Mid-week roundup: Cotiviti’s $10.5B stake to KKR; Cigna buys back $3.2B shares; VA Oracle Cerner faulty med records; LockBit ransomware websites cold-busted at every level, principals indicted; Trualta partners with PointClickCare

February 22, 2024 | by

Investor KKR announced their buy of a $10.5 billion stake in healthcare analytics Cotiviti. The stake comes from Veritas Capital, creating an equal share of ownership. The recapitalization will be used for commercial expansion, new product development, and technology-related opportunities. It is expected to close subject to regulatory approvals in Q2 this year. According to Axios and Bloomberg, it is financed by a $5 billion leveraged loan sale launched last week, with a $4.4 billion floating rate term loan led by JPM and a $600 million fixed rate term loan led by Goldman Sachs. This is Veritas’ second attempt to exit. While money is leaking back into private equity deals, the new trend is to finance them with more cash than debt. Cotiviti release

Cigna, having sold off its Medicare Advantage plans for $3.7 million to HCSC, is repurchasing $3.2 billion in stock (7.6 million shares) through agreements with Deutsche Bank and Bank of America. Cigna’s plan remains to repurchase $5 billion of common stock over H1 2024 after ending merger talks with Humana. FierceHealthcare, Cigna release

VA warned about faulty medication records in the Oracle Cerner Millenium EHR. The culprit is in the Health Data Repository, according to a government watchdog. David Case, deputy inspector general for the VA, reported at a House Veterans Affairs Committee Technology Modernization Subcommittee meeting last week, that while VA had no reports of harmful drug interactions, Case had at least one instance of a veteran not given a critical medication for adrenal insufficiency, leading to a near-disastrous outcome. The VA has also not informed the 250,000 veterans with prescription records in the Oracle Cerner system that the records may have errors.. In the VA facilities that have Oracle Cerner, providers, pharmacists, and frontline staff must perform complex manual medication safety checks to replace automated checks.

The Oracle Cerner rollout has been put on hold till summer this year–maybe [TTA 1 Nov 23]. At this hearing, Mike Sicilia of Oracle did show up and attributed the problems in the HDR to multiple systems being involved from VistA and other EHRs, into Oracle Cerner. However, after 10 separate fixes, the most recent software update had a similar data issue during final testing and was quickly pulled. Military.com

A victory versus ransomware. Updated. The LockBit ransomware group has been cold-busted “at every level” by the UK, US, and international law enforcement. According to the Department of Justice release and other sources, the UK’s National Crime Agency’s (NCA) Cyber Division led Operation Cronos, working in cooperation with the Justice Department, Federal Bureau of Investigation (FBI), and other law enforcement agencies worldwide. They seized numerous public-facing websites and domains used by LockBit to connect to the organization’s infrastructure along with servers used by LockBit administrators. Russian nationals Artur Sungatov and Ivan Kondratyev, also known as Bassterlord, were indicted in the US District Court of New Jersey in Newark, charged with deploying LockBit against numerous victims throughout the United States. Sungatov was also indicted in the Northern District of California. According to Europol, “Two LockBit actors have been arrested in Poland and Ukraine at the request of the French judicial authorities. The French and US judicial authorities have also issued three international arrest warrants and five indictments.” LockBit’s ‘heart’ is of course in Russia, where nearly all cybercrime is located–they are free to operate there as long as they don’t target anything in RU. Cybernews

Trualta partners with PointClickCare for family caregiver education and support. PointClickCare is a leading EHR for long-term and post-acute care (LTPAC) providers. Trualta provides educational resources to support family caregivers when a patient is discharged through logging in to the resource site, with the ability to access articles, videos, and modules that cover a variety of care topics including preparing for discharge, transitioning from hospital to home, and life after discharge.  Trualta’s information will be offered through PointClickCare’s Marketplace. A recent study by Trualta of caregivers using their materials found that 30 days of Trualta use can decrease annual unexpected hospital visits among care recipients by 20%. Trualta release

News roundup: Babylon Health Q3 revenue up 3.9x; surprise–DOJ to appeal UHG-Change buy approval; Walmart loses senior health exec Pegus to JPM

November 22, 2022 | by

Earlier this month, Babylon Health announced its Q3 financials. Both revenue and value-based care membership grew. Losses also grew but the margins narrowed considerably. Highlights of their release:

Comparing Q3 2022 to Q3 2021

  • Revenue increased by $288.9 million versus $74.5 million, an increase of $214.4 million or 3.9x. This was largely driven by a 285% increase in Medicare membership.
  • Losses were there but margins improved due to aggressive cost reductions. Q3 loss was $89.9 million, or a 31.1% loss for the Period Margin (percent of revenue). Last year’s loss was $66 million, or 88.6% Period Margin. This represented an improvement of 57 points. When looking at EBITDA, Adjusted EBITDA totaled $(54.3) million, an (18.8)% Adjusted EBITDA Margin. This compared to last year’s $(47.5) million Adjusted EBITDA, or (63.7)% Adjusted EBITDA Margin, an improvement of 45 points.
  • Value-based care membership grew 2.7x to approximately 271,000
  • They acquired Medicare Advantage members in New Mexico, and commercial members via a digital-first product for Centene’s Ambetter plans in six states
  • In the UK, their Bupa partnership was extended for three years. Bupa has 2.3 million health insurance customers.

