effective immediately.

Distinct frameworks the agencies use to identify that a merger raises prima facie concerns (1-6)

Guideline 1: Mergers Raise a Presumption of Illegality When They Significantly Increase Concentration in a Highly Concentrated Market.
Guideline 2: Mergers Can Violate the Law When They Eliminate Substantial Competition Between Firms.
Guideline 3: Mergers Can Violate the Law When They Increase the Risk of Coordination
Guideline 4: Mergers Can Violate the Law When They Eliminate a Potential Entrant in a Concentrated Market
Guideline 5: Mergers Can Violate the Law When They Create a Firm That May Limit Access to Products or Services That Its Rivals Use to Compete
Guideline 6: Mergers Can Violate the Law When They Entrench or Extend a Dominant Position

How to apply those frameworks in several specific settings (7-11)

Guideline 7: When an Industry Undergoes a Trend Toward Consolidation, the Agencies Consider Whether It Increases the Risk a Merger May Substantially Lessen Competition or Tend to Create a Monopoly
Guideline 8: When a Merger is Part of a Series of Multiple Acquisitions, the Agencies May Examine the Whole Series
Guideline 9: When a Merger Involves a Multi-Sided Platform, the Agencies Examine Competition Between Platforms, on a Platform, or to Displace a Platform
Guideline 10: When a Merger Involves Competing Buyers, the Agencies Examine Whether It May Substantially Lessen Competition for Workers, Creators, Suppliers, or Other Providers
Guideline 11: When an Acquisition Involves Partial Ownership or Minority Interests, the Agencies Examine Its Impact on Competition

The Guidelines are summarized in the Overview. Section 2 explains them more completely with how the agencies apply the Guidelines. Section 3 identifies rebuttal evidence that companies could typically present, and Section 4 presents a non-exhaustive discussion of analytical, economic, and evidentiary tools the Agencies use for evaluation. 

More coal, Ebenezer Scrooge. As this Editor described the draft guidelines in July, it it is hard to see that any merger or acquisition of like companies or even complimentary organizations building out capabilities or platforms could pass. Each one of these Guidelines is a tripwire and once tripped, can trip others. Each one of these can be used by FTC and DOJ to present to a Federal district court, where decisions are now more influential than the body of US Supreme Court decisions. Healthcare Dive notes the Illumina decision in the Fifth Circuit appeals court, liberally cited in the Guidelines document. This is forcing Illumina’s divestiture of cancer test developer Grail, earlier purchased for $7.1 billion. 

So now the coal’s been delivered…what will 2024 and out look like?

  • This will freeze M&A for months as companies try to figure this out. It’s not hard to guess that the imminent publication of the Guidelines nudged the termination of the Cigna-Humana deal. Hospital and health system mergers will continue to find nothing but discouragement.
  • Watch for an acceleration of existing company failures in 2024 and disruption in the current funding structure. Smaller healthcare companies, fattened on the investment binge of 2020-21, but now betting on a buyout from a near competitor, are either going to stick it out on their own or run out of runway. VC and PE companies investing not strategically, but for the purpose of a 18-24 month exit or quick payday, will largely be out of luck. Public companies may languish unless they move quickly to profitability. This may stimulate a new look at investing–strategic investors that look at the very long term–or not. (JP Morgan in January will be verrrrry interesting.)
  • Companies that have grown organically or benefited from previous acquisitions but need to acquire capabilities for a platform to continue to be competitive will also be affected. These could trip Guideline 9 and if found to be anti-competitive, may trip Guideline 8: “If an individual transaction is part of a firm’s pattern or strategy of multiple acquisitions, the Agencies consider the cumulative effect of the pattern or strategy.”
  • The behemoths like UnitedHealth Group, Walgreens Boots Alliance, and CVS Health will have no rivals for many years. The flip side: they will have trouble making additional acquisitions without forcing divestitures, or find buyers when they wish to divest money-losing units.
  • Partnerships may accelerate–with all their risks of purloined IP and monetary disputes. But smaller companies may use it to band together without antitrust risk.
  • The SPAC (special purpose acquisition company) may make a comeback. They will not have any antitrust conflicts but risk a chancy public market, at least in the US. 
  • The conglomerate–unrelated businesses under a holding or investment company–may rise again, as it did in a tight antitrust environment in the 1960s. Remember Gulf + Western and LTV (Ling Temco Vought)–both gone? Berkshire Hathaway is a prime example of a current conglomerate. Foreign investment groups may also find US healthcare an attractive proposition.
  • Offshore reincorporation. Much as Medtronic moved its corporate headquarters from Minneapolis to Dublin, Ireland, companies may move offshore to friendlier climes like Ireland, Estonia, Hungary or the Visegrad nations, and the Channel Islands, effecting their M&A there and making their US branches operational only. 

But…there’s more. Both DOJ and FTC will be reviewing the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines. Fasten your seatbelts, it’s going to be a bumpy year. 

FTC press release (which makes clear what agency is leading!), Crowell (law firm) short analysis, PrivateFundsCFO

Additional sources added 2 January: National Law Review (article by Foley & Lardner), Healthcare Finance News

Signs of the next phase in 2024? Veradigm CEO, CFO booted (updated); SmileDirectClub fails, TeleDentists steps up; FruitStreet sues Sharecare for $25M; Walgreens’ former CEO Roz Brewer’s platinum parachute

December 14, 2023 | by | 3 Comments

As your Editor reflects on 2023’s BloodOutOfARock versus 2020-2021’s Alcoholic Bender or the ‘new normal’ touted by the Usual Suspects (with 2022 only a burp on the way), she actually sees some Signs of Hope. 

Having lived through the Digital Health Slough of Despond of 2008-2009 as the marketer for an early telemonitoring company, there are many actions that to the observant are markers that the board is being cleared of the also-rans and never-should-have-beens. They are like dead plants and brush that need to be cleaned out so that new growth can happen. We are cycling through some of them already as we move to a New Reality and winding this up, with some examples. 

