Mid-week roundup: Babylon Rwanda update, CVS Health laying off 1,700+, Optum laying off too, Veradigm’s third non-compliance Nasdaq notice, AireHealth auctioning assets, Viome’s $86M raise + CVS retail kit deal

It’s another jump into the unknown between bankruptcies, layoffs, and funding raises for the Lucky Few. Emblematic of this year as we prepare to wind up this Crazy Summer in the next few weeks.

Rwandan government scrambling to keep Babyl services going. According to a local website, The EastAfrican, on 7 August “Health Minister Sabin Nsanzimana convened a meeting with the head of Babyl’s operations in Rwanda, Shivon Byamukama, to formulate a contingency plan to mitigate the impact of the company’s bankruptcy.” The Rwanda Ministry of Health is trying to secure the Babyl Rwanda operation that serves 2.4 million Rwandans (not Babylon’s 2.8 million, but still close to 20% of population) and employs over 600 people–doctors, nurses, call center agents, and software developers, Babyl is maintaining normal daily operations for now while Babyl Rwanda’s managing director, Dr. Shivon Byamukama, told the publication that the Rwanda operation is in active discussions with potential investors and partners either as a standalone entity or in partnership with another body. One wonders where the $2.2 million in funding from the Bill & Melinda Gates Foundation went.

CVS Health is starting to wield the knife on its promised (to investors) 5,000-person layoff, starting with at least 1,200 in October. The bulk of the layoffs will be in Connecticut and Rhode Island, both home to much of the Aetna operations. State labor departments in Rhode Island and Connecticut have already received WARN notices from CVS that over 1,200 employees in those states will be terminated effective 21 October. In other states, WARN notices have been filed for another 580 also effective 21 October.

  • The Woonsocket, RI headquarters and a neighboring office in Cumberland will lose 770 workers. 198 live in RI, the others are remote workers reporting to RI-based supervisors.
  • 306 employees are based at the insurer’s headquarters in Hartford, Connecticut. An additional 215 work remotely but are supervised out of the Connecticut offices, for a total of 521.
  • Other employees will be terminated in New York (167), Plantation, Florida (288), and Arizona (134), according to notices filed in each state.
  • Updated 24 Aug: another 825 across four additional states. In NJ, 207 employees at multiple locations starting 15 November. In Texas, 167 employees in Richardson and Irving; in Pennsylvania, 157 employees at an Aetna office in Blue Bell; in Illinois, 294 employees in Chicago, Buffalo Grove, and Northbrook starting 21 October.  Becker’s
  • CVS refused to disclose other layoffs to Healthcare Dive in other states where the number fell below WARN notice requirements

These positions include assistants, data engineers, customer care pharmacists, actuary executives, corporate vice presidents, project managers, program managers, and managers/directors of network development. While these constitute only 2% of CVS’ overall workforce of 300,000, it is cold comfort to those affected, many of whom have worked years for Aetna or CVS.   Becker’s  

The timing is revealed in the Becker’s Payer Issues article: When CVS acquired Aetna, “its agreement with state insurance regulators included a promise to keep employment levels at Aetna and its subsidiaries at 5,300 for at least four years after the closure of the deal. The employment levels reflected staffing as of Oct. 1, 2018, and the agreement expired in 2022.” Notice the similarities in the numbers.

In the interim, CVS went on an acquisition binge of $18.6 billion, buying Signify Health and Oak Street Health only months apart in strategic moves to buy up practices and network extenders such as ACOs in value-based care and home health.

  • Oak Street Health and its 169 practices do not project profitability until 2025–maybe–and clocked an over $500 million loss last year [TTA 4 May]. In the views of many on the Street, Oak Street was a $10 billion waste.
  • No one knows if Signify Health is profitable or not with practices and home health, but that company took a bath on Remedy Partners in Episodes of Care models and wound down that business right before the auction. CVS Health got caught up in a four-way bidding war only a year ago (in a universe that feels quite far away) that topped out at over $8 billion in cash. Ill-considered in retrospect?

CVS Health is already dealing with 2023 and 2024 projections that are downtrend: increased Medicare Advantage costs, higher drug utilization, and lower consumer spending expectations affecting retail operations. Mr. Market does not ignore Where The Money Comes From, and the piper that is paid comes from where it usually does–the people working for the company.

Optum not immune from layoffs either. Optum Health’s MedExpress Urgent Care clinics are eliminating registered nursing positions at nearly 150 facilities as part of a larger group of layoffs at Optum. MedExpress’ RNs are circulating an online petition protesting the change as ‘negligent’. Social media has also posted about gradual current layoffs at UnitedHealth Group and Optum building to major layoffs affecting worldwide operations. There are no WARN filings so these are suspected to be below the 50-100 WARN threshold (number and time period e.g. 6 months may vary by state) but cumulatively across UHG substantial. Becker’s    Becker’s updated coverage today 23 August

Veradigm’s ‘problem’ with Nasdaq continues. The former Allscripts still has not filed an annual report for 2022, nor Q1 or Q2 financial reports, with the Securities and Exchange Commission (SEC) which are required for Nasdaq stock listing under Nasdaq Listing Rule 5250(c)(1). TTA previously reported in June that Veradigm is not reporting because they had a software flaw that affected its revenue reporting going back to 2021. This has been going on since March. Veradigm has requested multiple extensions from the exchange and are set to ask for another. Veradigm stock closed today at $12.89, which is well out of the usual trouble, but an accounting software problem this long unresolved from a software company specializing in practice EHRs and practice management software…does not compute. Healthcare Dive, Business Wire

