Cigna’s $69 million acquisition of Express Scripts clears US Department of Justice hurdle

September 18, 2018 | by

As reported on 8 Sept, the DOJ announced on Monday that they have formally cleared the Cigna acquisition of pharmacy benefits manager Express Scripts. This puts together a major payer with a PBM manager, the latter area considered to be challenged for profitability as the PBM drug rebate model may be substantially less profitable in the future. Federal policy pressure is ramping up from Health & Human Services (HHS), with Secretary Alex Azar only last week promising disruptive change and more transparency in drug pricing.

CVS (PBM-Caremark) with Aetna is in the works and Anthem is creating its own PBM called IngenioRx. UnitedHealthcare has its own OptumRx for some years. 

Another point of pressure on the entire PBM category is the Amazon-Berkshire Hathaway-JP Morgan combine, sometime in the future when the hype and speculation on What Amazon Will Do turns into actual plans beyond their acquisition of tiny, specialized player PillPack for an exorbitant $1bn [TTA 4 July]. 

The DOJ investigation took six months, reviewed more than 2 million documents, and more than 100 industry people were interviewed.

Cigna and Express Scripts now must negotiate over 50 state departments of banking and insurance–over 50 because some states have two. Both companies already have shareholder approval, and the lack of overlap in their businesses limits the possibility of divestitures. Their advocacy website is here. But state DOBIs can be unpredictable, as Cigna found out with Anthem. (Their contentious breakup is still being contested in court–and Cigna could use the contractual breakup money to ease the Express Scripts debt estimated at $15 bn. Forbes.  Bloomberg, Healthcare Dive

What Best Buy’s $800 million cash purchase of GreatCall connected health/PERS really means

August 16, 2018 | by

Have health and connectedness services for older people finally made it out of the pumpkin and to the ball? GreatCall’s market doesn’t make for great cocktail party buzz or TEDMED talks. It’s emergency response with Jeopardy’s Alex Trebek presenting 5 Star emergency service bundled in a Jitterbug flip or smartphone (made by others). It’s made intelligent acquisitions. taking some of the tech developed by Lively to develop wearables that are quite presentable and by Healthsense for the senior living market. It’s been a leader in how to make both traditional direct marketing (DRTV, print) and digital work for an older market. Somehow, it’s managed to accumulate over 900,000 paying customers, which proved to be very attractive to first PE firm GTCR and now Minneapolis-based Best Buy, which with GreatCall has made its Biggest Buy.

GreatCall will remain a separate division with the same CEO (David Inns, with them since their 2006 founding) and remain HQ’d in San Diego. The transaction is expected to close by end of the third quarter of Best Buy’s fiscal 2019, subject to regulatory approvals.

Best Buy in the US has remained the #1 electronics ‘big box’ store that, like most retail, has stumbled about and come back from the brink. Their purchase of GreatCall, a partner for many years, reinforces a strategy they’ve worked on for a while in featuring health and wellness-related products to what CNBC calls ‘an aging population’ as part of ‘solving technology problems and addressing key human needs across a range of areas.’ GreatCall, as noted above, has a superb track record in direct marketing to that group. (In this context, the former Healthsense B2B play is limited–some of the feedback that this Editor’s received is that GreatCall stumbled out of the gate with Healthsense customers with a lack of understanding of the LTC/senior housing market dynamics. Long term, it seems out of phase with Best Buy’s direction in a way that consumer-oriented Lively is not.)

Will that talent spill over to and influence the rest of Best Buy’s business? Will Best Buy successfully carve out a niche which is relatively resistant to the predations of Amazon (which also sells a lot of health tech) and other online retailers? Is this niche big enough to support this Big Box Retailer? Seeking Alpha, press release, Mobihealthnews

News roundup: Walmart and Microsoft AI, are derm apps endangering public with 88% skin cancer diagnosis?

July 19, 2018 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2017/12/Lasso.jpg” thumb_width=”150″ /]Walmart and Microsoft partner to change the retail experience via AI. The five-year agreement will switch over applications to the cloud and will affect shipping and supply chain. It’s projected in Healthcare Dive that the impact will be in healthcare as well. Microsoft announced last month that it is forming a unit to advance AI and cloud-based healthcare tools. The landscape is under extreme pressure in retail and healthcare delivery, and Walmart needs to ready for future moves which will certainly happen. Walmart is rumored to be interested in acquiring Humana and is currently working with Emory Healthcare in Atlanta. Then there is CVS-Aetna, Cigna-Express Scripts, Google, and (looming above all) Amazon. (Though you can tuck all the years of Amazon’s profits into one year of Walmart’s.)

The ITV News headline grabs attention — but are dermatology apps really endangering the public when teledermatology can help diagnose 88 percent of people with skin cancer and 97 percent of those with benign lesions? A University of Birmingham-led research team did a metastudy of the literature and found three failings: “a lack of rigorous published trials to show they work and are safe, a lack of input during the app development from specialists to identify which lesions are suspicious and flaws in how the technology analyses photos” particularly for scaly or non-pigmented melanomas. But did access to these apps encourage early diagnosis which can lead to up to 100 percent five-year survival? Of course review is required as recommended by the study, but this last factor was not really examined at the British Association of Dermatologists’ annual meeting in Edinburgh. University of Birmingham release with study abstract

Care Innovations sells off Validation Institute. But is there more to the story? And a side of Walmart Health action.