  • Early stage companies still in the red, with promising financials, but needing to get to the next stage, suddenly unable to get even modest funding (an early indicator of funding drought)
  • Large companies that can get funding snapping up smaller companies at knock-down rates to fit a ‘vision’. Watch for fill-ins, add-ins, bolt-ons that later are revealed to have taken place ‘just in time’. (And may be sold or spun off later in the cycle.)
  • Large companies veering off into lines of business that look like meadows but are minefields–and hiring expensive senior executives who don’t know one or the other but then have to run both at very high levels. They then depart (or are departed) with expensive packages.
  • VCs and PEs really snapping the purses shut–and shutting. (The latest is OpenView in Boston, not even much of a healthcare player except for a couple in HIT over a decade ago but a recently participant in a Series B for RPM Optimize Health)
  • Public companies moving from party-hearty unicorns to hoarding pens and Post-It notes to locking the doors bankrupt in two to three years. (Cracked SPACs, IPOs, and more)
  • Too many players competing with each other with near-identical services in what turns out to be a limited market–and gaining advantage by cutting patient health, privacy, and regulatory corners. (DTC telemental care and drug prescribing)
  • Layoffs at companies that over-hired in the boom spreading to larger companies that largely did not, cutting their next generation of leaders in response to Mr. Market and creating internal chaos. (Instigating panic at blue-chips like CVS and Walgreens)
  • Stupid (yes) acquisitions being acknowledged and cleaned off the books–none too quietly, but done for survival’s sake. (Somewhere there should be a memorial to Teladoc-Livongo. Sorry, Teladoc.)
  • Increased Federal and state regulation of normal business processes. (FTC’s sudden prominence adding to the usual DOJ antitrust pile-on and senatorial posturing)
  • A general cleansing of the cant and hype infecting a sector. (Look to the conferences and press releases for changes in language.)

In this Editor’s observation, another latter-stage sign is when C-levels don’t survive management failures and are sent packing. Another is seeing a small company sue a larger one over failed partnerships, usually involving IP or program design theft. This past week had examples of these two, plus examples tracking with the above markers.

Veradigm still minus 2022-23 financial statements, boots and replaces its CEO and CFO. The former Allscripts has failed to file financial statements for full year 2022 and to date in 2023 due to a massive flaw in its financial reporting software adopted in 2021 that affected its revenue reporting going back to then. While it is still trading on Nasdaq despite 14 November and earlier 16 August, 18 May, and 20 March notices from the exchange under Nasdaq Listing Rule 5250(c)(1) (Veradigm release), there still is no resolution about when their statements will be filed with the SEC. The company’s latest move was to force the resignations of CEO Richard J. Poulton and CFO Leah S. Jones, replacing them with two interims. From the board, Dr. Shih-Yin (“Yin”) Ho becomes CEO for six months and Lee Westerfield, CFO of Clearsense, becomes CFO. Mr. Poulton, a 10-year veteran, will receive a $1.6 million severance. Ms. Jones will receive a six-month continuation of salary plus additional payments to “provide business-development related services” which is corporate-speak for paying you to transition to her replacement. The board will search for permanent replacements for the CEO and CFO positions.

According to their announcement, the management changes resulted from “the Audit Committee’s previously disclosed, ongoing independent investigation, which is being conducted by legal counsel and relates to the Company’s financial reporting and internal controls over financial reporting and disclosure controls”. Reading it, Job #1 for the new team appears to be reviewing the fiscal 2023 guidance that was released on 18 September and regaining compliance with the Nasdaq Listing Rule. Veradigm also reiterated that they will have a 2020-22 revenue reduction “relating to certain revenue recognition practices.”  

Additional board changes include the chairman, Greg Garrison, as executive chairman and the appointment of Carol Zierhoffer (bio), retired CIO of Bechtel Corporation, as lead independent director. Perhaps Ms. Zierhoffer can help with the conundrum of a software company engaged in vital health and financial information transmitted via practice EHRs and practice management having its own massive accounting software problem derailing them for two years. CFO Dive has more details on the audit and a shareholder suit filed in November.

Update: A Nasdaq panel spared Veradigm’s exchange listing, for now. Mark 27 February 2024 as the date Veradigm is required to provide their 2022-2023 financial reporting to Nasdaq as required under Listing Rule 5250(c)(1). This was reported in Veradigm’s 8-K filing to the SEC on 13 December. Note that Nasdaq’s release states “The Company plans to file its Form 10-K and the Form 10-Qs as soon as possible; however, no assurance can be given as to the definitive date on which such periodic reports will be filed.” (Editor’s emphasis) Stay tuned. Healthcare Dive, 

No rescue for direct-to-consumer clear dental aligner provider SmileDirectClub. SmileDirect, which along with Byte (acquired 2021 by dental industry giant Dentsply Sirona), NewSmile, SnapCorrect, and several others market DTC aligners and teledentistry, failed to find a buyer or new financing after its Chapter 11 filing in September. The plan centered around the once-billionaire founders buying the company back, but they could not get their main lender HPS Investment Partners and other creditors owed $900 million, nor new investors, on board.

Heavily advertised SmileDirect IPO’d in 2019 with a valuation of $8.9 billion, but never turned a profit from its combination of DIY and teledentistry. Other drains were a patent fight with CandidCare and multiple patient complaints including jaw damage, migraines from misalignment, and tooth loss. Candid, like Invisalign, now works only through dentists who do the impressions, filings for tooth separation if needed, progressive aligner delivery, and tracking progress over what is typically one year for children, teens, and adults (over 60% of business). 

