Davids (AliveCor, Masimo) v. Goliath (Apple): the patent infringement game *not* over; Masimo’s messy proxy fight with Politan (updated)

April 4, 2024 | by

Apple’s legal department certainly hasn’t been maxing their relaxing this year, what with DOJ and pesky upstarts taking them to court. The big one keeping them busy is the US Department of Justice (DOJ) giving Apple a dose of its own medicine in filing an antitrust lawsuit against Apple for monopolizing smartphone markets [TTA 22 Mar]. Apple also continues to fight antitrust and intellectual property (patent) infringement in Federal district courts, the US Patent and Trademark Office (USPTO)’s Patent Trial and Appeal Board (PTAB), and the International Trade Commission (ITC), brought by ECG reader AliveCor and Masimo‘s pulse oximetry reader and software. Masimo succeeded in disrupting Apple’s sales of the Watch Series 9 and Ultra 2 right at the Christmas holiday sales season [TTA 28 Dec 23], forcing Apple to disable the pulse ox feature [TTA 18 Jan] in future imports in one of Apple’s few losses.

The DOJ lawsuit does not address Apple’s copycat activities against either AliveCor or Masimo. Both companies worked with Apple.  AliveCor integrated its early KardiaBand (2016) with early Apple Watches, only to have cardiac readings integrated into the Apple Watch two years later (2018). Masimo and Apple were in mid-stages of a 2021 partnership that Apple broke off, but Masimo then accused Apple of hiring its employees working on the project [TTA 27 Oct 23].

AliveCor hasn’t been quite so successful as Masimo in challenging Apple, but it has been fighting Apple as a David v Goliath on multiple fronts for years. In February, AliveCor lost a round in the US District Court for the Northern District of California on the heart rate algorithm changes Apple made in 2018 that made their SmartRhythm app provided to Apple non-functional. That decision reportedly is still under seal. However, AliveCor has multiple Federal patent infringement lawsuits going against Apple. The differing rulings of the PTAB against and an ITC ruling finding for AliveCor went to the Federal circuit court level. According to CEO Priya Abani in an excellent MedCityNews article, AliveCor expects to see action on this by summer. Abani also scored Apple’s annoying (understatement) habit of IP infringement and broken partnerships. “Apple’s vast resources allow them to squash small innovators,” she said. “They have more lobbyists and lawyers on their payroll than we have employees.”

AliveCor and Masimo aren’t the only ones battling Apple. In the MedCityNews article, NYU Langone cardiologist Joseph Wiesel has sued Apple on patent infringement on his atrial fibrillation app (2021), also involving the USPTO, an action that is wending its way through courts now. While this Editor has long been mystified by Apple’s continued combativeness against small innovative companies when certainly it would be cheaper (and more respectful) to pay a license or settlement, FTA in MedCityNews citing Dr. Wiesel’s attorney Andrew Bochner, “Apple is known among the legal community to have a certain modus operandi: they do “not entertain any sort of real settlement discussions” and instead battle “tooth and nail” in order to wear out their rivals with fewer resources.” The shocker here is that Apple, in this case, stated to Bochner that it filed “roughly 10%” of the USPTO’s total post-grant proceedings, which take place after a patent has been granted and generally challenge a patent’s validity. One wonders whether DOJ will even take note of this anticompetitive activity involving Apple Watches in its blunderbuss action on iPhones and the US smartphone market.

Masimo itself is being roiled by a shareholder proxy fight over who controls the company. Masimo is a publicly-traded (Nasdaq) electronics company that is primarily focused on health devices, including smartwatches, and data software monitoring for the clinical and consumer markets, notably pulse oximetry.

  • Last week, activist investor group Politan Capital Management accused CEO Joe Kiani and others of mismanagement, announcing the nomination of two more independent candidates from Politan for the board of directors. Politan already has two seats on the BOD and a win here would give Politan majority control.
  • The bone being picked is Masimo’s February 2022 $1 billion acquisition of consumer audio brand Sound United (Polk, Marantz, Denon, and others) which didn’t mesh well with their health tech business. This drove down the share price from that time, with Politan subsequently swooping in and picking up shares, successfully winning two BOD seats in 2023.
  • Masimo announced on 22 March that their consumer ‘hearables’ division would be spun off.
  • Politan’s response on 26 March was to object to the spinoff on governance grounds, nominate the additional directors, and heavily criticize CEO Kiani’s ‘control and influence’. Strata-gee 26 March

Yesterday’s follow-up is that Kiani and Masimo are rebutting all of Politan’s claims and more. Strata-gee 2 April, Masimo release 1 April, MedTechDive

This Editor notes that products in their personal monitoring line combine both audio and vital signs monitoring–the (out of stock) Stork, that appears with its baby sock to be directly competitive with Owlet’s Dream Sock.

This will all play out at the yet-to-be-announced 2024 Shareholders Meeting. This Editor notes that Politan picks its battles and is rarely defeated. Our Readers may recall that Politan swooped in on Centene Corporation in late 2021, and in short order ousted long-time directors, added new friendly ones, shook up management and forcibly retired 25+ year CEO Michael Neidorff (since deceased). Masimo’s victory over Apple may go down as either not mattering much–or that Apple will be fighting a much deeper-pocketed backer that knows how to win.

Update: It gets stranger. Masimo’s Consumer (audio) division’s brand president and general manager Joel Sietsema announced on Tuesday that he is no longer with the company. He came to Masimo through the Sound United acquisition being with them for a decade. He announced his departure on LinkedIn. It was apparently a mutual decision that preceded the current turmoil. Strata-gee 4 April

Why is the US DOJ filing an antitrust lawsuit against Apple–on monopolizing the smartphone market?

March 22, 2024 | by

The Department of Justice’s antitrust filing against Apple on the iPhone is a many-splendored thing–and will take many years to work through the courts. It was filed Thursday 21 March in the US District Court for the District of New Jersey, alleging monopolization or attempted monopolization of smartphone markets in violation of Section 2 of the Sherman Act. New Jersey’s US District Courts are in beautiful Newark, Camden, and Trenton. The DOJ was joined by 16 states in the lawsuit including NJ. Apple has promised to fight it tooth and nail, correctly realizing this goes to the core of its business. “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets” and “We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it.”