AireHealth auctioning off assets. This respiratory health company based in Winter Park, FL founded in 2018 developed a FDA-cleared nebulizer with Bluetooth functionality plus AI and machine learning software to generate predictive data on patients’ clinical conditions. The online auction of patents, software, hardware, and intellectual property for the company’s remote patient respiratory care platform will be held by Florida-based Fisher Auction Company. Apparently, there was no bankruptcy filed but the early-stage company decided to shutter anyway and sell assets. Mobihealthnews

On the other hand, gut health is hot and Viome scored a Series C of $86.5 million for a total $175 million raise plus gut testing in 200 CVS locations. Lead investors are Khosla Ventures, Bold Capital, and WRG Ventures. With the raise, Viome announced the launch of its Gut Intelligence Test in 200 CVS locations. Online, the Gut Test retails for $149 on current sale. Viome also markets oral and throat tests plus a ‘full body’ test in the $200+ range. The gut test is not currently FDA-cleared, though its saliva-based oral and throat cancer test received FDA breakthrough device designation in 2021. They claim that its RNA sequencing technology that utilizes AI and advanced algorithms to analyze the world’s largest gene expression data from over 600,000 samples, was originally developed out of research from the Los Alamos National Laboratory, “is clinically validated, fully automated, exclusively licensed by Viome [to analyze] biological samples at least 1,000 times greater than other technologies.” Release, Mobihealthnews, TechCrunch

More gimlety views on CVS-Oak Street Health, Amazon-One Medical acquisitions

Perhaps this Editor is not that much of an Outlier in thinking that these deals don’t beat, say, sliced bread. Oak Street Health (OSH) disclosed its financials in an SEC 10-K filed on Tuesday. One must wonder what CVS is seeing in the company other than bulking up its primary care profile. Their loss grew to $510 million from 2021’s $415 million. While OSH grew impressively in 2022 with a 51% increase in revenue to $2.2 billion, driven by 40 new centers ending with a total of 169 facilities in 21 states, expenses grew exponentially for the new patients: medical claims expenses grew 48%, cost of care went up 49%, and sales and marketing up 38%. Scalable, so they claim; profitable, not till 2025 at earliest.

Other problems were revealed in the 10-K. OSH has substantial business from other payers, which may not be pleased that CVS owns a small payer called Aetna, though has pledged to keep OSH payer-neutral. OSH leases or licenses most of its care centers from Humana. That payer also accounted for 32% of its 2022 capitated revenue. Centene’s plans and HealthSpring made up an additional 23%. Other, more routine concerns are regulatory review, attrition of physicians and clinician staff, and last but not least, breakup fees ($500 million if CVS walks away, $300 million if it’s OSH). When you add these to other factors as outlined in our earlier article, such as the Medicare Advantage and high-need populations, CVS is cutting off a hefty slice of loaf, especially considering that the more complex Signify Health buy is due to close this quarter. Earlier opinions on the buy [TTA 16 Feb], Healthcare Dive

Now to Amazon and One Medical. This Editor received her invitation to buy a One Medical membership earlier this week (left). Countering this Editor’s analysis from last week, which maintains that Amazon is already under a broad antitrust microscope viewed by the Federal Trade Commission (FTC) and the Department of Justice (DOJ), Healthcare Dive counters, quite logically and in the view of their experts, that if either agency was going to object, they would have done so before the closing, and the grounds were likely too novel. The article concedes that the FTC could take action further down the road, for instance if Amazon violates HIPAA or consumer privacy with ad trackers. Instead, the focus is on objections by consumer groups, Amazon leveraging health data, privacy violations, and a general consumer unease around Amazon dealing with their health issues.

  • Consumer protection group Public Citizen urged regulators to block the deal in a letter to regulatory groups after it was announced last summer. For instance, it could bundle One Medical and Prime membership (a no-brainer). By tying the two together, Amazon could gain consent for using patient data from health records. Amazon could also serve ads for products related to medical conditions without that access (that old Pixel/ad tracker business again). These concerns are publicly shared by two FTC commissioners.
  • Analysts said that data acquisition was likely a big driving factor for the deal. After linking One Medical’s data with that from its other products and services, Amazon can analyze petabytes of healthcare data in the cloud and use the findings to better manage the health of One Medical’s Medicare population, build new products and pinpoint people with rare diseases to solicit participation in clinical trials, according to (market research firm) Forrester’s (Natalie) Schibell.” [Editor] That would, of course, require patient consent. 
  • Forrester noted that the consumer unease around Amazon in healthcare is substantial. 34% of surveyed adults weren’t at all comfortable with Amazon for healthcare needs with an additional 17% only somewhat more comfortable (tier 2). Trust levels are low, and it would take only one or two incidents, such as a security breach or HIPAA violations, to destroy it. This Editor would add that if One Medical practices were not managed impeccably, that would go viral among individual and corporate members, in a way that Amazon Care did not.

Short takes: Avaya’s Ch. 11; Aetna sells India telehealth; fundings for IncludeHealth, Senniors, Thatch, Previa, MDI; layoffs at Collective Health, Vicarious, Olive AI

Avaya files second Chapter 11 reorganization in six years. The company, which provides virtual care and collaboration tools (and has contributed to our Perspectives series), is restructuring with a financing of $780 million. This was anticipated from August-September last year when they announced accounting problems with their cloud subscription revenue, resulting in substantial layoffs, $250 million in cost cuts, a CEO change, and a continuing crash in the stock value which was close to 99%. In December, they announced a likely delisting from the NYSE. Major creditors include Microsoft, Wistron Corp., and SHI International. Current customers will continue to be served. Upon completion of the restructuring process in a projected 60 to 90 days, Avaya will reduce its total debt by more than 75%, from nearly $3.4 billion to about $800 million. CRN 14 Feb, CRN 7 Sep 22, Yahoo Finance    Hat tip to HISTalk