In the FAQs on the lone page on its website, SmileDirect no longer will honor customer contracts for aligners and dental checkups or lifetime guarantees, but continues to demand payment from patients on SmilePay contracts. (Good. Luck. With. That!) The Hill, Fortune, HIStalk 11 Dec. For the teledentistry service The TeleDentists, it is a marketing opportunity to join with Byte in prescribing and providing dentist services for their clear aligners (email promotion). The TeleDentists is also partnering with WebMD Care for consumers seeking care after researching a dental condition. (Release) 

(Editor’s note: Having gone through Invisalign as an adult to correct a growing problem with alignment, your Editor cannot conceive of a DIY approach to a complex process that also required a significant amount of daily self-discipline.)

Fruit Street Health sues former partner Sharecare for $25 million. The interestingly named Fruit Street provided its diabetes management program to digital health conglomerate Sharecare as part of Sharecare’s unified virtual health management platform for individuals and enterprises. Starting in 2018, Fruit Street had a business agreement with Sharecare to offer its CDC-recognized diabetes prevention program (DPP) on Sharecare’s platform. Sharecare now has its own diabetes prevention program, “Eat Right Now”, which Fruit Street claims violates the terms of its agreement. The lawsuit was filed in Fulton County, Georgia. Sharecare claims not only that the lawsuit is without merit, but also that Fruit Street owes them $3 million in payments.

Fruit Street was founded in 2014 as a public benefit corporation [explained here TTA 24 Feb] headquartered in NYC by Laurence Girard. It is modestly funded at $35 million. Atlanta-based Sharecare was founded 2018 by serial entrepreneur and WebMD founder/CEO Jeff Arnold with Mehmet Oz, MD, surgeon, TV celebrity, and former Senate candidate. Sharecare went public on Nasdaq in the palmy days of early 2021 via a SPAC with Falcon Capital Acquisition Corp. It broke out of the gate with a $3.9 billion valuation, but like most SPACs it cracked downward within months and shares now trade at an anemic $0.99. In January, current CEO Arnold will be transitioning to executive chairman. Long-time Centene exec and retired president Brent Layton will move from a board director position to the CEO chair (release). MedCityNews, Axios, 

Former Walgreens CEO Roz Brewer eyewatering compensation revealed. A final example of our third bullet above is the excellent financial arrangement Ms. Brewer had with Walgreens Boots Alliance. Her package of compensation and stock options awarded by the board was $71 million for about 30 months, which included a $4.5 million signing bonus to lure her from Starbucks, over half a million in moving expenses, and $60 million in three years of compensation. According to the information in The Messenger, a good portion was in stock which fell in value 57% during her time at Walgreens, continuing a trend before her arrival. It was also consistent with an executive termination without cause, which also tied her to non-disparagement and non-disclosure agreements. Was her departure by mutual agreement with the board? That is fairly typical language, but reports in the article attributed the real cause in this statement from a source indicating loss of confidence by the most important man at WBA, Stefano Pessina: “Stefano thought she was a lightweight and unable to do the hard, transformational things he needed her to do.” (Was buying the majority of VillageMD, starting the joint store/practice location plan, buying CareCentrix and specialty pharmacy Shields Health Solutions during her tenure, not quite enough? Perhaps too much spent in a hot market and not enough return, especially by VillageMD on Summit Health and CityMD?) 

Her departure and replacement by a healthcare veteran with directly related management and organizational expertise, Tim Wentworth, is yet another example of this particular cycle coming to completion. And now that we’re in the midst of clearing the field, what happens next?

23andMe hacking may have affected 6.9 million+ users–not 14,000–in massive PII breach

December 6, 2023 | by

What was 14,000 may affect up to 6.9 million users. Genetic testing and information company 23andMe is now admitting that the October data breach that affected 0.1% of their 14 million customer base, or 14,000 users per their SEC filing last Friday, may have exposed the records and personally identifiable information (PII) of 6.9 million users, about half their customer database. In later replies to industry publications TechCrunch and WIRED, a 23andMe spokesperson admitted that hackers accessed the PII of about 5.5 million people who opted-in to 23andMe’s DNA Relatives feature. Add into that an additional 1.4 million “had their Family Tree profile information accessed”. an enhancement to DNA Relatives. The DNA Relatives breach stole individual and family names, birth year, relationship labels, the percentage of DNA shared with relatives, ancestry reports, and self-reported location. Family Tree information exposed display names, relationship labels, birth year, self-reported location, and whether the user decided to share their information.

(Editor’s note: The size of the breach is enough to revive this vintage picture of WWF/WWE wrestler Hulk Hogan in his ‘Hulkamania Running Wild’ persona.)

23andMe has attributed the massive breach to credential stuffing–the reuse of leaked login credentials from other websites and services. But many users have gone public with the information that their logins were unique to 23andMe. 23andMe’s credibility on this issue took a beating from none other than the US National Security Agency (NSA) cybersecurity director Rob Joyce. He wrote on his personal X account that “They disclose the credential stuffing attacks, but they don’t say how the accounts were targeted for stuffing. This was unique and not an account that could be scraped from the web or other sites.” In fact, Mr. Joyce creates a unique email for each account. The cause for the wider breach may lie in data sharing with a partner, MyHeritage, in adding functionality to Family Tree. It seems clear that credential stuffing wasn’t the only technique used to break into the 23andMe user data.

23andMe, as well as Ancestry.com and MyHeritage, now require or strongly recommend two-factor authentication for access to personal accounts. About time. They have also changed terms of service to “encourage a prompt resolution of any disputes”.