On the face of this, the DOJ antitrust lawsuit seems almost ludicrous. While iPhones have a 60% market share in the US (Backlinko), there’s plenty of Android phones from Samsung and others (sadly, no longer LG) at competitive prices from every carrier. This Editor never looked twice at an iPhone for personal use and wasn’t impressed by a short-lived company phone, a totally locked-down iPhone 6. (On the other hand, my second computer at work where I really self-learned computing was an easy-to-use Mac 2si, a long time ago.) There are about 140 million iPhone owners in the US. Obviously, Apple makes a product and ecosystem, including the Apple Watch, that people, especially US upper-income users, prefer. There are features that Androids have and iPhones have, and sometimes the twains don’t meet, but for most of us it doesn’t matter.

But does Apple act in an anticompetitive, monopolistic way?

The DOJ says yes. The complaint states that Apple uses its control over the iPhone to engage in a broad, sustained, and illegal course of conduct, using its monopoly power to extract as much revenue as possible. The specifics include some centering on the Apple Watch:

  • Apple has exclusive software features–apps–that Android manufacturers don’t have or don’t work as well, for instance Apple Pay, iMessage, Find My Phone, FaceTime, and AirTags.
  • Apple Pay blocks other financial institutions from instituting their own cross-platform payment systems.
  • Apple’s control over app developers in their ‘walled garden’, locking them in especially in the cloud gaming area, but generally imposing contractual restrictions on and withholding critical access from developers in the name of security and privacy. Reportedly there are 30% commissions on app sales. Blocking ‘super apps’ restricts not only developers but also users from switching to Android since they will lose use of the app.
  • Apple’s messaging systems are only partly interoperable with Android and have unique features not available on Android
  • App Store commissions and rules are prohibitive for many developers
  • Locking in consumers with features not available on Android
  • Lack of interoperability of the Apple Watch with Android phones, and other manufacturers’ watches with iPhones 

What is interesting is that in the Apple Watch charges, there’s nothing about how Apple has essentially stolen features from other developers such as AliveCor and Masimo as found in other Federal courts. That IP theft is outside of antitrust and being litigated in other courts.

Much of the heated commentary has to do with the Apple Brand Promise and how they deliver apps. Apple is an integrator and people like the ‘walled garden’. The phone ‘just works’. Quoting Alex Tabarrok in Marginal Revolution, Apple is a gatekeeper that promises its users greater security, privacy, usability, and reliability. Users trade off control for a seamless experience and it delivers. It’s desirable. However, many of us don’t need or want to give over all that much control and desire flexibility in a more open platform. Not all of us need or want ‘seamless’ features like Apple Pay and live very well without that or games. 

What will keep DOJ and Apple entertaining each other in court for the next few years are court decisions over the years that have favored Apple:

  • Monopoly has been defined in repeated decisions as market share in the 70-80% range, not 60%
  • The concept of ‘procompetitive’ means that if you can choose between open access and the Apple ‘walled garden’, Apple has a legitimate competitive feature.
  • Companies don’t have a ‘duty to deal’ with other companies
  • Apple as a monopoly has already been dismissed in other cases

The push towards the DOJ action has apparently been stimulated by the EU Digital Markets Act, which Apple will comply with, as well as Apple competitors in the US who have tried and failed to restrict Apple in integrating its services. Will DOJ succeed in forcing Apple to be more like Android? The debate will rage on. DOJ release, 88 page filing, The Verge, 9to5 Mac, Medium.com, AP, Epoch Times

Reality Bites Again: UHG being probed by DOJ on antitrust, One Medical layoffs “not related” to Amazon, the psychological effects of cyberattacks

March 6, 2024 | by

When It Rains, It Really Pours for UnitedHealth Group. On the heels of their Optum/Change Healthcare ransomware disaster are recent reports that the US Department of Justice is investigating UHG over multiple antitrust concerns. According to the Wall Street Journal, DOJ is examining certain relationships between the company’s UnitedHealthcare insurance unit and its Optum services unit, specifically around Optum’s ownership of physician groups. UHG has been aggressively buying and buying interests in practice groups for several years, announcing quite publicly that their goal was to own or control 5% of US physicians. In 2022 and 2023, they bought CareMount, Kelsey-Seybold, Atrius Health, Healthcare Associates of Texas, and Crystal Run Healthcare (Becker’s). Local reporting by the Examiner News in Westchester, NY, brought much of this history to light. In that area, it started with local practice group CareMount and their 25% layoff after being folded into Optum Tri-State with ProHealth in Long Island and NYC and Riverside Health–a layoff pattern that accelerated in the practice groups in 2023.

DOJ lost out on their challenge to the Change Healthcare acquisition in November 2022, deciding not to appeal the Federal District Court decision in 2023 [TTA 23 Mar 2023]. But DOJ never sleeps; they are examining with a microscope UHG’s $3.3 billion bid for home health provider Amedisys that started in August 2023 and has not moved forward. DOJ has a long memory, a Paul Bunyan-sized ax to grind, and doesn’t like losing. One wonders if now UHG has buyer’s remorse after fighting for two years to buy Change.

In the Alternate Reality Department, One Medical CEO Trent Green insisted that their reorganization and layoffs were unrelated to their acquisition by Amazon. Those of us who are a little less credulous know that with 98% of acquisitions, staff are laid off. Overlapping areas wind up being pinkslipped, no matter their individuals’ quality or even difference in business: finance, HR, legal, marketing, IT, operations, compliance, sales, account managers…the list is almost endless. According to the Washington Post article (also Becker’s), One Medical cuts, estimated at up to 400, also included front desk staff, office managers, health coaches, behavioral health specialists and a pediatrician–people who aren’t employed by other Amazon units. One Medical’s corporate offices in New York, Minneapolis, and St. Petersburg, Florida are closing, and its San Francisco office space is reduced to one floor. TTA 14 Feb

One Medical has never been profitable, as this Editor noted when the acquisition was announced as part of the “race to transform healthcare models”. This wasn’t going to last long with Amazon, which has been aggressively been cutting and dumping in other units such as Audible, Prime, and Halo. Marketing Amazon-style with deeply discounted memberships to Prime members also has its limitations. One Medical has a scant 200 mostly urban offices, which means that members outside those areas only have access to virtual visits. It had previously cultivated a patient population of young, mostly healthy and lower-cost urbanites, who as they grow older and have families might stick with the practice–or find it not compatible with or targeted to their needs in middle age. Management has changed: Green replaced Amir Dan Rubin, MD, as CEO last September. CFO Bjorn Thaler will move to a new position focused on growth initiatives. A layer of regional general managers will report to an Amazon head of operations, and legal, finance, and technology teams will report to Amazon’s healthcare business structure. Inbound calls now go to Mission Control, a central call center, and even those humans will be in future supplemented by an AI-enabled chatbot.