Aetna’s subsidiary Indian Health Organisation (IHO) is selling its telehealth business to MediBuddy. Transaction cost was not disclosed. Bangalore-based MediBuddy is buying what is currently called vHealth by Aetna and will be rebranded over the next six months to MediBuddy vHealth, to be integrated with its other services. vHealth is a subscription-based primary healthcare service that offers telehealth consultations, an extensive outpatient network, pharmacy, diagnostics, dental services, delivery of medicines, blood tests, and other home healthcare products across 38 Indian cities. IHO employees will continue with MediBuddy. Last February, MediBuddy scored a $125 million Series C funding, led by Quadria Capital and Lightrock India.  Press release (Hospitals Management India), Mobihealthnews

A few early-state digital health fundings rounded up by Mobihealthnews:

  • Ohio-based digital musculoskeletal (MSK) health care and training company IncludeHealth raised $11 million in a funding round led by CincyTech with participation from Tamarind Hill and other investors. The fresh funds will be used to expand the MSK-OS remote care platform. Ray Shealy joined as COO and Grant Koster joins the board of directors. Also Finsmes 
  • Madrid, Spain-based Senniors raised $5.6 million in seed funding. Senniors provides home care services including therapy, mental healthcare, and nutrition counseling for older people and others who need support. The seed round was led by SixThirty with Sevenzonic, KIMPA, Zubi Capital and Invertidos.
  • Thatch, a health benefits startup, raised over $6 million in total funding across pre-seed and seed rounds from 16z and GV, with participation from Lux Capital, Quiet Capital, Not Boring Capital and BrightEdge. It includes a tech-enabled Health Savings Account, a Thatch debit card for all healthcare expenses, and on-demand access to experts who can resolve billing issues via text. Release
  • Previa Medical, based in Lyon, France, raised €2.1 million for its AI-based predictive medical device to alert providers to early signs of sepsis and raised $2.2 million in seed funding. It included participation from Kreaxi, M2care, Veymont Participations, Hopla Memory, CCI Capital Croissance, Holding Seraip, Bpifrance and BNP Paribas, with equity and debt financing from Banque Populaire AURA. SEPSI-SCORE analyzes patient risk factors for sepsis in real time through patient records drawn from hospital software to alert providers up to 48 hours before symptoms develop. Finsmes
  • And one more: $20 million in Series A funding to healthcare analytics company MDI Health. MDI uses AI in pharmacology to prevent negative outcomes in chronic polypharmacy patients and at-risk populations. Mobihealthnews

While layoffs in healthcare have slowed down somewhat, they do continue: 

  • San Mateo-based Collective Health, a benefits administration software provider for enterprises, laid off 54 of an estimated 500-1,000 employees. LinkedIn corporate posting
  • Vicarious Surgical, a robotic surgical developer which has received funding from Bill Gates and BD, is planning to reduce its workforce by 14% to conserve cash. Ironically, they are making a 510(k) submission for a robotic system to compete against giant Intuitive Surgical’s da Vinci. Med tech has tightened up substantially with giants like Baxter whacking 3,000 jobs (5%) in its global workforce and Abbott releasing temporary workers hired to produce COVID-19 test kits in Maine. Medtech Dive
  • Olive AI, which automates routine administrative healthcare processes such as revenue cycle management, laid off an additional 215 employees last week, about 35% of its remaining staff, due to account losses. In July, 450 employees or about 33% of staff were released. Axios

Is CVS’ Oak Street Health deal genius? Or a waste of time and $10B?

A sample of the split opinion. In the buccaneering between CVS and Walgreens, plus Walmart and Amazon, to add primary care, CVS definitely buckled the swash with three deals: Signify Health (being questioned by DOJ and FTC) [TTA 21 Oct 22 latest], a $100 million investment in Carbon Health [TTA 11 Jan], and Oak Street Health [TTA 9 Feb]. These are in line with their strategy of acquiring companies to expand their capabilities in primary care, provider enablement, and home health. The wisdom of the first–primary care–is being questioned by a few in healthcare. 

The basic argument is that primary care is money-losing, ‘unless you have significant ancillary revenue and downstream referral income’ according to Randy Davis, vice president and CIO of CGH Medical Center, based in Sterling, Illinois. Oak Street’s Medicare Advantage business is also money-losing because of its dependence on increasing severity scores (risk adjustment) and is generally an ‘uphill battle’. This Editor will add that as previously noted–and lauded in CVS’ release–Oak Street is notable for serving underserved patient populations–50 percent of Oak Street Health’s patients have a housing, food, or isolation risk factor. That equates to greater expenses that may or may not be reimbursable. Oak Street certainly has proven the money-losing part, forecasting a loss of $200 million for 2023 and not projecting a profit until 2025. Mr. Davis was blunt, calling it a deal that made no sense and “CVS better have a plan they implement in 18 months or they’ll get slaughtered.”

Another rap on the deal is that it is not big enough. Given the size of Oak Street at about 169 offices and the national figure is quoted as 600,000 ambulatory sites, it’s tiny. However, what isn’t considered is Aetna’s existing relationships with primary care physicians through ACOs formed as joint arrangements, and if Signify Health goes through, the Signify/Caravan ACOs. In fact, this may be a factor in the DOJ/FTC consideration of antitrust.

Others see opportunity in integrating primary care into CVS’ retail locations (Carbon Health) and serving historically underserved communities–much the same tack that Walgreens is taking with VillageMD (acquiring Summit Health) and Walmart with Walmart Health clinics. Becker’s Hospital Review

And as to Amazon, this Editor’s prediction is that Amazon will strike its Jolly Roger and sail away from the One Medical buy.