What is distressing is that the hacks on the retail side of 23andMe are only the tip of the iceberg–that the really valuable part of their genetic data goes to pharmaceutical companies. Cyberthieves know that motherlode is incredibly valuable to bad actors like the Chinese and the Chinese Communist Party, both key markets for stolen health data. (Developing)

News roundup: ONC recommends ‘nutrition labeling’ for healthcare AI apps but Google moves forward; CVS’ health services rebranding as Healthspire (updated); Clover Health repots out of ACO REACH

December 6, 2023 | by

Straining toward a model for AI app information? The latest grope by Federal regulators towards the “trustworthy use of artificial intelligence”, as the American Telemedicine Association terms it, is a labeling system that has been likened to ‘nutrition labeling’. This near-incomprehensible analogy to food labeling was proposed back in April by the Department of Health and Human Services (HHS) Office of the National Coordinator for Health Information Technology (ONC), now headed by Micky Tripathi, Ph.D. This disclosure would consist of how the app was trained, how it performs, how it should be used, and how it shouldn’t, which does not sound onerous at all. The disclosures are designed to forestall issues around performance and bias that have previously appeared, such as Epic’s AI system designed to predict sepsis risk and an algorithm designed to flag patients needing assistance with complex treatment regimens. 

An optional proposed disclosure around how the app was trained and tested would be important to healthcare organizations but potentially problematic to developers. There are quite a few caveats expressed by Silicon Valley investors around hurting startups and even giants like Epic through over-disclosure of proprietary information, enabling reverse engineering and poaching of intellectual property. Everyone likes transparency, trust, safety, and efficacy, but the conundrum is to disclose what is needed for proper and cautious use without providing an entreé to IP. Wall Street Journal, Becker’s, ATA release and AI principles 

Google, predictably, damns the torpedoes, full speed ahead with healthcare AI. And intends to write the rules. They’ve deployed AI tools already with Mayo Clinic and HCA Healthcare–Mayo for medical records and research papers, HCA for clinical notes. EHR Meditech is using Google’s AI for clinical documentation and to summarize patient histories. Bayer is also working with Google. Their products include a licensed algorithm for breast and lung cancer detection, a tool for diagnosing diabetic retinopathy, and a question-answering bot. Google makes no secret that they plan to influence Federal efforts at setting standards by hiring lobbyists, most of whom are out of the Food and Drug Administration (FDA), and playing a large role in industry groups such as the Coalition for Health AI (CHAI).  If you believe that Google, Microsoft, Amazon (playing catchup), or other healthcare service companies like UnitedHealth Group’s Optum will twiddle their thumbs and wait for the Feds to set standards and (good grief) enforce disclosure on AI tools, this Editor has several lovely bridges for sale. POLITICO, Becker’s

CVS Health grouping health services and multi-payer assets under CVS Healthspire. Monday’s announcement at the Forbes Healthcare Summit will roll up new $20 billion acquisitions Oak Street Health and Signify Health along with 1,100 MinuteClinics, the CVS Caremark pharmacy benefit manager (PBM), CVS Specialty, and its new Cordavis operation that works with pharmaceutical companies to bring to market  biosimilars. The rebranding, a clever melding of ‘health’ and ‘inspire’, will start this month into 2024. It’s not revealed whether the current names will be sunsetted for CVS Healthspire, or whether they will keep their established brand names. The parallels are with Evernorth (Cigna), Optum (UnitedHealth Group), and Carelon (Elevance, the former Anthem) in creating a vertically integrated healthcare company. At Investor Day, CVS Pharmacy announced a cost-plus arrangement for retail prescriptions built on the cost of the drug, a set markup, and a fee that reflects the care and value of pharmacy services–clearly in competition with Mark Cuban CostPlus.  Forbes, FierceHealthcare, CVS release, Investor Day release  

Clover Health exits the advanced value-based primary care program, ACO REACH. Clover’s exit at the end of the 2023 performance year after two years disbands their practice arrangements for CMS’ advanced original Medicare shared savings program, formerly Direct Contracting, and provision of beneficiary services after completing their required wrapups and reporting. It is part of their recent moves to become profitable, focusing on their Medicare Advantage business and Clover Assistant management. They outsourced their Medicare Advantage plan administration to UST HealthProof for a savings of $30 million and laid off 10% of staff as part of restructuring. A 2021 SPAC on Nasdaq debuting above $16 that survived investigations by the SEC and DOJ now has shares trading currently under the $1.00 minimum for listing. Clover also finally settled seven shareholder lawsuits over its non-disclosure of the DOJ investigation at the time of the SPAC. Cleaning house is all part of living to fight another day, like other ‘insurtechs’ such as Oscar Health. Clover release, FierceHealthcare  Also: Looking back at insurtechs and their ‘disruption’,  Insurtechs in the widening gyre

Stayin’ alive–or trying. Bright Health Texas plan seized for liquidation; Cano Health reverse splits, up for sale

December 5, 2023 | by

Bright Health’s future continues to dim. Last week, the Texas Department of Insurance (DOI) filed notice in Travis County district court that Bright Health’s subsidiary, Bright Health Insurance Company of Texas as defendant, was financially insolvent and would be liquidated. The insolvency and receivership was declared on 29 November. Bright Health’s Texas assets could not cover liabilities plus a required surplus under law. The Commissioner of the DOI is responsible for the liquidation that was done with the consent of Bright Health as an agreed with the defendant order (PDF link here).

Bright Health had exited the Texas market, ending its ACA plans in July and an agreement with Molina Healthcare to serve Medicaid and ACA Marketplace populations in Florida and Texas starting in 2024, according to July reports [TTA 6 July]. Reading the order, Bright Health and all of its entities including NeueHealth are enjoined from any actions regarding Bright Health Texas.

Is there a bottom short of Chapter 7? Bright Health is not only in major debt, reportedly $500 million, to JP Morgan to pay off its credit facility, but also to the Center for Medicare and Medicaid Services (CMS) to cover risk liabilities from its discontinued ACA (Affordable Care Act-individual plan) insurance businesses. That liability is, according to reports, $380 million in risk-adjustment payments, including $89.6 million in Texas. In the puzzle palace scheme of ACA plans, this is designed to ‘even out’ the differential between higher and lower-risk members in an ACA market. This risk adjustment of nearly $90 million also affects the bottom line of other plans in Texas run by Centene, Molina, and BCBS Texas, as well as smaller local plans, as this payment is distributed to them. But from the liquidation order, no one can collect on this risk adjustment as an asset (see page 7 of the order).