Iora Health, One Medical’s specialized (acquired) unit in Medicare Advantage and Medicare Shared Savings Programs including the advanced ACO REACH model, in October was rebranded as One Medical Senior, with an intention for all One Medical offices to serve age 65+–but with current patients, many with multiple chronic conditions, now reporting cutbacks in callbacks, appointment length, physician load, and services provided such as transportation. One clinic had 20 staff cut back to five with patients pushed out to virtual visits–hardly appropriate for a high needs, older, less technologically savvy patient population in value-based care, quality-measured models. Editor’s note: having had some experience in ACO and VBC World, Amazon may as well get out of ACOs because practices in these primary care models require specialized and dedicated management, reporting, and population nurturing. They don’t mainstream well.  I have also read that ironically, Iora was profitable for OneMedical, which is 1) why they bought it and 2) ran it separately.

In this Editor’s view, human costs are a factor shown to be absent from Amazon’s business calculations for success–which doesn’t quite square with the mission of healthcare for healthier patients and better outcomes.

Speaking of the reality of human cost, let’s spare a thought for those dealing with the effects of a cyberattack or data breach. They are the IT staff, pharmacists, software specialists, front line clinicians, billing specialists, doctors, therapists, business managers, coders…the list goes on. They share their feelings of frustration, helplessness, distress, aloneness, and financial fear on Reddit, Twitter/X and other forums. Few think of them taking the brunt of patient frustration and their state of mind day after day as Change/Optum’s disaster goes on and on. Writer Molly Gamble of Becker’s has the final and most sympathetically descriptive say in her brief but important article about When ransomware strikes, who to call?  A full read is recommended.

Helplessness or loss of control, especially at a collective level, can be psychologically and emotionally taxing. Recognizing a threat but not knowing what to do about it can increase one’s stress, anxiety and fear. The lack of a known end point of a cyberattack like Change is experiencing can intensify psychological distress. Some independent therapists, for instance, have noted they have halted their insurance billing for a week due to the downtime and expressed fear about going longer without income. 

These mental effects, while lesser-discussed, are exactly what cyberthreats intend to bring on. Cyberterrorists want to create mental and physical harm, and research has found that the psychological effects of cyber threats can rival those of traditional terrorism.

AliveCor v. Apple latest: Federal court tosses AliveCor suit on heart rate app data monopolization

February 14, 2024 | by

Apple wins one, but the other and more important AliveCor antitrust/IP cases go on. Judge Jeffrey White of the US District Court for the Northern District of California dismissed one of the many lawsuits between AliveCor and Apple. This one goes back a few years when AliveCor provided a cardiac app to the Apple Watch. The claim is that Apple’s 2018 changes in algorithms reading heart rates in the watchOS5, upgrading from the “Heart Rate Path Optimizer” algorithm (HRPO) to the “Heart Rate Neural Network” algorithm (HRNN), hurt a third-party app provider like AliveCor with their SmartRhythm app designed for the HRPO. The AliveCor argument in the 2021 lawsuit was that Apple should have made the earlier algorithms available, and that Apple violated California’s Unfair Competition Law. Apple’s argument was that the HRNN was more accurate, this was a genuine improvement that provided better data, and that third parties had no right to interfere in Apple’s design and business decisions. Since it was a summary decision, we do not know the details of Judge White’s reasoning. 

AliveCor’s full statement, provided by AliveCor, is:

AliveCor is deeply disappointed and strongly disagrees with the court’s decision to dismiss our anti-competition case and we plan to appeal. We will continue to vigorously protect our intellectual property to benefit our consumers and promote innovation. The dismissal decision does not impact AliveCor’s ongoing business; we will continue to design and provide the best portable ECG products and services to our customers.

Separately, the ITC’s findings that Apple has infringed AliveCor’s patents still stand. Both the ITC and U.S. Patent Trial and Appeal Board (PTAB) appeals will be reviewed at the United States Court of Appeals for the Federal Circuit in the coming months. In other recent developments, the PTAB recently ruled in AliveCor’s favor by instituting Inter Partes Review (IPR) of Apple’s patents and a stay of Apple’s countersuit.

We welcome any comments provided by Apple. Both AliveCor’s and Masimo’s suits go on in various courts.

Reuters, 9to5 Mac   Most recent AliveCor v. Apple coverage: spoilation split decision, ITC final determination

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

December 20, 2023 | by

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

December 2, 2023 | by

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

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

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

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

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

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

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

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

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

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

Healthcare M&A hit a 3 year low in Q2 2023, to the surprise of none: KPMG

August 11, 2023 | by

“Is deal making ready to rebound?”–KPMG tries to find the bright side in their new study of healthcare activity. If Q2 reflects the trend, it won’t be this year. See below for what this Editor sees that KPMG doesn’t.

  • There were 245 deals in Q2 2023, 7% below deal volume in Q2 2022 and 41% below the bull market of Q2 2021.
  • Buyers shifted from the financial buyer (e.g. a long-term investor), now at 29% of deals, to strategic buyers who look to expand or augment their businesses at 71%. This is a complete flip from the prior year, where strategic buyers were 37% (98) of a total of 264 transactions.
  • Sectors have also shifted:  42% of deals included physician groups, 27% were IT/digital health sector, 16% were in post-acute care, and 15% involved health systems. The shift away from digital health is pronounced from the palmy pandemic days of 2021 where 737 deals raised $29.1 billion.

There aren’t many big deals on the board in Q2, mostly announced and not closed: CVS Health-Oak Street (closed), Optum-Amedisys, TPG and AmerisourceBergen-OneOncology, Molina-BrightHealthcare’s CA plans, Froedert Health-ThedaCare, and Kaiser Healthcare-Geisinger (forming Risant Health). The last is still to be structured.