CVS opens the checkbook, does the Oak Street Health deal for a generous $10.6B

Staying on strategy, CVS buys provider group Oak Street Health. First rumored in mid-January, CVS Health and Oak Street finalized their deal today. The $10.6 billion purchase price of the NYSE traded company rewards shareholders with a $39 per share purchase price. 45% of the shareholders are composed of Newlight Partners LP and General Atlantic LLC plus certain members of the Oak Street Health Board of Directors. They have agreed to vote the shares they own in favor of the transaction (with a whew! at exiting). It is expected to close this year subject to the usual Department of Justice antitrust, Federal Trade Commission (FTC), and state-level review.

The $39 per share price was a tick lower than the January speculation that the price would be over $40 per share. $39 is not bad; at close of last week OSH was trading at $26.80, a far cry from its 2021 share prices in the $50-60 range. Today’s price closed at just above $35.  It has 169 offices and 600 providers across 21 states, making it a manageable size for CVS. OSH is headquartered in Chicago. Their CEO Mike Pykosz will continue to lead OSH, which will become part of CVS’ new Health Care Delivery organization and will be payer agnostic.  Oak Street is notable for serving underserved patient populations–50 percent of Oak Street Health’s patients have a housing, food or isolation risk factor.  

CVS Health’s long term plan, announced at recent earnings calls, is to add services in three categories: primary care, provider enablement, and home health. They are not hurting for profit or financing, closing out 2022 with $4.2 billion profit which certainly is a shining star in the depressed healthcare sky. CVS projects more than $500 million in synergy potential at the 2026 goal which is over 300 centers by 2026. But there will be losses first: 2023 loss about $200 million and not turning the profit corner till 2025 at earliest. An attractive point for CVS is  Canopy, their proprietary technology that determines the appropriate type and level of care for each OSH patient–and care integrates nicely into CVS Health’s community, home and digital offerings, as they say.

Will DOJ allow it without divestment? This administration has already taken a fairly hard tack on antitrust, trying (and failing, though appealing) to block UHG-Change Healthcare. Already the CVS-OSH tie-up has been opposed by an antitrust think tank, the American Economic Liberties Project. Oak Street adds primary care practices to those already under Aetna, many of which are in Federal ACO programs. Signify Health also has Medicare ACO practice groups, including the Caravan ACOs bought late last year. The Signify buy is already under a rolling DOJ and FTC review that has been moving slowly since last October. Signify’s other strength is diversification into home health, CVS’ third target area.

CVS’ investment in Carbon Health ($100 million Series D investment into primary and urgent care clinics in Western states) may be considered as Carbon will be piloting clinics in CVS retail locations. Release, Mobihealthnews, Healthcare Dive, Becker’s (including a breakdown of CVS’ 2022 financials), FierceHealthcare

Breaking: CVS’ Signify Health buy under DOJ scrutiny in ‘second request’

Not unexpectedly, the US Department of Justice (DOJ) is taking a hard look at the Signify Health acquisition by CVS Health. The two companies were notified Wednesday on DOJ’s Second Request for information. This was disclosed on an SEC Form 8-K. The DOJ now has 30 additional days to investigate antitrust aspects of the merger, once that additional information is received. 

The timetable goes like this:

  • 19 Sept: CVS filed its premerger notification and report with the DOJ and the Federal Trade Commission (FTC) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR). This initiates a 30-day waiting period.
  • 19 Oct: At deadline, the request for additional information initiated by the DOJ was received by both CVS and Signify (Second Request)
  • The Second Request extends the waiting period under the HSR Act by 30 days after both CVS and Signify have substantially complied with the Second Request. The DOJ can terminate the waiting period earlier, or move it to an agreed-upon later date. 

CVS continues to affirm closing the deal by first half 2023 as planned, which is a fairly wide window.

The current government’s DOJ and FTC have made no secret of their policy-driven yen for using antitrust in the name of lowering healthcare costs (even favored pharma). The crashing failure of DOJ’s antitrust motions against UnitedHealthGroup and Change Healthcare [TTA 20 Sept] must have smarted. What this usually initiates is the search for a quick and easy win to put said embarrassment behind them. CVS Health is certainly a high-profile target, though Signify even at $8 billion, like Change, is not except in the industry. 

Signify’s competitive overlap with CVS/Aetna isn’t as large or obvious as UHG’s Optum with Change, but there is some: home health management and (in this Editor’s view), ACO management services with Signify’s Caravan, which participates in multiple Federal shared savings models where Aetna also is. One wonders if some divestment will be demanded by DOJ. Even before the auction, Signify started the complicated and long exit from the failing Bundled Payments for Care Improvement (BPCI) programs inherited from the Remedy Partners buy.

Could the DOJ action have played a role in CVS’ sudden cold feet in acquiring Medicare/Medicaid primary care provider Cano Health? [TTA 20 Oct] The timing is certainly close. 

DOJ is not working alone. The FTC also has a yen for Amazon in their 2 September second request for information on their acquisition of OneMedical, which also added 30 days to the Hart-Scott-Rodino (HSR) clock after compliance. Amazon is already going through this with their iRobot acquisition [TTA 15 Sept]. Reuters, FierceHealthcare, Home Health Care News

News roundup: CVS sells bswift; Babylon puts Meritage IPA up for sale, financially realigning to prevent delisting; Redesign Health sheds 20%, Noom 10%

Companies shedding ancillary businesses, and more than a few of their people that make them go. 