July 17, 2018 | by

The Health Value Institute, part of Woburn, Massachusetts-based conference organizer World Congress, announced late last week the acquisition of the Validation Institute from Care Innovations. Terms were not disclosed. The Health Value Institute and the Validation Institute recently partnered to validate the outcomes for the Health Value Award finalists and awards this past April at the 15th Annual World Health Care Congress. According to both parties, the acquisition will help to expand the membership of validated companies, and the present offerings for HR, broker, and benefit executives. Release.

The Validation Institute was launched with fanfare back in June 2014, when GE still had a chunk of the company and during the 2 1/2 year repositioning (revival? resuscitation?) led by Sean Slovenski from the doldrums of the prior Louis Burns regime. Mr. Slovenski departed in early 2016 to be president of population health at Healthways/Sharecare, which lasted a little over a year. However, this week Mr. Slovenski made headlines as the new SVP Health & Wellness of Walmart, reporting directly to the head of their US business.  The hiring of a senior executive with a few years at Humana and a short time at Sharecare, another Walmart partner, coupled with several years in healthcare tech and provider-side is certainly indicative of Walmart’s serious focus on healthcare provision. It’s a fascinating race with Amazon and CVS-Aetna–with the mystery of what Walgreens Boots Alliance will do. Also Healthcare Dive.

But back to Care Innovations. Signs of a new direction–and a loss. The case can be made that the Validation Institute, the Jefferson College of Population Health, and validating individuals and companies was no longer core to their business which is centered around their RPM platform Health Harmony (with QuietCare still hanging in there!) However, this Editor notes the prominent addition of  ‘platform-as-a-service’ advisory services for those who are developing health apps, which appears to be a spinoff of their engineering/IT services. Vivify Health, a competitor, already does this. There is a vote of confidence; in June, Roche signed on with a strategic investment (undisclosed) as well as integration of the mySugr integrated diabetes management/app solution (release).

Looking around their recently refreshed website, there is an absence–that of the two or three pages previously dedicated to the Veterans Health Administration (VA) and the press release of the VA award. This tends to lend credence to the rumors that there was a second company that did not pass the Trade Adjustment Act (TAA) requirements that knocked out Iron Bow/Vivify Health from the VA, or for another undisclosed reason CI bowed out of a potentially $258 million five-year contract. If so, that leaves for the VA Medtronic and 1Vision/AMC Health. It’s certainly a limited menu for the supposedly growing numbers of veterans requiring telehealth and a limited choice for their care coordinators–and not quite as presented to the public or the 2015 competitors in the solicitation. Who benefits? Who loses? (Disclosure: This Editor worked for one of the finalists and a VA supplier from 2003, Viterion.)  Hat tip to one of our ‘Industry Insiders’, but the opinions expressed here are her own.

Rock Health’s ‘Another record-breaking first half’ in digital health funding is actually–flat. (With a Soapbox Extra!)

July 4, 2018 | by

The Breathless Tone was the clue. “It’s déjà vu for digital health, with yet another record breaking half for venture funding.” It was déjà vu, but not of the good sort. This Editor hates to assume, so she checked the year-to-year numbers–and first half 2018 versus 2017 broke no records:

  • 2018:  $3.4 bn invested in 193 digital health deals 
  • 2017: $3.5 bn invested in 188 digital health companies [TTA 11 July 17]

But ‘flat’ doesn’t make for good headlines. Digging into it, there are trends we should be aware of — and Rock Health does a great job of parsing–but a certain wobbliness carried over from 2017 even though the $5.8 bn year finished 32 percent up over 2016, analyzed here [TTA 5 Apr 18]. Their projection for 2018 full year is $6.9 bn and 386 deals.

Let’s take a look at their trends:

  • “The future of healthcare startups is inextricably linked to the strategies of large, enterprise-scale healthcare players—as customers, partners, investors, and even potential acquirers.” It’s no mistake that the big news this week was Amazon acquiring tiny, chronic-conditions specializing prescription supplier PillPack after a bidding war with Walmart for an astounding $1bn, making its 32 year-0ld founder very rich indeed and gaining Amazon pharmacy licenses in 49 states. (Prediction: Walmart will be pleased it lost the war as it will find its own solutions and alliances.) 
    • Enterprise healthcare players are cautious, even by Rock Health’s admission, but the big money is going into deals that vertically integrate and complement, at least for a time–for example, Roche’s purchase of Flatiron Health. And when it doesn’t work, it tends to end in a whimper–this May’s quiet sale by Aetna of Medicity to Health Catalyst for an undisclosed sum. Back in 2011, Aetna bought it for $500 million. (Notably not included in the Rock Health analysis, even though they track Health Catalyst and the HIE/analytics sector.)
  • The market is dependent on big deals getting bigger. If you are well-developed, in the right sector, and mature (as early-stage companies go), you have a better shot at that $100 million B, D, E or Growth funding round. B rounds actually grew a bit, with seed and A rounds dipping below 50 percent for the first time since 2012. 
  • The Theranos Effect is real. Unvalidated, hyped up claims don’t get $900 million anymore. In fact, there’s real concern that there’s a reluctance to fund innovation versus integration. The wise part of this is that large fundings went to companies validating through clinical trial results, FDA clearance (or closing in on it), and CDC blessing.
  • The dabbling investor is rapidly disappearing. 62 percent of investors in first half had made prior investments in digital health including staying with companies in following rounds.
  • Digital health companies, like others, are staying private longer and avoiding public markets. Exits remain on par with 2017 at 60. Speculation is that Health Catalyst and Grand Rounds are the next IPOs, but there hasn’t been one since iRhythm in October 2016. The Digital Health public company index is showing a lot less pink these days as well, which may be an encouraging sign.
  • Behavioral health is finally getting its due. “Behavioral health startups received more funding this half than in any prior six-month period, with a cumulative $273M for 15 unique companies (nearly double the $137M closed in H1 2016, the previous record half for funding of behavioral health companies). Of these 15 companies, more than half have a virtual or on-demand component.”