KPMG’s reason why for the paucity of deals were the Fed and the continuance of interest rate hikes to supposedly slow inflation (which hasn’t worked much and instead is depressing the economy), the US political situation (turmoil), and what they politely term “uncertainty about the valuations of potential acquisition targets.” Healthcare Dive, Becker’s

“Uncertainty about the valuations of potential acquisition targets” is an understatement. This Editor looks back at that time of  2020 to perhaps Q1 2022 as a binge of insane proportions and self-reinforcing FOMO. Rivers of free-flowing money for any company in digital health–who can blame founders and funders for grabbing their buckets and filling them? The hangover? Equally insane. Of SPACs alone, which were treated like the future of IPOs, nearly all cracked. Valuations of established telehealth companies plunged 70-90%. The money? The river bed is largely dry except for a few puddles and branches. The call for profitability is late.

Racking up reasons why from this Editor’s POV that aren’t in the KPMG analysis:

  • Investors such as VCs and providers no longer have the money because 1) they spent it and 2) can’t raise it. Those who have ‘dry powder’ are either reserving it for a brighter day, cutting back themselves, or deploying it to what they perceived as safer bets such as fintech and biopharma. The deals being made especially in digital health are small. Private equity, family offices, and high net worth investors are mostly staying out of healthcare, or being extraordinarily cautious about both where they invest and how much. More on this: TTA 5 April.
  • A four-bank collapse–Silicon Valley Bank’s failure most notably was a dagger in the heart of West Coast VCs. Add to it First Republic, Silvergate, and Signature in NYC (a favorite of Silicon Alley), plus Credit Suisse being taken over by UBS, all in fairly short order in late winter, ant that will tend to curb anyone’s enthusiasm. It also affected companies that located their cash, investments, and payables/receivables in these banks.
  • High valuations seem to have an inverse relationship to survival. This past year has seen the total ‘hull loss’ of the following former ‘industry darling’ companies: Pear Therapeutics, SimpleHealth, The Pill Club, Hurdle, Quil Health [TTA 11 July], and now Babylon Health.  Teetering on the edge are Bright Health Group and possibly 23andMe. Insurtechs Clover and Oscar are cleaning up frantically, trying to recover. Established companies such as Teladoc and Amwell have taken it in the shins and talk a lot about profitability after years almost proudly not being profitable. Onetime ‘too hot for their shirts’ telemental health is still trying to survive the scandals around Cerebral and Truepill. What remains isn’t favorable: too many companies chasing the same younger group of people who want virtual mental health, plus DEA confusion around Schedule II medication telehealth prescribing [TTA 14 June]. 
  • Big acquirers CVS Health (Oak Street Health, Signify Health) and Walgreens Boots Alliance (VillageMD) are posting down numbers, retrenching, selling units, closing stores, and laying off staff in a matter of months to a year post-acquisition.

And to wrap…there are six letters may sink any revival of M&A: DOJ (Department of Justice) and FTC (Federal Trade Commission), with a commission relishing their activist role. 

  • Draft Merger Guidelines that update corporate merger guidelines originally from 1968 but updated many times since. The 13 Guidelines drafted by DOJ Antitrust and the FTC have the intent to prevent mergers that threaten competition or create monopolies. But reading them, nearly every merger or acquisition other than in a horizontal or conglomerate model will be in violation of one of the 13. [TTA 20 July] 
  • Earlier, the Premerger Notification changes to the filing process covered under the Hart-Scott-Rodino (HSR) Act for transactions over $111.4 million. Again, it raises the height of the mountain and the time required for all transactions other than the smallest. [TTA 29 June]
  • FTC reviving the 2009 Health Breach Notification Rule to clamp down on ad trackers, fining Teladoc’s BetterHelp and GoodRx millions, and sending letters to 130 hospitals and health systems to put them on notice that they are on the radar [TTA 27 July].

This Editor is shocked that this concatenation of Federal actions have not gained the attention they deserve, especially the first–or maybe the legal departments are just working verrry verrry qwietly to register their objections.

Perhaps there will be a bounce in M&A–companies moving to acquire under the wire of both the merger guidelines and the premerger notification changes–akin to what Wall Street calls a ‘dead cat bounce’ (apologies to felines). After they’re in effect, watch for another dead stop in M&A and investor exits until everyone adjusts to the new rules and figures out new workarounds. No one wants to be the first out of the gate in this situation.

(Edited for clarifications)

Another antitrust shoe drops: FTC, DOJ publish Draft Merger Guidelines for comment–what are the effects?

July 20, 2023 | by

The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have published for public comment a draft of revised corporate merger guidelines. These update prior guidelines from 1968 which have been revised six times since. These are stated as incorporating comments from hearings and comments that started in January. 

The Draft Merger Guidelines on FTC.gov are open for comment for the next 60 days (18 September), cleverly during a time when most of Washington DC is repairing to cooler climes for summer holidays. They are centered on what DOJ Antitrust and FTC loftily call The 13 Guidelines. These will be used singly or in combination for these agencies to determine “whether a merger is unlawfully anticompetitive under the antitrust laws.” 

  1. Mergers should not significantly increase concentration in highly concentrated markets;
  2. Mergers should not eliminate substantial competition between firms;
  3. Mergers should not increase the risk of coordination;
  4. Mergers should not eliminate a potential entrant in a concentrated market;
  5. Mergers should not substantially lessen competition by creating a firm that controls products or services that its rivals may use to compete;
  6. Vertical mergers should not create market structures that foreclose competition;
  7. Mergers should not entrench or extend a dominant position;
  8. Mergers should not further a trend toward concentration;
  9. When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series;
  10. When a merger involves a multi-sided platform, the agencies examine competition between platforms, on a platform, or to displace a platform;
  11. When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers or other sellers;
  12. When an acquisition involves partial ownership or minority interests, the agencies examine its impact on competition; and
  13. Mergers should not otherwise substantially lessen competition or tend to create a monopoly

Assistant Attorney General Jonathan Kanter of the Antitrust Division stated in the DOJ/FTC release, “Today, we are issuing draft guidelines that are faithful to the law, which prevents mergers that threaten competition or tend to create monopolies. As markets and commercial realities change, it is vital that we adapt our law enforcement tools to keep pace so that we can protect competition in a manner that reflects the intricacies of our modern economy. Simply put, competition today looks different than it did 50 — or even 15 — years ago.” Not to be outspoken, FTC Chair Lina M. Khan, got her dibs in: “With these draft Merger Guidelines, we are updating our enforcement manual to reflect the realities of how firms do business in the modern economy.” Here the DOJ Antitrust Division takes the communications lead but the draft is published by FTC. These guidelines require no ratification by Congress as they are administrative in nature.