For year 2022, Babylon is updating its revenue guidance from $1.0 billion or greater to $1.05 billion to $1.1 billion.

Babylon is selling Meritage Medical Network, an independent physician association (IPA) based in Northern and Central California with 1,800 providers in six counties serving 90,000 patients, advised by  a major investment bank. They will also comply with SEC reporting requirements for a domestic issuer versus previously as a foreign private issue. Babylon will report its Q4 and 2022 yearend results under U.S. GAAP. They are also proceeding with a 25-to-1 reverse stock split to boost share price and prevent a NYSE delisting [TTA 13 Oct]. Mobihealthnews

The Department of Justice (DOJ) wiped egg off its face Friday, appealing the District Court of the District of Columbia approval in late September of UnitedHealth Group’s acquisition of Change Healthcare. The two companies closed on the buy in early October. DOJ was joined in the appeal by New York and Minnesota. The surprising appeal, after six weeks and the closing, is unusual but not unprecedented. At the time, the DOJ statement was written so that industry observers expected an appeal.

While the merger is closed, an appealed decision, if favorable to the DOJ, would force a separation of the businesses. Of course, UHG believes that “the appeal is without merit.” Stay tuned to see if this goes anywhere. Becker’s, Healthcare Dive

Walmart loses another healthcare exec. Cheryl Pegus, MD, will be departing Walmart as EVP of health and wellness and joining Morgan Health as a managing director. At Morgan, she will be focusing on population-based health initiatives and bringing clinical expertise to mental health, diabetes, and other chronic diseases. She is also joining Atria, a physician-owned organization of heart specialists.

During two years at Walmart, Dr. Pegus helmed development of a low-cost private brand analog insulin, expanded Walmart’s retail health center network across major markets, and the company’s pandemic response. Morgan Health was set up in 2021 to improve the quality, affordability, and equity of employer-sponsored healthcare. It has opened advanced primary care centers in Ohio. JPM a few weeks ago opened a Life Sciences Private Capital group [TTA 2 Nov]. Becker’s, Healthcare Dive

Walmart, despite their size, has had a certain wobbliness in their strategy. Aggressively starting out of the gate in 2018 with high-profile exec Sean Slovenski leading and plans to open up 1,000 clinics, he departed in 2020 and that put the brakes on the clinic strategy for awhile. In 2021, they bought privately held telehealth provider MeMD. Earlier this year, they announced the opening of more health ‘superstores’ in Florida, having established 20 in Arkansas, Illinois, and Georgia starting in 2019. Meanwhile, Walgreens is going big with VillageMD and its acquisition of Summit Health, and CVS Health is snapping up Signify Health to expand into value-based care and home health.

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. 

DOJ to block UnitedHealth-Change Healthcare buy: report

February 17, 2022 | by

Change is controversial, at least for UnitedHealth. Healthcare Dive reported today that the Department of Justice (DOJ) is preparing a lawsuit to block UnitedHealth from purchasing Change Healthcare. Their source is a report published on a subscription financial website, Dealreporter, that their sources say that both companies will be meeting with the DOJ for what is charmingly called a ‘last rites’ meeting. Apparently, all the companies’ plans for divestitures [TTA 26 Jan] are not enough to satisfy DOJ on the antitrust issues raised not only by the DOJ, but also strongly by the American Hospital Association and the National Community Pharmacists Association.

Announced in January, the merger approval had been tabled in August and October/November, with the closing delayed accordingly, so the DOJ action resulting from their mandatory review under the Hart-Scott-Rodino Antitrust Act (HSR) was anticipated. Even in August, the delay did not bode well for this $8 billion in cash/$5 billion in debt deal.

What’s at issue here is the consolidation of data and businesses both UH and Change are in–health IT and revenue cycle management–and reduced competition that drives up costs for health systems and providers. As this Editor observed in March, OptumInsight, Optum’s data analytics unit, and Change provide a similar range of services in health IT and revenue cycle management (RCM). As one of the largest independents in these areas, Change contracted with providers and had access to the data of 1 out of 3 patients. Optum’s parent, UnitedHealthcare, is also the largest US payer. These were the factors that made those represented by the American Hospital Association (AHA) very nervous indeed [TTA 25 Mar] regarding pricing of these services–and they expressed their misgivings cogently in a seven-page letter (PDF link) to DOJ on 17 March. In their view, Change integrated into OptumInsight would reduce competition and increase pricing in RCM, claims clearinghouse and payment accuracy services, and clinical decision support services.