Keep in mind that Rock Health tracks deals over $2 million in value from venture capital, excluding government and grant funding. They omit non-US deals, even if heavily US funded. 

Their projection for 2018 full year is $6.9 bn and 386 deals. Will their projection pan out? Only the full year will tell!

A Soapbox Extra!

Rock Health, like most Left Coast companies, believes that Vinod Khosla is a semi-deity. This Editor happens to not be convinced, based on predictions that won’t pan out, like machines replacing 80 percent of doctors; making statements such as VCs have less sexual harassment than other areas, and even banning surfers off his beach. He was at a Rock Health forum recently and made this eye-rolling (at least to this Editor) statement:

Is there one area in the last 30 years where the initial innovation was driven by an institution of any sort? I couldn’t think of a single area where innovation—large innovation—came from a big institution. Retailing wasn’t disrupted by Walmart, it was by Amazon. Media wasn’t changed by CBS or NBC, it was by YouTube and Twitter. Cars weren’t transformed by Volkswagen and GM—and people said you can’t do cars in startups—but then came Tesla.

Other than making a point that Clayton Christensen made a decade or more ago, the real nugget to be gained here is that formerly innovative companies that get big don’t grow innovation (though 3M tends to be an exception, and Motorola didn’t do too badly with the cell phone). They can buy it–and always have. 

Go back a few more decades and all of these companies were disrupters–and bought out (or bankrupted) other disrupters. CBS and NBC transformed entertainment through popularizing radio and then TV. VW created the small car market in the US and saved the German auto industry. GM innovated both horizontally (acquiring car companies, starting other brands) and integrated vertically (buying DELCO which created the first truly workable self-starting ignition system in 1912).

YouTube? Bought by innovator Google. Twitter? Waiting, wanting to be bought. Innovation? Khosla is off the beam again. Without Walmart, there would be no Amazon–and Amazon’s total lifetime profit fits nicely into one year of Walmart’s. Tesla is not innovative–it is a hyped up version of electric car technology in a styled package that occasionally blows up and remains on the borderline of financial disaster. (Model 3, where art thou?)

I’d argue that Geisinger, Mayo Clinic, and Intermountain Healthcare have been pretty innovative over the last 30 years. Mr. Khosla, read Mr. Christensen again!

Some more views on (and by) Atul Gawande on the JP Morgan-Berkshire-Amazon health combine

June 28, 2018 | by

Often the best indicator of the success of a person in a new venture is to examine their own words. An interview with Dr. Gawande in STAT a few days after the Big Reveal of his new position as CEO of the JPM-BH-Amazon healthcare nonprofit indicates that he has an excellent grasp of the task before him. His main points:

  • Before accepting the position, he established that the healthcare company would be an independent entity and not part of the three companies
  • It is also non-profit and not expected to return money to those companies
  • He will be devoting 100 percent to the new job and have it be the number one priority, but he will be with patients and his surgery through at least the summer
  • “My job for them is to figure out ways that we’re going to drive better outcomes, better satisfaction with care, and better cost efficiency with new models that can be incubated for all. That is a tall fricking order. But what they’re saying to me is that resources won’t be the problem. Human behavior will be. And achieving scale will be.”

His speech at AHIP (America’s Health Insurance Plans) annual meeting a day after the announcement pointed out that unnecessary tests and treatments account for about 30 percent of healthcare spending, that our system fails the chronically ill in their needs to be asked about what they want to achieve through treatment, and for doctors to deliver the right and considerate treatment especially in end-of-life care. “Precision medicine has to be matched by precision delivery.”  Healthcare Finance

For the 1 million employees of the three companies, there may not be a lot of chronic illness or end-of-life consideration (people tend to fall out of the workforce under those circumstances). What kind of model will apply to them and save on the 25 percent of estimated healthcare spending which is wasted? The article in Forbes by another ‘big thinker’, Robert Pearl MD, sees a 5-10 year time frame for Dr. Gawande’s task: “…to fundamentally change how healthcare is structured, paid for and provided. He was hired to disrupt the industry, to make traditional health plans obsolete, and to create a bold new future for American healthcare.”