To this Editor, it is hard to see that any merger or acquisition of like companies or even complimentary organizations could pass. Consider the following scenarios: a leading telehealth or remote patient monitoring company offers to buy a struggling early-stage AI/ML or data analytics company to expand its capabilities, a larger health system buys a failing community hospital, one hotel looks to buy another down the street, VCs or equity investors look to exit just about anything through a sale. Every one of these situations triggers one or more of these guidelines.

Coupled with the proposed changes to the Premerger Notification under the Hart-Scott-Rodino Act (HSR Act) [TTA 29 June] now published in the Federal Register (29 June), open for comment until 28 August, we may be looking at the last few years as the Last Good Time for M&A, even with current restrictions in place.

As your Editor said last month, “For those surprised that FTC is taking the lead on this, this once-sleepy agency woke up late last year in a heckuva bad humor and is now taking a far more activist role in corporate oversight in areas such as privacy.” This was powered by a 2021 executive order by the current president for any and all mergers to be scrutinized. Earlier, FTC and DOJ withdrew antitrust policy statements that they now feel are overly permissive. FierceHealthcare

Already industry machers such as the American Hospital Association, Federation of American Hospitals, Pharmaceutical Research and Manufacturers of America (PhRMA) have asked the FTC mildly and politely for a further 60-day extension of the comment period. This includes non-healthcare organizations such as the American Hotel & Lodging Association and the Consumer Technology Association which runs CES. (Don’t hold your breath) FierceHealthcare

crystal-ballIn the cloudy crystal ball, this Editor sees a rush to complete acquisitions 1) below the HSR threshold ($111 million) and 2) in general before the new antitrust guidelines are adopted–and they will be as they are administrative measures and not laws. To reiterate previous comments, overall it will further depress M&A and investor exits, especially in healthcare and with mid-size private and public companies, funding beyond Series A/B, and valuations.  If you start a business, inherit one, or are trying to turn around one that has lost its markets or unprofitable–but can’t sell it in the future, what you have is a ton of frozen value and uninterested lenders. Will a thousand flowers bloom, like they did in airline deregulation 1980-1995–drive businesses to friendlier countries like Ireland or Poland–then lead to stagnation? Perhaps a new era of conglomerates of unrelated businesses a lá LTV and Gulf+Western in the 1960s? Tell your Editor and fellow Readers below.

Legal roundup: Teladoc class-action suit dismissed; NextGen EHR $31M Federal settlement; significant AliveCor-Apple antitrust ‘spoiliation’ update; class action suits filed against HCA, Johns Hopkins

July 19, 2023 | by

The latest legal activity in digital health and cybersecurity:

Teladoc’s pending class action lawsuit by shareholders was tossed. This was originally filed in June 2022 after the crash of Teladoc’s shares after The Big Livongo Writeoff in May 2022. Shareholder Jeremy Schneider, represented at the time by Jeremy Alan Lieberman of Pomerantz LLP, filed a lawsuit in the US Federal Court for the Southern District, located in downtown Manhattan, representing shareholders who purchased Teladoc shares between 28 October 2021 and 27 April 2022. The lawsuit cited materially false statements that Teladoc made on its business, operations, competition, and prospects that were overly positive and inflated share value. Judge Denise Cote agreed with Teladoc’s 20 January motion to dismiss based on specific disclosures that Teladoc made in multiple SEC filings in that period from the 2020 10-K on that countered claims made in the class action lawsuit.

Reading Judge Cote’s decision, Teladoc used specific limiting and warning language (what marketers call ‘downside’ language) on the risks around the merger. Their executives in public statements indicated that operations and competition were challenging.  The class action suit failed to prove conclusively that the statements it identified were ‘materially misleading’ and would mislead a reasonable investor. Other statements made by executives were “largely non-actionable statements of opinion and/or expressions of corporate optimism”, a/k/a “puffery”. Class action suits of this type that go to Federal courts (versus state courts) rarely succeed due to the high bar of proof and volumes of case law at the Federal level.

This Editor noted that this particular class action did not include Mr. Schneider nor Pomerantz LLP. Different plaintiffs were represented by Labaton Sucharow LLP and The Schall Law Firm. Teladoc reportedly had no comment.  Judge Cote’s opinion (Casetext), Mobihealthnews, Healthcare Dive

Easier to settle for $31 million than fight the Feds. Charged with violating the False Claims Act (FCA) and providing illegal incentives for referrals (the Anti-Kickback Statute that applies to Federally funded healthcare), NextGen Healthcare decided to settle with the Department of Justice (DOJ) for a whopping $31 million. The settlement does not admit wrongdoing by NextGen, which in its defense told Healthcare Dive that the claims made were over a decade old–and they were. At the time, their EHR used an auxiliary software that was designed only to perform the certification test scripts, thereby gaining 2014 Edition certification criteria published by HHS’s Office of the National Coordinator (ONC). In this Ur-time of EHRs, fixes like this weren’t (ahem) unusual. Compounding it was that the EHR then lacked certain additional required functionalities, including the ability to record vital sign data, translate data into required medical vocabularies, and create complete clinical summaries. Making NextGen’s decision the proverbial ‘no-brainer’ was that the controversial US Supreme Court ruling in June ruled that under the FCA, defendants are now liable for claims they suspect or knowingly believe are false, versus the previous objective standard. The Anti-Kickback Statute violation was blatant.  NextGen was giving credits often worth as much as $10,000 to current healthcare customers whose recommendation of NextGen’s EHR software led to a new sale, along with incentives such as tickets to sports and entertainment events. Anti-Kickback is one of those ‘biggies’ that the average healthcare employee is trained on within their first 60 days. DOJ release

The AliveCor-Apple Federal antitrust case had a small but important split decision regarding ‘spoiliation’ in the discovery process that could impact the case’s outcome–and future litigation. This June US District Court for the Northern District of California order went against AliveCor in part of what it sought–that Apple’s deleted emails to and from Apple’s then Director of Health Strategy should be considered adverse by a jury. But Apple was then found at fault for deleting them despite their relevance to the case with a ‘duty to preserve’ that started on 25 May 2021 with the antitrust litigation. In general, emails such as these to and from relevant people are subject to a litigation hold.