CVS Health is selling bswift to Francisco Partners. Bswift, a benefits technology and HR services company, was acquired by Aetna in 2014 for $400 million. It became part of CVS Health in 2018 after CVS acquired Aetna. Based on the website, it was operated independently. Francisco Partners, an investment group specializing in tech, recently acquired IBM Watson (now Merative) [TTA 7 July] and added it to 400-odd portfolio companies. Acquisition cost and management transitions were not disclosed, but expected to close by Q4 this year. The company will continue to partner with CVS Health and Aetna. Francisco Partners/bswift release, Mobihealthnews, FierceHealthcare, HealthcareFinanceNews

Babylon Health exiting the provider business, transitioning to US financial reporting requirements, and reversing stock to boost price. Babylon has put on the block Meritage Medical Network, an independent physician association (IPA) based in Northern and Central California with 1,800 providers in six counties serving 90,000 patients. The sale was announced 12 October and is expected to complete in early 2023. Babylon’s rationale is “to focus on its core business model through further investment in its digital-first contracts”. It was a short-lived foray, as Meritage was bought only last year along with First Choice Medical Group [TTA 7 Oct 21], which is not mentioned, and completed prior to their SPAC.

Babylon is also financially realigning.

  • On 12 October they also announced conversion to US financial reporting and GAAP accounting from reporting as a foreign private issuer. This will be effective in January 2023.
  • In September, shareholders approved a reverse share split to take place in Q4 to consolidate shares within the approved range of 15:1 to 25:1. All shares will be converted to Class A ordinary shares from a previous A/B structure.

These address a major problem that threatened Babylon’s listing on the New York Stock Exchange (NYSE). In September, Babylon received notice that it violated NYSE rules in not maintaining an average closing share price of at least $1 over 30 consecutive days. Today’s close (12 October) was $0.42. A reverse split will boost the stock price and prevent Babylon from being delisted. Babylon release, Mobihealthnews

After a brief break, healthcare layoffs continue even at richly valued companies with recent raises.

  • Redesign Health is releasing 20% of its workforce, or 67 people from its NYC-based workforce. This is one month after a $65 million Series C raise in late September from General Catalyst, CVS Health Ventures, and other investors, and a valuation in the $1.7 billion range. According to a company spokesperson, these had nothing to do with the Series C or financially driven, but according to the CEO, part of a “ongoing evolution, and given the need to prioritize in a challenging market”. Departments affected in the ‘restructuring’ are engineering, product, marketing, and recruiting. Redesign is unusual in that it creates startups from its own research, assembles management teams, brands, and funds them. To date, it has created about 40, including a few that have had layoffs of their own (Calibrate). Redesign had planned to create more than 25 new companies by the end of 2022, which apparently will not happen. Fast Company, Mobihealthnews
  • The heavily advertised weight loss app Noom reportedly will be laying off 10% of their staff, or 500 people primarily in coaching. Noom currently has a valuation around $3.7 billion and a cumulative funding of $650 million. Apparently there is also a change in direction from the original (and successful) concept of nutrition, behavioral, and exercise coaching via live chat to scheduled video consults as part of a mind and body platform with a higher degree of personalization, including mental health. The company CFO is also departing for TripAdvisor, according to the Wall Street Journal. TechCrunch

US Department of Justice decides additional scrutiny needed of $13bn Optum acquisition of Change Healthcare

Change, so to speak, will not be fast for Optum. On Friday, Change Healthcare filed with the Securities and Exchange Commission (SEC) a Form 8-K (PDF link) that confirms that the Department of Justice (DOJ) has asked for additional information pertinent to their proposed acquisition by UnitedHealthcare Group and integration into their Optum unit. On 24 March, both received a request from the DOJ for additional information and documentary materials (called a “Second Request”) as part of DOJ’s review of the merger under the Hart-Scott-Rodino Antitrust Act (HSR). The Second Request extends the waiting period for 30 days after UHG and Change comply with the review, unless either the DOJ shortens it or it is extended by the two companies (para. 3).

The integration of Change Healthcare into Optum already had significant competitive concerns for DOJ to consider. OptumInsight, Optum’s data analytics unit, and Change provide a similar range of services in health IT and revenue cycle management (RCM). However, Change is one of the largest independent companies providing these services to major providers, with access to the data of 1 out of 3 patients. Optum’s parent, UnitedHealthcare, is the largest US payer. These were the factors that made those represented by the American Hospital Association (AHA) very nervous indeed [TTA 25 Mar] regarding pricing of these services–and they expressed their misgivings cogently in a seven-page letter (PDF link) to DOJ on 17 March. In their view, Change integrated into OptumInsight would reduce competition and increase pricing in RCM, claims clearinghouse and payment accuracy services, and clinical decision support services.

Why it’s important. The closing of the $13 bn deal, originally forecast as second half 2021, now has a decent likelihood of being postponed. As CVS and Aetna found between 2017 and 2019, once the objections start in the flashpoint called US Healthcare, they tend to snowball into delays, even if it can be managed to a successful conclusion. (Extreme examples: the doomed to fail Aetna-Humana and Anthem-Cigna mergers) While RCM and data analytics are not as high profile as health plans and retail health, industry groups have a lot of clout in the DC Swamp when the cause is higher cost and DOJ, in this administration, is likely to be more activist. Another reason: if UHG or Change have to divest themselves of too much (UHG set a boundary of $650 million), they may Call The Whole Thing Off. Also Healthcare Dive and FierceHealthcare

News roundup: Pfizer’s COVID-19 vaccine on horizon, CVS’ new CEO, Vodafone UK 5G health survey, Centene acquires Apixio AI, Doro’s 24/7 Response