The sale of California plans to Molina in July was estimated at $600 million, and that was contingent on Bright Health surviving into 2024. The value of the plans, with continued losses, is likely reduced as it’s six months later. It is not expected to close until Q1 2024. For the $380 million payment owed to CMS, Bright has entered an interest-only repayment agreement with them, a favorable but ‘skin of the teeth’ arrangement. The credit facility from New Enterprise Associates in August was only $60 million. But their adjusted EBITDA reported at that time for Q2 and H1 were actually in the black: $6.4 million for Q2 and $670,000 for H1. 

The big question to this Editor, as it was to analyst Ari Gottlieb, is how the $89.6 million, now enjoined in Texas, is not considered a default on the risk-adjustment payment agreement and is turned over to the Department of the Treasury for collection. Read Mr. Gottlieb’s POV here on LinkedIn. But this Editor has to hand it to Bright Health. They have done a masterful job of tying states, CMS, and even Molina into Gordian knots that buy time against what seems to be the inevitable.  Becker’s, 

Cano Health is also trying to stay alive until it gets sold. The board and shareholders on 2 November (release) accepted a 1 for 100 reverse share split, exchanging 100 old shares of Class A and B stock for one Class A share. This is to regain compliance with the New York Stock Exchange’s (NYSE) listing rules. Cano is currently trading at $8.95 (5 Dec @ 13.33pm).

As previously reported, Cano lost $497 million in Q3. Some results showed improvement, with capitated revenue of $770.3 million increasing 23% and 7% PMPM (per member per month) versus Q3 2022. Not good was the adjusted EBITDA of $(66.1) million in Q3 2023 coming in at $(84.3) million lower than Q3 2022 ($18.2 million) due to a higher medical cost ratio (MCR). Reading further into the release, liquidity appears to be low–$53 million, consisting of cash and cash equivalents (excluding restricted cash of approximately $34 million). They also have a revolving line of credit with Credit Suisse, but it is fully drawn. Cano projects operating performance improvement for Q4. It continues to sell assets, lay off staff, and is for sale as a company on what is left, which is their Florida-based clinic network. 9 Nov release

Short takes: a rumor of merger/buy with Cigna and Humana–what are the odds? (updated) And what’s up with the low number of HIMSS 24 exhibitors?

December 2, 2023 | by

crystal-ballCigna and Humana, perfect together? Only if they can get the deal through the Feds and the states. Late this week, the Wall Street Journal revealed that Cigna and Humana were exploring either a merger or, as some theorize, a buy of Humana ($93 billion in revenue, $60 billion valuation) by much-larger Cigna ($181 billion in revenue, $78 billion valuation). Between them, it is estimated that they would have 35 million members. No transaction cost has been estimated, but the WSJ sources indicate it will be a stock-and-cash deal that could be finalized by the end of the year if all goes well.

On paper, industry observers like it but point out the overlap in one significant area.

  • Cigna earlier announced that it wants to sell its relatively small Medicare Advantage business, concentrating on its leadership in the commercial business and with its service businesses under the Evernorth umbrella.
  • Humana is exiting its commercial health plans to focus on MA and Medicaid, as well as its large footprint in the home health business with CenterWell.
  • Humana’s CEO Bruce Broussard is retiring next year, with newcomer to Humana Jim Rechtin joining as COO in January 2024 as his replacement. Cigna’s CEO David Cordani is a sprightly 57 and likely not to go anywhere.
  • The overlap area that could be problematic is pharmacy benefit management (PBM) with each having about 17-18 million in Express Scripts (Cigna), the second largest in the US, and Humana Pharmacy Solutions. 

Liking it on paper is one thing–FTC, DOJ, and 50 states may not feel so enthusiastic. It’s established through their actions that both Federal agencies are reining in M&A with new and restrictive merger guidelines scheduled to go into effect next year [TTA 20 July]. Healthcare is a major political hot button for this administration for cost–especially drug costs. That is where the reportedly equally sized in revenue PBM operations present the most major conflict to a merger or a buy, both in service and valuation. Both serve their own plan members as well as others, notably Express Scripts with 24% of claims, whereas Humana’s serves primarily its own plan members with 8% of claims. Neither are easy to divest without creating antitrust questions for acquirers and a major dent in Humana’s services. The final factor: Lina Khan, chair of the FTC, has never seen a merger that she’s liked based on her own statements [TTA 24 Aug].

Doomed to repeat history? In 2015, two payer mega-mergers involving these same companies were concocted: Cigna with Anthem and Humana with Aetna. They hit the buzzsaws of DOJ and before that, state approvals. The DOJ pursued them on antitrust in the Federal courts which derailed both by January 2017. Running up to that, every state got an approval vote through review by each state’s Department of Banking and Insurance or equivalent. Many did not approve or with conditions. The other factor is corporate. In the runup to the merger, Anthem-Cigna was marked by escalating animosity from the management suites to the worker cubes. After the deals were scuppered in the Federal District Court, Anthem and Cigna bitterly fought over damages and cancellation fees in Delaware Chancery Court. Aetna and Humana took their lumps and breakup fees, and went on. Aetna went on to merge with CVS, a deal that avoided most of the antitrust flak. Humana went on to acquisitions in other areas.