  • The director departed Apple only one week prior, 14 May 2021. His emails were auto-deleted at some point in accordance with company policy. In the discovery process, through other documents, AliveCor determined over a year later that the director was, indeed, relevant to the case.
  • The order states that Apple should have preserved his emails from the start as he was an individual with potentially relevant information. From the order, “[the director] worked on strategic health initiatives, and the record shows that he regularly corresponded about the Apple Watch and AliveCor with individuals Apple did identify as relevant.” “Apple did not take reasonable steps to preserve electronically stored information that should have been preserved in the anticipation or conduct of litigation…” While it may have been “irresponsible and careless”, it wasn’t purposeful which then would have been considered for sanctions, but there is considerable strong language in the order that Apple’s counsel didn’t disclose the loss of this information even while under oath in a deposition. 
  • In the ‘adverse’ consideration, AliveCor did not gain what it wanted, which was an assumption that the lost emails were prejudicial–that they contained relevant material to AliveCor and Apple’s strategy of eliminating competition. “To the extent they existed, additional emails relevant to these topics may have been useful to enhance AliveCor’s case, but AliveCor has not shown that the absence of these emails will prevent it from proving its antitrust claims.”

AliveCor provided this Editor with a statement on the order:

“The Northern District of California judge’s description of Apple’s actions as ‘irresponsible and careless, and perhaps even grossly negligent’ in their handling of emails belonging to its former Director of Health Strategy that supported our pending antitrust case speaks to Apple’s usual playbook of shamelessly using legal tactics to steamroll innovative companies like AliveCor. Even though the judge stopped short of granting our motion to instruct the jury that they should assume the deleted emails were negative for Apple’s case, we are confident in the outcomes of our antitrust case and grateful for the outpouring of support we have received as we continue to hold Apple accountable.”

Editor’s note: she thanks an AliveCor representative for sharing this information along with the redacted court order. Apple is free to contact this Editor with its own statement.

Recent AliveCor versus Apple coverage on patents: ITC presidential review, ITC vs. PTAB, PTAB decision

Last but certainly not least, a class action lawsuit against HCA. To no one’s surprise, it was filed last week (12 July) in the US District Court for the Middle District of Tennessee, as HCA is headquartered in Nashville. The plaintiffs are named Gary Silvers and Richard Marous, two HCA patients living in Florida, and was filed by two law firms, Shamis & Gentile and Kopelowitz Ostrow Ferguson Wieselberg Gilbert. The suit claims that HCA failed in their duty of confidentiality to protect sensitive information– personally identifiable information (PII) and protected health information (PHI)–that was contained in the hacked records. While HCA has released that the records did not include the most sensitive clinical information as it was used for email communications, the volume of 27 million rows of data that was apparently unencrypted potentially affects 11 million individuals [TTA 12 July]. The suit charges HCA with failure to safeguard ‘Private Information’ as a reasonable expectation using reasonable security procedures in light of current regulations (HIPAA, FTC), plus the susceptibility of healthcare organizations to cyberattacks which is well known. It seeks monetary damages plus injunctive and declaratory relief. This lawsuit is likely the first of many. Healthcare Dive, Healthcare IT News, HIPAA Journal

These lawsuits based on hacking and cybersecurity responsibility are becoming routine. On 7 and 10 July, Johns Hopkins was sued twice. This was for a May ransomware data breach on a software vulnerability called MOVEit that was exploited by a Russian ransomware group called CLOP. This may have compromised, according to the first suit, tens to hundreds of thousands of records, including sensitive PHI. Both suits allege negligence, breach of fiduciary duty, breach of confidence, invasion of privacy, breach of implied contract, and unjust enrichment. They seek monetary damages and injunctive relief. Both were filed in US District Court for the District of Maryland.  Becker’s, Healthcare Dive, HIPAA Journal

Breaking: Amazon closes One Medical $3.9B buy, despite loose ends–and is the Antitrust Bear being poked?

February 23, 2023 | by

The Big Deal closes, but loose ends and larger issues remain. Today’s news of Amazon closing its purchase of the One Medical primary care group is being received in the press, especially the healthcare press, enthusiastically. This Editor cannot blame her counterparts, as since last year there’s not been much in the way of good news, compared to 2020-21’s bubble bath. Her bet as of a couple of weeks ago was that the deal would not go through due to Amazon’s financial losses in 2022 and/or that the FTC would further hold it up, both of which I was wrong, wrong, wrong on. (Cue the fresh egg on the face.)

Wiping off said egg, here is what Amazon is buying and their first marketing move. (Information on size and more from the 1 Life 2022 year end 10-K):

  • Amazon acquired 1Life Healthcare Inc. for $3.9 billion, or $18 per share in cash.
  • The practices are primarily branded as One Medical, closing out 2022 with 836,000 members and 220 medical offices in 27 markets
  • It is a value-based primary care model with direct consumer enrollment and third-party sponsorship across commercially insured and Medicare populations. Their Net Promoter Score (NPS) is an extremely high 90. (NPS is a proprietary research metric that indicates customer loyalty and satisfaction.)
  • They also have at-risk members from the $2.1 billion Iora Medical acquisition in seven states, in Medicare Advantage (MA) and Medicare shared savings value-based care (VBC) arrangements [TTA 27 July 22].
  • One Medical has contracts with over 9,000 companies, establishing Amazon at long last in the desirable corporate market.
  • One Medical also provides a 24/7 telehealth service exclusively to employees of enterprise customers where there are no clinics.
  • Amazon will be offering a discounted individual membership of $144 versus $199 for the first year, without an Amazon Prime subscription.

The Federal Trade Commission (FTC), which had additional questions about the buy as part of a Second Request in the Hart-Scott-Rodino Act reporting process, did not act in time to prevent the closing. Nor did the SEC or DOJ. This is CEO Andy Jassy’s first Big Deal at Amazon and certainly, the champagne and kvelling are flowing at HQ plus One Medical’s investors and shareholders for a successful exit. But should Amazon be looking over their shoulder? 

What are the open issues? Is a large, hungry Bear called Antitrust being poked, or lying in wait for its prey?