But in the meantime, how will those bank tellers, packers, IT workers, ice cream slingers, and railway workers fare with their health? What will they benefit from in two to three years time? And will the long-term backing and the promises to Dr. Gawande remain after Mr. Dimon, Mr. Buffett, and Mr. Munger (of BH, and possibly why Dr. Gawande is on board) are gone?

The 50,000 foot pick as CEO of the JP Morgan Chase-Berkshire Hathaway-Amazon health joint venture

June 21, 2018 | by | 2 Comments

US healthcare is abuzz at the choice that JP Morgan Chase-Berkshire Hathaway-Amazon made to head their healthcare JV: Dr. Atul Gawande, currently practicing general and endocrine surgery at Brigham and Women’s Hospital and teaching as a professor at the Harvard T.H. Chan School of Public Health and Harvard Medical School. Dr. Gawande is presently an executive director of Ariadne Labs, a healthcare innovation center, a writer of four best sellers on healthcare and noted as an outspoken theorist on how the ‘broken’ healthcare system in the US can be fixed. (This Editor’s definition of ‘broken’ is slightly different, encompassing countries like Venezuela, Cuba, Zimbabwe, post-WWII Germany, and the Ceausescu-era Romania where the basics are simply not there for the average person.)

Dr. Gawande will transition to chairman of Ariadne and retain his surgical and teaching positions.

Praise for Dr. Gawande comes from many quarters. Andy Slavitt, the former head of CMS during the previous administration, said “There are few better people in health care” and praised his ‘moral leadership’ when approached by Messrs. Dimon, Bezos, and Buffett. Jeff Bezos: “We said at the outset that the degree of difficulty is high and success is going to require an expert’s knowledge, a beginner’s mind, and a long-term orientation. Atul embodies all three, and we’re starting strong as we move forward in this challenging and worthwhile endeavor.”

What is missing from this sterling public health advocate and practitioner’s resumé is obvious: real business management experience. Among his three soon-to-be-bosses, there is plenty of pontificating from 50,000 feet–for but one example, see this Editor’s POV on Jamie Dimon’s annual shareholder letter [TTA 10 Apr]. Here is what they stated as the purpose of the JV back in January: “partnering on ways to address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs” and setting up an independent company “free from profit-making incentives and constraints. The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.” And more in that vein. (Whew!) It was eye-rolling, even shortly after the announcement back in February.

But actually getting this done is not a TEDTalk. First, there is the hard in-the-trenches work to bring both the management and the 1 million employees of three very different companies onto the same page. Second, it is running the gauntlet of regulations on the national level (that CMS and HHS) plus in 50 states, if this combine chooses to operate as an insurer or PBM. Third, if they don’t, there is getting the cooperation of insurers (payers) who aren’t in business to lose money. There is not only regulation, but also what they are willing and can afford to do. This Editor noted back in January that large companies, including these three, “generally self-insure for healthcare. They use insurers as ASO–administrative services only–in order to lower costs. Which leads to…why didn’t these companies work directly with their insurers to redo health benefits? Why the cudgel and not the scalpel?”

This Editor would expect that a group of skilled senior, operationally focused executives will be hired to work under Dr. Gawande in Boston, where this unnamed-yet venture will be headquartered. There may be some more high-profile senior executives with unconventional backgrounds. From this (lower than 50,000 feet) perspective, Dr. Gawande will be the attention-getting CEO, spokesman, and pace-setter; others will be doing the heavy lifting behind the scrim. 

Beyond the usual glowing coverage on CNBC and TechCrunch, those in the business of healthcare are already expressing more sanguine opinions on the enterprise and how Dr. Gawande will be leading it with multiple medical, teaching, and writing commitments. Modern Healthcare has a fairly balanced article.

Soapbox: JPM’s Dimon takes the 50,000 foot view on the JP Morgan Chase-Berkshire Hathaway-Amazon health joint venture

April 10, 2018 | by

Mr. Jamie Dimon, the chairman and CEO of JP Morgan Chase, had a few thoughts about the JPM-Berkshire Hathaway-Amazon healthcare JV for all three companies. You’ll have to fill up the tea or coffee mug (make it a small pot) for it’s an exceedingly prolix Annual Shareholder Letter you’ll have to sled through to find those comments. Your Editor has taken her punishment to find them, towards the end of the letter in ‘Public Policy’. 

They demonstrate what this Editor suspected–an headache-inducing mix of generalities and overreach, versus starting modestly and over-delivering.

  • Point #1 sets up what has gone wrong. Among several, “Our nation’s healthcare costs are twice the amount per person compared with most developed nations.” Under point 2 on how poor public policy happened, an admission that Obamacare fixed little:

Here’s another example: We all know that the U.S. healthcare system needs to be reformed. Many have advocated getting on the path to universal healthcare for all Americans. The creation of Obamacare, while a step in the right moral direction, was not well done. America has 290 million people who have insurance — 180 million through private enterprise and 110 million through Medicare and Medicaid. Obamacare slightly expanded both and created exchanges that insure 10 million people. But it did very little to fix our broken healthcare system and has, in fact, torn up the body politic over 10 years — and this tumult may go on for another 10 years.