Our betting line. Both insurers will look at the financials in this hard-to-get-arrested year. Both will feel out the Feds before going forward. Both will calculate whether it’s best to start now or wait till next year and a possible change in administration. Neither company wants to be a political target in an election year. Defensively, Cigna may make noises about other combinations–Centene and Molina have been mentioned–which present their own difficulties and troubles, to strategically try to force the issue. Stay tuned! MedCityNews, Axios

Update: Other analysts suddenly are on board with this Editor’s gimlety view of the matchup, citing antitrust and how Federal regulators are primed to challenge major deals. The FTC is specifically probing the PBM business. The fact that the deal, according to JP Morgan, could take 12 to 24 months is no surprise as par for the course, but Mr. Market didn’t like it, dragging down both companies’ share prices every day since the rumor broke. (Hmmmm….do they read TTA?)  But a small lamp was lit by one analyst: a Cigna-Humana combo could present real competition to the 9,000 lb. elephant of healthcare, UnitedHealth Group, and that might help to put it over. FierceHealthcare

Another concern that occurred to your Editor: Cigna’s international footprint could mean additional approvals by UK and EU regulators.

According to Healthcare Dive’s analysis, the combined entity would have a PBM market share of 32%, right up against CVS Health-Caremark at 33% and UHG’s OptumRx way behind at 22%. It’s a small group with big barriers to entry which makes it a slam-dunk to antitrust regulators.  A whistle in the dark might be UHG’s long-drawn-out buy of Change Healthcare, but there were divestitures of business before closing and both parties managed to prove to the satisfaction of a US District Court that the separation to Optum Insight would not affect business relationships with other health plans. But here, both are health plans, and both have PBMs.

HIMSS 24 exhibitors, where are you? An item in today’s HIStalk on the ‘interesting’ choice as closing keynoter of football coach Nick Saban (U of Alabama Crimson Tide) at a healthcare IT conference went on to compare the number of booked HIMSS exhibitors to date with HIMSS 23’s floor total. This Editor, who for a few years booked the least expensive HIMSS space for the company she worked for back then well in advance, could not believe the low number of exhibitors three months from show time in March. Checking the HIMSS show website, there are 501 exhibitors listed. In 2023, according to HIStalk, there were 1,216. Many of these exhibitors have multiple booths in the Orange County (Orlando) Convention Center, but it still indicates the uncertain state of healthcare, pullbacks in marketing budgets, the rise of real competition in HLTH and ViVE, and perhaps some concerns about the show management transition from HIMSS itself to Informa. Are industry and IT influentials skipping HIMSS next year? Stay tuned or comment below!

Has Amazon lost its ‘edge’ in healthcare? Or finally seeing reality?

December 1, 2023 | by

Amazon’s long and winding road to Healthcare Reality is no surprise to those tracking Amazon’s moves over the past few years. And Bloomberg agrees. In the eyes of many of the industry, Amazon was one of the top companies revolutionizing healthcare in a consumer-focused, tech-driven model. They were making The Big Moves along with giants CVS and Walgreens with an open wallet, with Walmart lagging and tagging behind. But when you turn a Gimlet Eye to the track record, The Big Moves were marked by hubris, uncertainty, lack of focus, lack of healthcare expertise, and just plain bad judgment.

  • First, there was the sinkhole known eventually as Haven, 2018-2021. This partnership with JP Morgan and Berkshire Hathaway (RIP to the legendary Charlie Munger) generated truckloads of 50,000-foot quotes by JPM’s Jamie Dimon and B-H’s Warren Buffett about the ‘hungry tapeworm’ of healthcare costs and the need to simplify it for their million-odd employees. It was clear that Amazon was relegated to the ‘junior partner’. Their reaction was to go their own way well before the shutdown and make its own acquisitions, acquiring PillPack in mid-2019 as the first move towards a PBM, Amazon Pharmacy, then pushing Amazon Care for large employers. TTA 6 Jan 2021
  • Then there was the brief and mysterious life of Amazon Care, 2019-2022. Their mix of virtual care, in-home, and telehealth services signed up large employers such as Hilton and (of course) Amazon with the eventual vision of delivering in-home care of visits and medications via mobile providers. Despite plenty of pivoting behind the scrim but eventually going nationwide with some, not all, of their services, their vision wasn’t attractive to most large employers. Even before One Medical was acquired in July 2022, Amazon decided to ditch Care by end of 2022. TTA 25 Aug 2022
  • And $3.9 billion later, there is One Medical, acquired earlier this year. It has never made money and won’t for at least two fiscal years. It doesn’t resemble an Amazon-style delivery model either. It’s a membership model practice group with individual paying members plus 9,000 corporate service contracts and telehealth. Of course, memberships including telehealth are being offered to the millions of Amazon Prime members at a drastically discounted rate starting earlier this month.
  • Bubbling under this is Amazon Clinic, an asynchronous virtual consult service leaked in November 2022, formally announced in June 2023 but delayed until August on data privacy issues that attracted Senatorial scrutiny on whether information would be passed to other Amazon services for merchandising [TTA 27 June]. Visits cost an average of $50. Amazon is surprisingly mum on Clinic’s status.

From the collection of articles linked above, plus TTA’s ongoing chronicle of FTC’s (and DOJ’s) consistent scrutiny (some call it vendetta) re Amazon [TTA 24 Aug, 27 Oct], one cannot conclude that Amazon has lived up to its publicity, dominating coverage earlier this year, that it would be a leading Healthcare Transformer. In that last article, this Editor’s obvious doubts were summarized as “What we view as a juggernaut is facing more than their share of distractions and changing circumstance.”

It is awfully nice to know that Bloomberg has taken our small ball of misgivings and run with it. Their article describes, through interviews with current and former employees, patients, competitors, and industry analysts, a “culture of hubris”, believing that “Silicon Valley-style invention could outsmart industry incumbents” and management not listening to the industry people they did hire. The hubris goes back to the very beginning. Even transitioning a young but deep in the red company like PillPack, bought for a truly ridiculous amount of money but that fit easily into the Amazon model, took an inordinate amount of time–about two years. Amazon Pharmacy, built on the PillPack bones, doesn’t seem to be meeting expectations, running headlong into local retailers such as CVS, Walmart, and Walgreens, discounters such as GoodRx, and deliverers such as Mark Cuban Cost Plus. No surprises there when you waste two years. Wall Street doesn’t like it much either, despite the promises from CEO Andy Jassy that healthcare is their long-term growth area, carrying through the vision of former CEO and now chairman Jeff Bezos.