  • The FTC has the right to probe into the transaction despite the closing and a deadline passing for antitrust review. In FierceHealthcare and STAT, FTC spokesman Douglas Farrar is quoted as telling the WSJ (paywalled) in a statement that “The FTC’s investigation of Amazon’s acquisition of One Medical continues. The commission will continue to look at possible harms to competition created by this merger as well as possible harms to consumers that may result from Amazon’s control and use of sensitive consumer health information held by One Medical.”
  • As previously reported here, only in December did the FTC send out subpoenas to current and former One Medical current and former customers as part of its investigation. That’s late to stop a buy–unless FTC had something else larger in mind.
  • Early February reports in Bloomberg and the WSJ indicated that this may be part of a larger FTC action in developing a wide-ranging antitrust lawsuit against Amazon on multiple anticompetitive business practices. Their chair, Lina Khan, is highly critical of Amazon’s business practices. Amazon’s buy of iRobot, maker of Roomba, which at $1.7 billion was a comparative snack, is still not closed and has received a lot of negative attention for possible misuse of consumer information. 
  • Sidebar: This FTC is ‘feeling its oats’ on antitrust. GoodRx found itself making history as FTC’s first culprit of the 2009 Health Breach Notification Rule, used to prosecute companies for misuse of consumer health information. This was for their past use of Meta Pixel, discontinued 2019, to send information to third-party advertisers. One Medical is a HIPAA-covered entity which puts it at a far higher risk level. 
  • The Department of Justice (DOJ) has not publicly moved to approve or disapprove–yet. 
  • The change of ownership has not been reported as passing muster by regulators in multiple states. Example: Oregon approved it, but with multiple stipulations [TTA 6 Jan]–and there are only five One Medical clinics in Oregon. States like New York, Massachusetts, Connecticut, and California are not exactly pushovers for approval, with California alone having two approval entities.
  • Congress is increasingly feisty on data privacy–consumer health information and its misuse in telehealth [TTA 9 Feb]. 

Will this be ‘buy now, regret later’, a lá Teladoc’s expensive acquisition of Livongo, or Babylon Health going public with a SPAC? Is this a clever trap laid for Amazon?

  • Amazon is already under a Federal and state microscope on data privacy. Information crossing over from One Medical to their ecommerce operations such as Pharmacy and Prime will just add to the picture. 
  • Accepting Medicare/Medicare Advantage increases scrutiny on quality metrics and billing, to name only two areas. At-risk patients in Medicare and other VBC models, especially Medicare Shared Savings Program (MSSP) fall under CMS scrutiny. Amazon may take a look at that and spin-off/sell off the former Iora Health practices/patients.
  • Amazon has failed in healthcare previously, as a partner in the misbegotten Haven and in its own Amazon Care ‘home delivery’/telehealth model selling to companies, now closed. Its asynchronous virtual care service, Amazon Clinic, is too new to judge its success. 
  • Office-based, brick-and-mortar healthcare provided by doctors, nurses, and allied health professionals is an entirely new area for Amazon. Will they be satisfied with their new masters–and new metrics? It is also expensive. One Medical has never been profitable and did not project breakeven for years. (If one asks how this is different than CVS acquiring Oak Street Health, or Walgreens acquiring VillageMD and Summit Health, CVS and Walgreens have experience for decades in multiple aspects of providing healthcare–profitably and in compliance.)
  • One wonders how heavy of a hand Amazon will place on One Medical’s operations. How their management, doctors, and other professionals will feel after a year or two of Amazon ownership is anyone’s guess. This Editor doubts they will remain in place or silent if unhappy.
  • Selling to enterprises–and account retention–is a vastly different relationship-building process and buyer journey than 1:many consumer transactions. One Medical made a go of it with 9,000 companies and enrolling employees at about a 40% rate, so they did something right. By contrast, Amazon failed to sell Amazon Care well to companies. Humility and service, for starters, are required.
  • Last but certainly not least, is how Amazon will deal with regulation and compliance at multiple levels.

Expect that the FTC and DOJ will not be done with Amazon any time soon in what looks like a wider antitrust pursuit that may take some time, which they have. Amazon has tens of millions in government business (AWS) at stake and shareholders expecting a reversal of losses. Pro tip to Amazon: run One Medical as a separate operation with minimal integration and no information sharing until past this. And then some.  Healthcare Dive, Becker’s

Breaking: Judge permits UnitedHealth acquisition of Change Healthcare, denies DOJ motion (updated)

September 20, 2022 | by

US District Court judge dismisses Department of Justice motions to prevent UHG acquisition. The decision on Monday by Judge Carl Nichols of the District of Columbia district court denies DOJ’s action to stop the deal. It also orders the planned divestment of Change’s ClaimsXten claims payment and editing software to an affiliate of TPG Capital for $2.2 billion in cash.

The DOJ and entities such as the American Hospital Association had objected to UHG’s folding Change into OptumInsight as anti-competitive. As both Optum and Change offered competing claims processing software that covers 38 of the top 40 health insurers, UHG would then solely have access to nearly all competitive payers’ information. There were other competitive issues that were dismissed in the judge’s brief opinion. (For insight, see our earlier coverage starting here.) The full opinion, originally expected in October after the bench hearing in August, is under seal due to proprietary, sensitive information and will not be released. (US v UnitedHealth Group, 22-cv-481)

DOJ’s top antitrust official, Jonathan Kanter, said they are “reviewing the opinion closely to evaluate next steps”.  DOJ’s short statement surely sounds like the DOJ will appeal. UHG and Change are moving forward “as quickly as possible”. Stay tuned.  Reuters, Healthcare Dive

Update: As reported in HISTalk from Bloomberg the all-cash deal is $7.8 billion, not the earlier reported $13 billion.

The shoe dropped: DOJ sues to block UnitedHealth Group-Change Healthcare merger. What’s next?

February 25, 2022 | by

To nearly no one’s surprise, the US Department of Justice did what was reported back on 17 Jan: block UnitedHealth Group’s (UHG) bid to acquire Change Healthcare on anticompetitive grounds. Earlier today, the DOJ issued their statement in a release on the joint civil lawsuit with the attorneys general of New York and Minnesota. (This Editor finds the New York AG participation interesting, as Change is HQ’d in Nashville, Tennessee with UnitedHealth in Minnesota. The usual grounds are state interest and commerce.)

The reasons cited will also not come as any surprise to our Readers, as these objections were raised from the start in that the acquisition would give UHG an unfair advantage against their payer competition and squelch innovation. These are from the DOJ release and the complaint filed today (24 February) in the US District Court for the District of Columbia.