  • Point #7 is about fixing the deficit and the ill effects if we don’t. In Mr. Dimon’s view, healthcare is a major part of this through the uncontrolled growth of entitlements, with Medicare, Medicaid and Social Security leading the pack–skipping over the fact that nearly all Americans pay into Medicare and SSI well in advance of any entitlement collection. Healthcare is also an offender through unnecessary costs such as administrative and fraud (25-40 percent),  and six mainly chronic conditions accounting for 75 percent of spending.
  • The experts–specifically, their experts–will fix it! “While we don’t know the exact fix to this problem, we do know the process that will help us fix it. We need to form a bipartisan group of experts whose direct charge is to fix our healthcare system. I am convinced that this can be done, and if done properly, it will actually improve the outcomes and satisfaction of all American citizens.”
  • The generalities continue with
    • The JV “will help improve the satisfaction of our healthcare services for our employees (that could be in terms of costs and outcomes) and possibly help inform public policy for the country.” 
    • Aligning incentives systemwide ‘because we’re getting what we incentivize’
    • “Studying the extraordinary amount of money spent on waste, administration and fraud costs.”
    • “Empowering employees to make better choices and have the best options available by owning their own healthcare data with access to excellent telemedicine options, where more consumer-driven health initiatives can help.”
    • “Developing better wellness programs, particularly around obesity and smoking — they account for approximately 25% of chronic diseases (e.g., cancer, stroke, heart disease and depression).”
    • “Determining why costly and specialized medicine and pharmaceuticals are frequently over- and under-utilized.”
    • “Examining the extraordinary amount of money spent on end-of-life care, often unwanted.”
    • “To attack these issues, we will be using top management, big data, virtual technology, better customer engagement and the improved creation of customer choice (high deductibles have barely worked”).

This Editor has observed from the vantage of the health tech, analytics, payer, and care model businesses that nearly every company has addressed or is addressing all these concerns. So what’s new here? Perhaps the scale, but will they tap into the knowledge base those businesses represent or reinvent the wheel? 

A bad sign is Mr. Dimon’s inclusion of ‘end of life care’. This last point is a prime example of overreach–how many of the JV’s employees are in this situation? The ‘attack’ tactics? We’ve seen, heard, and many of us have been part of similar efforts.

Prediction: This JV may be stuck at the 50,000 foot view. It will take a long time, if ever, to descend and produce the concrete, broadly applicable results that it eagerly promises to its million-plus employees, much less the polity. 

Is the Amazon Effect good or bad for consumers–and health tech?

March 28, 2018 | by

Your busy Editor, who has been on business assignment this past month, has noticed the relative quiet around the subject of How Amazon is Rattling Healthcare. We’ve already noted here the retail and pharmacy/pharmacy benefit effects with CVS-Aetna, Albertsons-Rite Aid, and Cigna-Express Scripts. Aside from the bottom line, and Cigna finally closing a gap with other insurers with pharmacy benefit management services (PBM), is it good for the healthcare consumer as promised? 

Max Nisen’s article in Bloomberg Gadfly (sic) says ‘not so fast’. His argument is as follows:

  • Companies are largely following the lead of UnitedHealth and its Optum units, which integrate not only insurance and PBM but physician groups and analytics.
  • Deals will continue. There’s other insurers like Anthem, Humana, and the regional Blues; urgent clinics like CityMD, AtlantiCare, and MedExpress. Looming above all with clinics and retail pharmacies is Walgreens Boots and on the retail side, other supermarkets like Publix and Ahold Group.
  • Consolidation means fewer alternatives, competition, and thus less downward pricing pressure for both providers and consumers, as options decrease into what resembles a closed system. The merged companies will have debt to pay off, with pressure to pay off lenders and shareholders.

All this is regardless of what Amazon does with JP Morgan Chase and Berkshire Hathaway. Their admirable, seemingly altruistic reasons for this joint venture, in this view, has multiple unintended consequences and negative effects for ordinary folk–and doctors.

As for healthcare technology, when a Big Trend takes the air out of the room–EHRs, ACA, Watson/big data, even wearables, IoT and Big Data– more mundane everyday tech like remote patient monitoring and telecare, which depend on integrating into  healthcare/wellness/chronic care management systems and reimbursement (by those same insurers), tend to suffocate. 

Also of interest: Cigna may be too late to the PBM party (InvestorPlace)

CVS sets it up for Aetna with $40 billion in the third-largest bond sale ever

March 7, 2018 | by

Obviously, CVS is confident of an approved merger and that it will work. CVS issued $40bn of investment-grade debt today (6 March) to finance the purchase of Aetna, according to sources talking to Bloomberg. The attraction was premium interest and other incentives, up to 1.95 percentage points above Treasuries in the 30-year portion of the nine-part offering. This serves to refinance a bridge loan of $49bn from 20 investors that was taken in December to initially finance the $67.5 bn acquisition. 

By Bloomberg’s calculation, the bond sale ranked only behind $40bn +blockbusters from Verizon (2013) and AB InBev (2016). Analysts and portfolio managers cheered at the terms. It’s expected to close by second half 2018. No word yet from DOJ, however, which asked for additional information on 1 Feb which further extends their waiting period. Mutual shareholder meetings are still scheduled for 20 March [TTA 2 Feb].