It also doesn’t help to be the corporate target of the FTC, not mentioned in the Bloomberg article.

This Editor will quote herself from a recent article. While it was in the context of learnings from Olive AI, it applies equally to those with lots of success in other businesses or even other parts of healthcare. Know that healthcare, no matter what the conferences say, is an entrenched, over-regulated, risk-averse, and thus extremely slow-moving business. The risk level is high, the reward may be incremental, at best. And the big guys–the payers, big health systems, and their vendors, will always have it all over you.

New York State drafting proposed cybersecurity regulations for hospitals, allocates $500M for upgrades

November 22, 2023 | by

New York State is imposing new regulations that would establish cybersecurity policies and procedures for hospitals in the state. According to the NYS release, “hospitals will be required to establish a cybersecurity program and take proven steps to assess internal and external cybersecurity risks, use defensive techniques and infrastructure, implement measures to protect their information systems from unauthorized access or other malicious acts, and take actions to prevent cybersecurity events before they happen.” The draft regulations, announced last week, will be published by the Department of Health on 6 December, and will complement existing Federal standards under HIPAA. 

The proposed regulations will mandate:

  • Response plans to a cybersecurity incident
  • Notification to appropriate partners
  • Testing of response plans to ensure continuity of patient care while systems are restored to normal operations
  • Written procedures, guidelines, and standards to develop secure practices for in-house applications
  • Policies and procedures for evaluating, assessing, and testing the security of externally developed applications used by the hospital
  • Multi-factor authentication (MFA) implemented to access internal networks from outside networks
  • Establishment of a Chief Information Security Officer (CISO) if one doesn’t exist presently in order to enforce the new policies, plus annual reviews and updates 

The draft regulations are scheduled to be published on 6 December with a 60-day public comment period ending on 5 February 2024. After the finalization and adoption of the new regulations, hospitals have exactly one year to comply.

Included in the state’s FY24 budget is $500 million in funding for modernization of clinical tech, cybersecurity tools, EMRs and other technological upgrades. They will be part of an upcoming statewide capital program call for applications to improve quality of care, patient experience, accessibility, and efficiency. Given the size of NY state and number of hospitals, plus the time frame, this fund may be spread thin indeed. NYS release, MedCityNews

This Editor attended the Official Cybersecurity Summit New York 2023 last Friday, with a security briefing by NY State’s deputy chief cyber officer for operations, Jesse Sloman. He described the overall strategy of the state agency, the first ever, as building a unified, resilient, and prepared cybersecurity strategy across all agencies in the state, with a single point for operations including law enforcement, military, transportation, and of course healthcare. Certainly, internally instigated breaches, ransomware attacks, DDOS, and nation-state/transnational cyberattacks by Russian ransomwareistes like CLOP are expensive. He quoted a five-year loss of $27.6 billion with 3.2 million complaints–with 2022 alone costing $10.3 billion.

What’s his biggest concern? A multi-state, multi-sector geopolitical event that threatens multiple operations.

News roundup: AstraZeneca’s Evinova to market clinical trial health tech; BehaVR-Fern merge; UpHealth sells Cloudbreak telehealth translation; MedwebX launches; Tunstall-UEdinburgh research partnership; NextGen loses 84 after going private

November 21, 2023 | by

AstraZeneca makes a bet on selling health tech for drug development. Evinova, a separate health tech business within AstraZeneca, will market and develop proprietary technology and sell it to other pharma, biotech, and clinical research organizations (CROs) to optimize clinical trials. According to their release, these technologies have already been used in successful clinical trials in over 40 countries. CROs Parexel and Fortrea have already formally agreed to offer the three-part Evinova ‘drug development suite’ to their customers. Other partnerships include Accenture and Amazon Web Services.

On the buy and funding side:

RealizedCare formed from BehaVR and Fern Health. This interesting combination of virtual reality behavioral health (BehaVR) and chronic pain manager Fern Health promises digital therapeutics for value-based chronic pain care management. RealizedCare’s market is health plans, employers and value-based providers, working with them to identify, assess, and engage their members, employees, and patients with chronic pain. Their advanced care management platform is powered by DTx technology to scale pain management. Fern Health is backed by Aachen, Germany pharmaceutical company Grünenthal which will be a strategic investor in RealizedCare.  The combined company will be US-based in Nashville. Financials and workforce transitions are not disclosed, but two CEOs are listed on their website–Brad Lawson, CEO, Fern Health, and Aaron Gani, founder and CEO. Release, Mobihealthnews

UpHealth sells off telehealth translation services holding Cloudbreak Health to private equity firm GTCR, as part of a complex reorganization. Cloudbreak provides video remote interpreting (VRI) through its Martti (My Accessible Real-Time Trusted Interpreter) tool to aid in simultaneous translation in over 250 languages. Purchase price is $180 million and subject to regulatory and shareholder approvals, with closing anticipated by Q1 2024. Cloudbreak is currently headquartered in Columbus, Ohio. UpHealth has been selling off and putting into Chapter 11 various holdings such as UpHealth Holdings [TTA 29 Sep], Behavioral Health Services (BHS), and Thrasys, Inc., but not the publicly traded UpHealth Inc., which closed today on the NYSE at $0.79 having just resumed trading (Yahoo Finance, UpHealth release). Reportedly UpHealth will be refocusing on addiction treatment services provided in South Florida. More on their complex financials in their Q3 report.  Release

Short takes:

Digital medical imaging and storage company Medweb announced MedwebX, a HIPAA-compliant solution designed for sharing imaging, studies, data, and reports across networks. Release

Oracle’s moves into Music City Nashville [TTA 2 Nov] continue with the announcement of the Oracle Health Summit on 13 February 2024. According to the Nashville Business Journal, it’s a brief one emailed out to save the date and confirm their information when further details are available. The invitation reads in part, “At this daylong event, you’ll network with peers, hear from experts on the latest trends, and learn how leading organizations are using data-driven technology to deliver human-centered experiences.” Wonder if Bill Frist will be invited.