As infection rates continue to rise, Pfizer’s and German partner BioNTech SE’s COVID-19 vaccine was the top of the news this undecided post-US election week. It was found to be “more than 90 percent effective in preventing COVID-19 in participants without evidence of prior SARS-CoV-2 infection in the first interim efficacy analysis” of the Phase 3 clinical study. They exceeded their evaluable case count (total was 94). Protection was achieved 28 days after the initiation of the 2-dose vaccination. Pfizer release. Chain and independent pharmacies have already signed on for distribution at no cost to patients, covering about 60 percent of pharmacies through the US, Puerto Rico, and the USVI. It’s expected that FDA approval will be by end of year with availability early next year. HHS release. Work on 10 other vaccines goes on. The NHS is lining up for distribution with Health Secretary Matt Hancock promising that they’ll be ready from December as coronavirus diagnoses and deaths climb up from summer levels. BBC News

CVS’ CEO Larry Merlo announces 1 Feb 2021 retirement, Aetna head Karen Lynch to take the helm. Ms. Lynch will also join the board of directors. Mr. Merlo will depart after the shareholder meeting and serve as a strategic adviser until 31 May, which is typical of CEO phased departures. He leaves CVS in excellent shape having conducted during his 10-year tenure the acquisition of Aetna in 2018 and the growth of CVS to almost 10,000 store locations, initiating 1,500 HealthHUBs, and over $199 bn in earnings through Q3 this year. Ms. Lynch joined Aetna in 2012 from Magellan Health Services, a specialty/behavioral managed health company, and Cigna. She hit a home run with vitalizing Aetna’s Medicare Advantage business to 2.5 million members from under 1 million in 2013 and became Aetna’s president in 2015. Mark Bertolini, Aetna’s CEO during the merger in 2018 (but not Federally approved till September 2019), lost his spot on the board in an apparent spat/downsizing last February.  FierceHealthcare, Healthcare Dive, Fortune

Vodafone UK’s new survey on 5G and Internet of Things (IoT) devices in UK health and social care has been issued. A key finding is the comfort level of some telehealth consults well past 50 percent, and over 60 percent in the 18-34 and 35-54 age groups. There is 60-70+ agreement with Government investment in digital technology to ‘future proof the UK healthcare sector’ and to pay for care homes’ high-quality broadband and mobile. More in Vodafone’s study here.

Healthcare payer Centene Corporation is acquiring healthcare analytics company Apixio. Apixio’s AI platform analyzes large amounts of unstructured patient data in physician notes and medical charts. It then creates algorithms to extract high-quality insights to support payers’ and providers’ administrative activities. Acquisition cost is not disclosed and close is expected by end of year. It will be an ‘operationally independent entity’ in an Enterprise group, but complement other in-house technologies such as Interpreta. A bit of catch up here as larger plans Anthem, UnitedHealth/Optum, and Humana all have either substantial in-house AI analytics or have contracted with outside vendors (e.g. Microsoft) for this capability. Release. (Disclosure: This Editor was formerly with Centene, via their WellCare Health Plans acquisition)

Doro Mobile UK and Ireland is introducing ‘Response by Doro’, a touch button service to summon help if needed. The alert button is on the back of the phone versus on the screen, which differs it from most mobile systems. The standard level connects to family and friends, with the Response Premium level connecting to a 24/7 service. For BT Mobile and EE mobile customers with a Doro mobile phone, their first month’s access to Response Premium is free. Release (PDF)

Anthem-Cigna merger lawsuit finally wraps with ‘No damages for you! Or you!’

Not with a bang, but a whimper and a large bill. The long, drawn-out (May 2017!) lawsuit and countersuit in Delaware Chancery Court between payers Anthem and Cigna ended with the decision by Vice Chancellor J. Travis Laster to refuse to award damages to either party in the litigation.

Cigna, which was seeking nearly $15 bn from Anthem, seemed to receive the worst of his judgment. In his decision (PDF), VC Laster stated that Cigna was unable to prove that Anthem breached the Efforts Covenants and in fact, Cigna sought to derail the deal by pulling back on integration efforts, thus itself breaching the covenants. Thus, Cigna was not entitled to the $1.85 bn breakup fee or additional damages. Anthem proved that they sought to complete the merger and Cigna did not, thus seeking $20 bn in damages. In counterpoint, Cigna was able to prove that the deal would have been blocked regardless of their actions to demo the deal.

VC Laster’s conclusion, “In this corporate soap opera, the members of executive teams at Anthem and Cigna played themselves. Their battle for power spanned multiple acts….Each party must bear the losses it suffered as a result of their star-crossed venture.” The testimony revealed the deep divisions and battle lines between both companies during the merger preliminaries, until the Federal courts and DOJ put paid to it.

Yet the denouement of this Merger Made In Hell may not be fini. Anthem said in a statement to Fierce Healthcare that it feels “this decision is in the best interests of Anthem and our stakeholders.” But a Cigna spokesperson said they are not finished and considering a potential appeal. “We are pleased that the Court agreed with us that Cigna did not cause the merger to fail. We continue to strongly believe in the merits of our case, and we are evaluating our options with respect to appeal.” Certainly not the peaceful-in-public parting after the Federal denial of their merger by Aetna (acquired by CVS) and Humana (still in play).

The chief beneficiaries of this three-year drama? The law firms listed on page 1 of the opinion. Also Wall Street Journal (paywalled in part).

Consolidation crunch time in telehealth: Teladoc acquires InTouch Health for $600 million

Announced on Sunday just in time for Monday’s start of the annual, breathlessly awaited JP Morgan healthcare conference where ‘middle America’ ‘flyover’ companies are now the hot thing, was the acquisition by decidedly not-flyover Teladoc (Purchase, NY) of InTouch Health (Santa Barbara CA). InTouch is a mid-sized company for primarily hospital and health system-based telehealth. The purchase price was $150 million in cash and the remainder in Teladoc common stock, scheduled to close next quarter.