Another positive investor take is over at Seeking Alpha, citing excellent fundamentals, a diverse revenue stream, and innovation in “management’s commitment to evolve the company for the future” as well as “trying to revolutionize the doctor-patient-pharmacy relationship, and using its convenience store appeal to support it.” But we knew that already! The article goes on to extrapolate on the Amazon Effect and where CVS, with a bit of tweaking (healthier food choices with pre-made options in stores, much as many Duane Reade/Walgreens have in NYC), could steal a march. (Our prior coverage and mentions are here.)

Retail health convergence and ‘Amazon Effect’ continues with Albertsons’ acquisition of Rite Aid (updated)

February 20, 2018 | by | 1 Comment

The perceived ‘Amazon Effect’ continues. As predicted when the CVS-Aetna merger proposal made its first news last October while the Autumn Leaves were falling (cue the Ferrante and Teicher), other retail shoes would be dropping. Today’s major news is supermarket Albertsons buying most of drug store chain Rite Aid–the 2,600 stores that Walgreens Boots was prohibited from acquiring due to antitrust concerns. (Their eventual deal was for 1,932 stores.)

The terms are cash and stock with an estimated value of the combined companies of $24 billion (WSJ). Present Rite Aid shareholders will take 29 percent of the combined companies and present Albertson shareholders over 70 percent. Another benefit for Albertsons–it’s a quick and easy way to go public without an IPO using Rite Aid’s public status to effect a reverse takeover merger. It solves for Rite Aid (and Walgreens) the large problem of the unsold Rite Aid stores. 

Albertsons’ 2,200 supermarkets are in 38 states and the District of Columbia and comprise multiple brands such as Safeway and Acme in addition to Albertsons. Rite Aid stand-alone stores will continue to operate under their brand name as will most in-store pharmacies. The Rite Aid CEO John Standley will become CEO of the combined company with the Albertsons CEO moving up to chairman. CNBC, Seeking Alpha

Updated: For your weekend reading, here’s Jane Sarasohn-Kahn’s measured take on this acquisition in her HealthPopuli.

Who’s next? Place your bets here in Comments!

Scary Monsters, Take 4: further investor thoughts on CVS-Aetna, the Amazon Threat–and Aetna’s skeleton in the closet? (updated)

February 13, 2018 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2017/12/canary-in-the-coal-mine.jpgw595.jpeg” thumb_width=”150″ /]This Editor is always interested in Following the Money as a way to cut through the Fog of Hype and Headlines. The proposed CVS-Aetna merger is no exception. This recent article in Seeking Alpha is a must-read despite its click-bait headline because it not only looks at CVS-Aetna (a thumbs up generally) but also dissects the ‘Amazon Threat‘ and finds that like Oakland, there is (not much) there, there. Let’s look at the writer’s POV–who represents an investor group with no position:

  • CVS is in retail. Amazon is in retail. But CVS’ difference is that by and large, their retail is not a ‘destination’ (only 25 percent of their retail revenue) but a stop-off while a prescription is filled or there’s a visit to the MinuteClinic. I’d differ with this as many of their stores are semi-convenience stores and, at least in this New York metro area, located away from both traditional supermarkets and convenience stores. Some of us also don’t like to pay shipping on a few necessities, want the items now, prefer to pay cash, or coupon-clip. (And I just remembered I need a quart of milk, saving me a trip to the market….)
  • Amazon has exhibited some hesitancy in entering the pharmacy area. They won’t use their licenses to sell prescription drugs (CNBC, Nov) and canceled a wholesaler application in Maine. In the writer’s estimation, the threat to traditional PBM and prescription drugs is exaggerated because “For some reason, the market has been temporarily duped into thinking that a non-existent company with zero customers and zero experience is a real threat to a $70 Billion behemoth that has been at the top of its field for over 50 years.” Pharmacy is also heavily mail order for recurrent prescriptions or needed immediately, not suitable for the Amazon model unless they develop a true PBM and retail delivery. That isn’t to say that Amazon will never be a threat–just not right away. And what will happen before that is…
  • Through a merger with Aetna, CVS is demonstrating to shareholders that they are willing to diversify revenue and profit streams by adding over $60 billion in insurance business. An integration with Aetna (and providers) will help the profitable MinuteClinics grow and thrive, perhaps in non-traditional ways (e.g. anchoring malls).

Again, Amazon needs to enter profitable businesses (see our Follow the Money article) and create shareholder value, even at a $500bn valuation.

What may be a skeleton in Aetna’s closet is prior authorization procedures. Possibly spoiling a rosy CVS-Aetna merger picture is an investigation by the California insurance commissioner into Aetna’s prior authorization practices. It’s a result of a lawsuit in California Superior Court by a patient denied coverage for an intravenous immunoglobulin (IVIG) treatment. A former Aetna medical director admitted under oath in the case that he never looked at patients’ case files before denying authorization, accepting Aetna’s procedure of nurses making recommendations. This will not only affect Aetna, but also any payer doing business in California. Aetna claims that the plaintiff didn’t have necessary blood testing done prior to the authorization review and in fact avoided having it done. A decision here will be watched closely by every doctor who slaves on prior authorizations. With the CNN exclusive, expect many headlines and scrutiny with the spotlight on Aetna. Hat tip to Reader Howard Green, MD, via LinkedIn.