Tunstall Healthcare and the University of Edinburgh signed a Memorandum of Understanding (MOU) on telecare research. Edinburgh’s Advanced Care Research Centre will provide the academic ecosystem for the partnership, including medicine, engineering, informatics, data, and social sciences. Research will center on the development and deployment of digital tools and techniques for telecare, including multi-partner collaborations.  AT Today

And just in time for Thanksgiving…post-going private NextGen Healthcare will be releasing 84 employees at its St. Louis, Missouri location, according to their WARN notice filed with the state. The layoffs are “as a result of staffing optimization efforts” in connection with the company’s purchase by private equity firm Thoma Bravo. Layoffs of management, supervisors, account receivables staff, representatives, and analysts who work onsite, hybrid, and remote will be staggered with some released 16 January with others 1 February and 1 March. Some employees will be remaining in St. Louis, though NextGen is headquartered in Atlanta. Becker’s, St. Louis Post-Dispatch, St. Louis Business Journal

Some final words on Olive AI–what can we learn from its failure? (updated)

November 21, 2023 | by

“To the extent Olive might have sold something, they didn’t deliver – otherwise they’d still be in business.”–Emily Evans, managing director, Hedgeye Risk Management (quoted in Columbus Business Review)

Seeing this article on how Olive AI ‘ran out of time and money’ in Becker’s Hospital Review, this Editor hoped that it would be a final word, a summing up of what was likened to the seismic equivalent of Theranos’ failure in the health IT and ‘changing healthcare’ space. It wasn’t, but a terse summary of a very long article in Columbus Business Journal–Columbus, Ohio being their headquarters city. 

It’s a decade-long story (2012 as CrossChx to 2023). Up to March 2020, it seemed to be a reasonable narrative of a company and entrepreneur, Sean Lane, who built on his USAF background and founding an earlier successful software business (BTS Software) to transform healthcare through automating routine tasks through what they termed ‘AI’ but was more like software programming coupled with machine learning. With General Catalyst’s $52 million in hand and the encouragement of industry experts, he evangelized, hard, at multiple conferences. Some savvy investors and advisers (Ms. Evans above) saw that Mr. Lane didn’t know much about healthcare even during the ‘throw money at anything health tech’ days of 2020-21. But Olive AI easily gained two more 2020 raises totaling over $330 million, plus the capper in July 2021 of $400 million, for a total of over $850 million.

With the funds, Mr. Lane acquired or developed multiple businesses for Olive including prior authorizations, revenue cycle management, population health, business intelligence, and analytics for surgery. He even put $50 million into designing a Medicaid managed care insurer, Circulo Health, which was sold off in 17 months. The pivots came thick and fast, but the sales didn’t follow and the negative client reviews (KLAS) plus non-renewals started to pile up. Come 2022 with healthcare paying the Pandemic Piper and interest rates inflating, the VC funding spigots turned suddenly to ‘OFF’. The grow-at-any-cost early-stage companies found that when it came to VC funding, as they say in New Jersey, they couldn’t get arrested. So the end, as with Pear, Olive, and Babylon, came quickly. (Cue the tinny piano playing ‘Melancholy Baby’ in a dive bar.)

So for your startup or early stage company… A Guide to Avoiding A Train Wreck.

  • Don’t believe your own press releases, no matter how well written. And make sure your marketing people are seasoned pros who say what you do accurately and have been there, done that. (And when the most seasoned gives the raised eyebrow…ask why.)
  • Don’t constantly bang the gong that your solution/s will transform healthcare (memo to Larry Ellison). Stick to solving client problems and do that well, though you may have to evangelize a little. In the end, create ‘raving fans’. 
  • Don’t go it alone. Create strong supplier alliances where you need them. Then treat your partners and their corresponding account managers well and give them the resources they need.
  • Take the absolute minimum of Other People’s Money, even when it’s being thrown at you and everyone else, including your competitors which you will keep a cynical eye on. Stow cash away in the old fashioned way, in a reputable and not overextended bank, for the rainy days that will come.
  • There are certain investors and ‘thought leaders’ to smile at and run away from. (Two of them are mentioned in the article.) Their track records are dubious or they have their own agendas.
  • Get to positive cash flow as quickly as you can. 
  • Hire well, but not too many. And beware of execs with non-competes. They tie up your legal counsel who may also be keeping an eye on your IP, compliance, and finances.
  • Overdeliver and create happy clients who renew and expand your business–but don’t give away the store doing it
  • If you have to buy another company, don’t buy when the streets look paved with gold. Buy when there is some Type A on the pavement. And when you buy, ensure it makes sense in your business model, the acquisition actually does what they claim, their IP is free and clear, and the company owners aren’t overeager to sell (a clue to hidden problems).
  • Don’t, whatever you do, step on Superman’s cape. Avoid getting into conflicts with big guys like Epic, Oracle, or UnitedHealthcare. Especially don’t say that you will put them out of business. (You won’t.)
  • Know that healthcare, no matter what the conferences say, is an entrenched, over-regulated, risk-averse, and thus extremely slow-moving business. The risk level is high, the reward may be incremental, at best. And the big guys–the payers, big health systems, and their vendors, will always have it all over you.

Updated–Some more advice from different points of view:

“Hope is not a business model”–advice from two VCs, with a bit more advice on basic banking

ViVE post-script: VC panel opines in midst of digital health’s new reality (depression?), and extra ViVE from an attendee

Your thoughts on the above and your real-world examples invited as comments!