InTouch had made acquisitions of its own in 2018: REACH Health (enterprise telehealth) and TruClinic (DTC telehealth). Unusually, it also came fairly unencumbered by outside funding–only $49 million to date.

Telehealth and telemedicine are both rapidly consolidating and growing horizontally into payers (Teladoc and Aetna), corporate, and health systems.

An analysis over at Seeking Alpha emphasizes InTouch’s enterprise business as the charm for Teladoc, leading to a purchase price 7.5x revenue based on InTouch Health’s 2019 revenue of $80mm. InTouch had, with TruClinic, built itself up into a comprehensive system for over 450 hospitals reaching to the patient, but also developed specialty telehealth areas in stroke, behavioral health, critical care, neonatology, and cardiology. In their view for investors, the news is quite positive for Teladoc as–returning to JP Morgan–40 percent of hospitals expect to increase their telemedicine budgets. Release, MedCityNews

The last news roundup for 2019: ACA mandate unconstitutional, more $ for health research, PartnersHealthcare rebrands, Hackensack Meridian pays ransom, breaches>heart attack deaths, telepsychiatry merger, more

Well, it’s happy trails for 2019, until we meet again in 2020, paraphrasing a well-known Roy Rogers tune (Roy was a movie and TV cowboy singer in the US; his eponymous roast beef sandwich chain was an advertising client for one of this Editor’s first jobs). So we’ll round up the news as we and I trust most of our Readers will be off for most of the next two weeks to be observing the holidays with family, friends, de-stressing, defrosting, or attempting to catch up on work while it’s quiet before January Madness hits. It’s hard to believe that This Year of Grace is almost over.

Breaking News: In a somewhat split decision, the Fifth Circuit Court of Appeals ruled Wednesday evening that the (Un) Affordable Care Act’s (ACA)’s individual insurance mandate, compelling everyone to signup Or Else, is unconstitutional. Congress zeroed out the mandate charge in 2018’s tax law. A decision regarding severability of the mandate from the ACA law has been remanded to the District Court. FierceHealthcare, Healthcare Dive

Also here in the US, we have both an impeachment of a President (a House action which will fail utterly in the Senate, and regarded by ordinary folks as a political annoyance) and a Federal budget running out on Friday that hardly anyone notices because it’s been extended since October by two continuing resolutions (CRs). The new budget that has to be signed by President Trump on Friday is, according to this POLITICO report today, chock full of health research dollars for NIH, the All Of Us genomics initiative directed by Eric Dishman, the Patient-Centered Outcomes Research Institute, or PCORI. and more. There’s some coal dust in the stocking for the national patient identifier initiative. Separately, CMS’ Blue Button 2.0 is offline due to a bug.

PartnersHealthCare rebranding, investing $100 million. Now called Mass General Brigham to better align with its parents (Massachusetts General Hospital and Brigham and Women’s Hospital, the Boston Globe reported that MGB will be spending $100 million for the first 18 months of a digital health initiative to improve the patient experience and the efficiency of care. Much will be around patient convenience, for example the ability to book appointments online, communicate with care providers via video and text, and providing online access to their medical records through OpenNotes. Efficiency initiatives will be focused on analytics and AI to manage patient flow and track revenue. The strategic plan and rebranding is promoted as a five-year project. Partners has been a pioneer in the field, with other large health systems following such as Novant Health (NC) and Mount Sinai (NY) with innovative partnerships and investments. FierceHealthcare

Hackermania in Hackensack continues. TTA reported last week that local New Jersey media identified Hackensack Meridian Health had been the victim of a ransomware attack starting on 5 December. The health system confirmed on Friday that it was a ransomware attack and they paid an undisclosed sum covered by insurance. The attack forced them back to paper records in all 17 of their hospitals, so with the insurance–and against law enforcement advice–they decided to pay up. Asbury Park Press, Healthcare IT News,Health IT Securitywhich also mentions the November attack on Oahu (Hawaii) Cancer Center. International hacker and ransomware attacks on vulnerable healthcare organizations are the subject of these year-end roundups: CISOMag, Becker’s Hospital Review.

Cyberbreaches increase fatal heart attacks? A Vanderbilt University study has also traced an uptick in patient mortality after heart attack to delayed care due to breaches. A survey of 3,000 Medicare-certified hospitals, about 10 percent of which had experienced a data breach, led to 36 additional deaths per 10,000 heart attacks. Krebs On Security blog

Short takes: the Sutter Health-Aetna partnership is adding home visits via Heal and telemedicine via 98point6 in Sutter’s Northern California area….Medtronic snapped up eating behavioral health startup Klue to reinforce a hybrid closed loop system to simplify diabetes management….Telepsychiatry is still niche, but InSight Telepsychiatry and Regroup Telehealth, two of the larger companies in the field, agreed to combine to be the single largest with a few hundred centers. Both American Well and Teladoc are encroaching on this area. 

We wish our Readers a Festive Holiday Season, whether you celebrate the week of Hanukkah, Christmas, Kwanzaa, or

another holiday. Rest, reflect, and our best wishes for a happy, healthy New Year. We will be off except for perhaps an occasional article until after 2 January.

 

Shock news: the CVS-Aetna merger officially approved after 9 months

Go away on holiday, Judge Leon finally jumps into the hole. It took two months from the last hearings in mid-July, and nine months in total (delivered after last year’s Thanksgiving turkey) but Judge Richard Leon of the Federal District Court finally–and somewhat unexpectedly–ruled that the CVS-Aetna merger could be at last a Done Deal.

The Final Judgment goes into extensive detail about the Medicare Part D divestiture by Aetna to WellCare, complete with a Monitoring Trustee. On the very last page, Judge Leon admits that the merger is in the Public Interest.