Updated. Colorado’s Division of Insurance is reviewing this information to see if it violates Colorado laws concerning patients’ right to appeal and review procedures that meet standards of care for the state. Expect more states to follow.  Healthcare Dive  

But will this slow or stop the merger? Likely not, but roll ‘dem bones. Lawyers surveyed by the National Law Journal say probably not, as past conduct is usually known by the merging party and factored in. However, this merger must be approved by 50 states’ insurance departments (and more). The caveat is that they use a ‘public interest’ standard that is broader than the Federal anti-trust or fair trade regulations. Look for states to extract concessions before this merger is done.

Scary Monsters, Take 3: one week later, JPMorgan Chase takes heat, Amazon speculation, industry skepticism

February 7, 2018 | by

It’s the Week After the Amazon/Berkshire Hathaway/JPMorgan Chase announcement of their partnership in a non-profit joint venture to lower healthcare costs for their 1.1 million employees, and there’s a bit of a hangover. Other than a few articles, there’s been relative quiet on this front. This could be attributed to the financial markets’ roller coaster over the past few days, at least in part due to this as healthcare stocks were hardest hit. In the US, healthcare is estimated to be 18 percent of the economy based on Centers for Medicare and Medicaid Services (CMS) actuarial statistics for 2015…and growing. 

Jamie Dimon, CEO of JPMC, had some ‘splainin’ to do with some of the bank’s healthcare clients, according to a report in the Wall Street Journal (paywalled) summarized on MarketWatch. He assured them that the JV would be to serve only the employees of the three companies. JPMC bankers handling the healthcare sector also needed some reassuring as they are “paid handsomely to help clients with mergers and other deals and worry the move could cost them business.”

Speculation on Amazon’s doings in healthcare remains feverish. A more sober look is provided by the Harvard Business Review which extrapolates how healthcare fits into Amazon’s established strength in delivery systems. Amazon could deliver routine healthcare via retail locations (Whole Foods, Amazon Go), same day prescription delivery, passive data capture developed for Amazon Go sold as a service to healthcare providers (on the model of Web Services), and data analytics.

Headlines may have trumpeted that the three-way partnership would ‘disrupt healthcare’, but our Readers in the business have heard this song before. While agreeing with their intent, this Editor differed almost immediately with the initial media cheering [TTA 31 Jan]. The Twitterverse Healthcare FlashMob in short order took it down and apart. STAT racks up some select tweets: in the ACO model, savings come when providers avoid low-value care; the contradiction of profitable companies avoiding profit; that the removal of healthy employees from existing plans will increase inequity and the actuarial burden upon the less insurable; the huge regulatory hurdle; and the dim view of investment advisory firm Piper Jaffray that it will not be a ‘meaningful disruptor’. 

In this Editor’s view, there will be considerable internal politicking, more unease from JPMC customers, and a long time before we find out what these three will be doing.

CVS-Aetna: DOJ requests additional information at deadline (updated for CVS earnings)

February 2, 2018 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2017/12/canary-in-the-coal-mine.jpgw595.jpeg” thumb_width=”150″ /]The Canary Tweets. The sources [TTA 8 Dec] were correct that the Department of Justice (DOJ) would take the lead on reviewing the CVS-Aetna merger. Yesterday (1 Feb) they did, requesting additional information. This extends the waiting period for an additional 30 days or more.  The CVS Form 8-K (SEC), which reports the request for information, is here courtesy of Seeking Alpha.

The US law governing this is the Hart-Scott-Rodino Act Antitrust Improvements Act of 1976 (HSR). A pre-merger notification and report was filed with DOJ and the Federal Trade Commission (FTC) on 2 January. There’s a 30-day period for an additional information request and that was taken by the DOJ yesterday. The length of the compliance process may extend for 30 days but may be less if the request is satisfied or more if requested by the parties involved. 

CVS and Aetna still hope to complete the merger by the second half of 2018. The respective shareholder meetings are already scheduled for 20 March. Our previous coverage here.

Editor’s thoughts: CVS-Aetna, despite its size, is a relatively straightforward merger, but because of its nature and size, expect some political haymaking and delays to come. This will be a preview of the action around the Amazon-Berkshire Hathaway-JPMorgan Chase cooperative partnership, in whatever they decide to create, if they create: “there’s many a slip twixt cup and lip.”

Updated for 4th Quarter Financials: CVS is reasonably healthy and nimble. Their earnings report is positive in earnings, operating profit, and reinvestment versus prior year. Under US securities law, it’s silent on Aetna. Form 8-K and press release via Seeking Alpha.

Scary Monsters, Take 2: Amazon, Berkshire Hathaway, JPMorgan Chase’s addressing employee healthcare

January 31, 2018 | by | 1 Comment

Shudders through the US financial markets resulted from Tuesday’s Big Reveal of an Amazon-Berkshire Hathaway-JPMorgan Chase combine. Ostensibly they will be “partnering on ways to address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs” and setting up an independent company “free from profit-making incentives and constraints. The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.” This and the Warren Buffett quote about ballooning healthcare costs being a “hungry tapeworm” on the American economy have gained the most notice. Mr. Bezos’ and Mr. Dimon’s statements are anodyne. The company will initially and unsurprisingly be spearheaded by one representative from each company. The combined companies have 1.1 million employees. Release. CNBC.