  • UHG is the US’ largest insurer and also a major controller of health data. Change is a major competitor to UHG/OptumInsight in health care claims technology systems, which was the basis of the American Hospital Association’s (AHA) objections.
  • The acquisition would eliminate a major competitor to UHG in claims processing. Moreover, Change is “United’s only major rival for first-pass claims editing technology — a critical product used to efficiently process health insurance claims and save health insurers billions of dollars each year — and give United a monopoly share in the market.” It would also give UHG the ability to raise competitors’ costs for that technology.
  • Hospital data accounts for about half of all insurance claims. UHG with Change would have effective control of that ‘highway’.
  • Change is also a major EDI clearinghouse, which facilitates the transfer of electronic transactions between payers and physicians, health care professionals, or facilities. UHG would have control of the EDI clearinghouse market.
  • UHG would be able to view competitors’ claims data and other competitively sensitive information through Change. “United would be able to use its rivals’ information to gain an unfair advantage and harm competition in health insurance markets.”

The plaintiffs–DOJ, New York, and Minnesota–conclude with a request of the court to 1) enjoin (stop) the acquisition and 2) award restitution by UHG and Change for costs incurred in bringing this action.

Consider this acquisition one for the books–the one embossed ‘Nice Try, But No Dice’. 

So what’s next? Here’s your Editor’s speculation.

Change is one of the ‘shaggiest’ independent companies in healthcare, in so many businesses (many acquired) that it’s hard to understand exactly what they stand for. It has extensive businesses not only in the areas above that will nix the UHG buy, but also in imaging, data analytics, clinical decision making, revenue cycle management, provider network optimization and related solutions, pharmacy benefits, patient experience in billing and call centers, funding healthcare….and that’s just the surface of a giant list. From the outside, it’s hard to see how all these parts coalesce.

In the industry, Change was long rumored to be for sale. Recently, it’s become unprofitable. It closed its FY 2021 (ending 31 Mar 2021) with a $13.1 million loss and through Q3 FY 2022 with a $24.5 million loss.

At the end of this, Change may be better advised to sell off some of its businesses, retrench, and refocus on its most cohesive and profitable areas. 

News roundup: Walgreens Boots-Microsoft, TytoCare, CVS-Aetna moves along, Care Innovations exits Louisville

January 17, 2019 | by

Walgreens Boots finally does something. Their teaming with Microsoft to migrate their IT infrastructure to the Azure platform will eventually lead to “more personalized care experiences from preventative self-care to chronic disease management. WBA will leverage the cloud for wellness and lifestyle management programs.” It was important enough to both companies to have a photo op with twin CEOs: Walgreens Boots’ Stefano Pessina and Microsoft’s Satya Nadella. The ‘consumerization of healthcare’ and ‘transforming healthcare delivery’ phrases liberally sprinkled throughout the article and the press release are today’s prevalent clichés, as ‘synergy’ was the buzzword of say, 1999. Healthcare IT News, CNBC  In the long run, this IT overhaul may actually mean more to their customers than, say, the Amazon-JP Morgan-Berkshire Hathaway hydra.

A vote of confidence in diagnostic telehealth pioneered by young Israeli company TytoCare. They added $9 million to their Series C from investors including Sanford Health, Itochu and Shenzhen Capital Group (and its affiliates). This adds to last year’s round led by Ping An Global Voyager Fund for a total Series C of $33.5 million. TechCrunch. TytoCare also was named one of Wired’s Best of CES (CBS TV video, at 1:35) and earlier this month announced the integration of Health Navigator’s symptom checker into their system.

The judge says ‘No Delay For You’! In the CVS-Aetna hearing, Federal Judge Richard Leon refused to give the Department of Justice any more time to submit comments in the CVS Health and Aetna merger case. The deadline remains 15 February despite the government shutdown furloughing much of the antitrust division. Judge Leon is reviewing the decree under the Tunney Act requirement that the merger meet the public interest. Healthcare Finance

Care Innovations ankles Louisville. A modest and mainly paywalled item in Louisville Business First may point to something larger at Care Innovations. After two years of operation and a much-touted expansion to one of Louisville’s better addresses, the telehealth/RPM company has quietly vacated its 7,200 square foot space at Brown & Williamson Tower and pulled its operations from the city. Reporters from the publication were unable to obtain a statement from Care Innovations, which is now in Folsom, California, closer to majority owner Intel. At the time of their Louisville expansion in April 2017 (still on their website), Care Innovations received a $500,000 KBI tax incentive to create 24 high-paying jobs, which now are departed. It is ironic as Louisville is a health hub dominated by insurer Humana but has successfully campaigned for health tech. Last July [TTA 17 July], CI sold its Validation Institute and their VA win disappeared from their website. Of late, there has been no news from the one-time Intel-GE partnership.

Off to DC court we go: Anthem-Cigna, Aetna-Humana merger trials (US)

November 21, 2016 | by

It seems like a year ago that the US Department of Justice sued to stop the merger of these healthcare payer giants on antitrust grounds, but it was only July! On the face of it, it would reduce the Big 5 Payers to the Big 3, with the $48 bn Anthem-Cigna matchup besting UnitedHealthcare for the #1 pole position with 45 million covered persons. DOJ also cited reduction of benefits, raising premiums, cutting payments to doctors and reducing the quality of service. 11 states, including New York, California and Connecticut, plus the District of Columbia, are backing the DOJ.

The Anthem – Cigna trial started today in US Federal Court in Washington DC. It is a two-phase hearing: the first on Anthem – Cigna’s merger’s effect on national employers, the second starting 12 Dec on local markets.

So much has happened since our July report, none of it good. ACA exchange plans have hiked benefits up well into the double digit increases by state due to lack of competition: CO-OP insurers couldn’t defy actuarial gravity for long and went out of business; commercial insurers lost too much money and bailed from multiple states (KFF). The effect on Medicare Advantage programs, which are judged on the county-state level, will be most significant with a combined Aetna-Humana having 40-50 percent market share in many counties. This triggers divestiture in current regulations.

These mergers rarely go to court after a DOJ action, so all eyes are on DC. An added fillip is that many expected the lawsuit to be the final kibosh on a Anthem-Cigna deal where reports of conflicts on future management and governance of a single entity were frequent. It wasn’t–and DOJ reportedly will be using documentation on the governance clash to demonstrate why it should not take place.

The $38 bn Aetna – Humana court date is 5 Dec, also in Washington, before a different judge.  All want a decision before year’s end so that (if positive) they can proceed with state regulatory approvals before deal expiration on 30 April 2017.

Bloomberg Big Law Business, USA Today  Also don’t assume this has much to do with a Donald J. Trump administration being ‘typical Republican=friendlier to Big Mergers’, because the president-elect has been hostile to other high profile ones, notably AT&T/TimeWarner, and this will be over before a new Attorney General is confirmed.