The entire process, which is chronicled here, was unprecedented in the annals of Federally approved mergers. Usually a District Court Tunney Act review of a merger already through the wringer of the DOJ and the states is brief. Judges don’t make headlines, save when their rulings are the coup de grace (see: Aetna-Humana, Anthem-Cigna). Instead, Judge Leon called hearing after hearing, witness after witness from the AMA to PIRG, opining all the way, even turning away five supporting states petitioning (in vain) to be heard.

This high-profile precedent doesn’t bode well for future mergers, especially for healthcare. Fierce Healthcare, Columbus Dispatch

The CVS-Aetna merger hearing draws to a dreary, weary close

The train is moving so slowly on the tracks that even Pauline is getting some shut-eye. The minimal coverage given to last Wednesday’s hearings in the Court of Judge Richard Leon on the CVS-Aetna merger is understandable, as the hearing trod the well-worn path without a hint of when this will all Wind Up:

  • The Department of Justice argued that the concerns over the merger were settled via divestiture of its pharmacy benefit management (PBM) operation
  • The amici curiae witnesses (AIDS Healthcare Foundation (AHF), the American Medical Association (AMA), Consumer Action and U.S. PIRG) countered that it’s nowhere near enough, that the PBM competition represented by a new company would not be enough and higher drug prices would result.
  • Anything said by the DOJ attorneys or the ability to call more witness after the earlier hearing was derided by Judge Leon as “phantasmagorical,” “violating the first rule of holes”, and typified by the generally favorable to the judge Columbus Dispatch as “scolding”.

This Editor found no mention of the five states–California, Florida, Hawaii, Mississippi, and Washington–which were supposed to participate in the hearing to support the DOJ position [TTA 17 June]. One has to presume that they were not very vocal or permitted to be so.

Instead much was made of the judge’s interest in the AIDS Healthcare Foundation (AHF) remedies targeting relief for specialty and community pharmacies:

  • All rival pharmacies should have non-discriminatory access to CVS Caremark’s pharmacy networks at fair reimbursements that cover actual drug costs and dispensing costs.
  • Managed care plans should not be denied access to CVS Pharmacy networks, and that managed care plans’ access should be at a fair price.
  • All Aetna plan members must be allowed to opt out of any CVS/Caremark specialty or other mail order programs.

So the hearings wind down, with increased speculation that Judge Leon will simply disallow the merger sometime in the future, which will set up another round of court actions by the merged organizations on the merits and whether the Tunney Act can even be used in this way. And meanwhile, online pharmacies like PillPack scoop up the cream off CVS Caremark’s business. Healthcare Dive, Yahoo News.

Another round this Wednesday in the CVS-Aetna merger hearings

This time, five states are speaking up loudly. California, Florida, Hawaii, Mississippi, and Washington petitioned the DC Federal District Court’s Judge Richard L. Leon for a hearing on the CVS-Aetna merger, which will be held this Wednesday 17 July. The five states were original supporters of and advisory participants in the Department of Justice’s (DOJ) settlement with Aetna to sell its Medicare Part D business. As co-plaintiffs, the states’ regulators are defending their position that the sale would avoid harmful horizontal market concentration.

Both Judge Leon and the American Medical Association debated in June whether the divestiture of Part D was enough to ensure competition in Part D, since both maintained that WellCare Health Plans was too small to compete with CVS Caremark as a pharmacy benefits manager. Yet WellCare is being acquired by larger Centene, another government-sponsored health plan organization, in a transaction expected to close, pending Federal and state approvals, in 1st Quarter 2020. That merger weakens that argument.

While publications like Barron’s and the New York Post consider it a foregone conclusion that Judge Leon will, after he runs out of hearings, nix the merger [TTA 13 June], whether he actually can under the Tunney Act (1974) is debatable. The Tunney Act has been rarely invoked to stop a merger–especially a merger which is about half-done and a sale transaction which is an important part of the value of the acquiring company in its own acquisition.

The Hartford Business Journal makes the excellent point that every time the industry thinks Judge Leon’s hearings are wrapping up, they continue. This Editor will be surprised if there are any bombshells from this round. On to the next!

A measured look at the uncertainty around the CVS-Aetna merger

Within two to three weeks, we will know whether Judge Richard Leon of the Federal District Court will–or can–block the CVS-Aetna merger. Already a fait accompli, the merger itself would have to unwound if this is the decision–and uncertainty reigns on whether this actually can be done, as the companies have been merged for several months and have divested what DOJ requested (e.g. PDP to WellCare).

The CVS-Aetna vision is for HealthHubs–combined stores, data, MinuteClinics, kiosks, and the retail business, ultimately combined at a macro level with pharmacy benefit management, external data, and also Aetna’s insurance business. While the HealthHubs are in test, the reach of CVS on both the national and local/individual levels will be huge, if only starting with the data and analytics side. And the retail side is no slouch. Their growth on the retail pharmacy side has been over three times the industry.

In the prescription drug plan (Medicare PDP) market, that horse already left the barn. 70 percent of the PDP market is controlled by three companies: CVS Health, Express Scripts (Cigna), and Optum (UnitedHealth Group). The concerns expressed at the hearings about premiums rising and reduction of competition has already largely happened, with a market not truly private and highly restricted.

Uncertainty may very well be the theme of the rest of the year as it has been since last fall. The smart money is betting that Judge Leon will block the merger on anti-competitive grounds, leading to another round of court actions. Both companies are healthy and will fight it. If forced to part, the  Seeking Alpha analyst bets on CVS doing just fine long term, which leaves little in choices for Aetna with its way forward in merging with other insurers blocked.