There is a great deal in those lead quotes which is both cheering and worrisome. To quote a long time industry insider in the health tech/med device area, “What this tells me is finally, enough pain has been felt to actually try to do something. We need more of this.” This Editor notes the emphasis on ‘technology solutions’ which at first glance is good news for those of us engaged in 1) healthcare tech and 2) innovative care models.

But what exactly is meant by ‘technology’? And will they become an insurer?

What most of the glowing initial comments overlooked was the Absolute Torture of Regulation around American healthcare. If this combine chooses to operate as an insurer or as a PBM, for starters there are 50 states to get through. Each state has a department of insurance–in California’s case, two. Recall the Aetna-Humana and Cigna-Anthem mergers had to go through the gauntlet of approval by each state and didn’t succeed. PBM regulation varies by state, but in about half the US states there are licensing regulations either through departments of insurance or health. On the Federal level, there’s HHS, various Congressional committees, Commerce, and possibly DOJ.

Large companies generally self-insure for healthcare. They use insurers as ASO–administrative services only–in order to lower costs. Which leads to…why didn’t these companies work directly with their insurers to redo health benefits? Why the cudgel and not the scalpel?

Lest we forget, the Affordable Care Act (ACA, a/k/a Obamacare) mandated what insurance must cover–and it ballooned costs for companies because additional coverages were heaped upon the usual premium increases. Ask any individual buyer of health insurance what their costs were in 2012 versus 2017, and that’s not due to any tapeworm. Forbes

Conspicuously not mentioned were doctors, nurses, and other healthcare providers. How will this overworked, abused, and stressed-out group, on whose shoulders all this will wind up being heaped, fare? And what about hospitals and their future? Health systems? The questions will multiply.

Disruption is now the thing this year. Of course, shares of healthcare companies took a beating today, many of which do business with these three companies: CNBC names Cigna, Express Scripts, CVS, Aetna (themselves partnering for innovation), and UnitedHealthGroup. Amazon uses Premera Blue Cross (a non-profit). 

Because of Amazon’s recent moves in pharmacy [TTA 23 Jan], there is much focus on Amazon, but the companies with direct financial and insurance experience are…JPMChase and Berkshire Hathaway.

An Editor’s predictions:

  • Nothing will be fast or simple about this, given the size and task. 
  • The intentions are good but not altruistic. Inevitably, it will focus on what will work for these companies but not necessarily for others or for individuals.
  • An insurer–or insurers–will either join or be purchased by this combine in order to make this happen.

Hat tips to Toni Bunting and our anonymous insider.

What’s up with Amazon in healthcare? Follow the money. (updated)

January 23, 2018 | by

Updated–click to see full page. Amazon is the Scary Monster of the healthcare space, a veritable Godzilla unleashed in Tokyo, if one listens to the many rumors, placed and otherwise, picked up in mainstream media which then are seized on by our healthcare compatriots.

According to CNBC’s breathless reporting, they have set up a skunk works HQ’d in Seattle. When they posted job listings, they were under keyword “a1.492” or as “The Amazon Grand Challenge a.k.a. ‘Special Projects’ team.” In late July, these ads for people like a UX Design Manager and a machine learning director with experience in healthcare IT and analytics plus a knowledge of electronic medical records were deleted. Amazon has separate initiatives on selling pharmaceuticals and building health applications to be compatible with Echo/Alexa and other smart home tech. Both have come up in the context of the CVS-Aetna merger, where buying up state pharmacy licenses cannot be kept secret (see end of our 8 Dec article) and that efforts to extend Alexa and Echo’s capabilities aren’t particularly secret.

A quick look at Bezos Expeditions, Amazon supremo’s Jeff Bezos’ personal fund, on Crunchbase reveals several healthcare investments, such as GRAIL (cancer), Unity Biotechnology (aging), Rethink Robotics, and Juno Therapeutics (cancer). Not really things easy to sell on Amazon.

Last week, Amazon reportedly hired Dr. Martin Levine, who ran integrated primary health Iora Health’s Seattle-based clinics, according to CNBC and Becker’s. They met with Iora, Kaiser, and the now-defunct Qliance about a year ago on innovative healthcare models. More breathless reporting: they are hiring a “HIPAA compliance lead.” 

What does this all mean? It may be more–or less–than what the speculation is. Here’s what this Editor believes as some options:

  • Alexa and Echo are data collectors as well as assistants–information that has monetary value to healthcare providers and pharma. To this Editor, this is the most likely and soonest option–the monetization of this data and the delivery of third-party services as well as monitoring.
  • Amazon now employs a lot of people. It is large enough to create its own self-funded health system. It’s already had major problems in the UK, Italy, and even in the US with healthcare and working conditions in its warehouses. Whole Foods’ non-union workers are prime for unionization since the acquisition (and also if, as rumored, robots and automation start replacing people).
  • A self-funded health system may also be plausible to sell  (more…)