In DC, the view of what is anti-competitive is cyclical. The 2020 acquisition of WellCare by Centene was approved with nary a whinny. CVS-Aetna took forever because of a showboating judge, but was finally approved in 2019. Yet only two years before, the Aetna-Humana and Anthem-Cigna mergers were doomed to fail. In this administration, large mergers do not fare well; both Aon-Willis Towers Watson and Lockheed-Aerojet Rocketdyne were canceled.

Expect to hear more by end of month. 

News roundup: update on UnitedHealth/Change Healthcare DOJ check, Tunstall adds new CTO, Amwell’s gloomy second half, Teladoc’s Aetna deal, Fitbit and LifeScan diabetes

August 14, 2021 | by

Just the news, no deals. UnitedHealth Group’s $13 billion acquisition of diversified health IT/imaging/payments company Change Healthcare has hit another snag. Back in March, the US Department of Justice requested specific information as part of DOJ’s review of the merger under the Hart-Scott-Rodino Antitrust Act (HSR). Both UHG and Change have agreed with DOJ to not certify compliance with the request before 15 September, then wait an additional 120 days, based on a 7 August Securities & Exchange Commission (SEC) filing. This could be shorter if DOJ formally advises them that their investigation is closed. Announced in January as a giant addition to UHG’s Optum unit, this now looks like the sale will close sometime in December–if it is not derailed. Becker’s Health IT with a brief recap. This was not a good week for UHG as they had to pay $15.6 million to settle a US Department of Labor finding that they did not pay out-of-network mental health claims at parity, wrongfully denied others, and flagged still others for utilization reviews. FierceHealthcare

Tunstall Healthcare announces a new Group Chief Technology Officer. Gary Steen joins Tunstall from broadband provider TalkTalk where he was Group Managing Director for Technology. He will lead Tunstall’s innovation and development function globally including all solutions and products from Tunstall’s technology delivery centres in the UK, Sweden and Germany. Previously, he was with MDS Global, a software services business active in Europe, Australia, and the US. Tunstall release.  Hat tip to Jenny Marston at Lucky North.

Amwell projects that Covid-19 will depress second half telehealth results by 200,000 visits and $8 million. CEO Ido Schoenberg MD made this surprising projection on the second quarter investor call, but the projection may be sound. His rationale is that there will be not much of a cold and flu season, as the latest virus variants will have people masking up and social distancing (and presumably avoiding indoor crowds. As we’ve noted previously, the Brothers Schoenberg tend to be contrarians on various headline trends (e.g. looking askance at Amazon Care biting into the enterprise telehealth business and hospital-grade in home care). One would assume that if more stay away from in-person care, telehealth would increase beyond the current claims rate of 5% especially in mental health which is half of telehealth claims. But this could be some clever sandbagging for investors, as he went on to say in the call that if the impact of Covid isn’t as bad as we think, there’s always the flu! FierceHealthcare

Amwell’s frequent sparring partner in various courts, Teladoc, announced that they would be powering Aetna Virtual Primary Care for their Aetna members in national self-funded employers. This is a trifecta of Teladoc’s physician-led care team model, Aetna’s provider network, and CVS Health services at MinuteClinics and where available, CVS HealthHUBs. The virtual visits will have no co-pay for as well as select in-person CVS Health services. CVS Health release, FierceHealthcare

Fitbit is, believe it or not, still around. They announced a partnership with LifeScan diabetes monitoring to integrate its health tracking apps with the company’s glucose monitoring devices for diabetes management. The Fitbit tools that track activity such as daily activity, nutrition, and sleep will provide tracking of impact on blood glucose levels. FierceHealthcare

Outcome Health founders Shah, Agarwal plead not guilty in Federal court

December 17, 2019 | by

As expected, the co-founders of in-office health information/advertising firm Outcome Health today (Monday) pleaded not guilty in the Northern District of Illinois Federal Court in Chicago. Of a total of 26 counts in the Federal indictment, Rishi Shah, the company’s former CEO, has been charged with six counts of mail fraud, 12 counts of wire fraud and two counts each of bank fraud and money laundering. Shradha Agarwal, the former president, has a somewhat lighter charge count of six counts of mail fraud, nine counts of wire fraud and two counts of bank fraud. Both were released on bond: $20 million for Mr. Shah, $10 million for Ms. Agarwal. Crain’s Chicago Business, may require free registration.

The charges relate to deception layered around company performance as detailed in our 3 December article–overstatement of advertising placement and delivery, manipulating third-party data on patient engagement on Outcome’s tablets, and fraudulently stating results to auditors. This was used to leverage nearly half a billion of a total $1 bn raise by major firms such as Goldman Sachs, Alphabet, and the Pritzker fund.

Last week, we covered the pleas of Ashik Desai, former EVP of business operations/chief growth officer (guilty) and Brad Purdy, former COO/CFO (not guilty). Mr. Desai, interrupted from his graduate studies at Wharton, is cooperating with the prosecutors; Mr. Purdy is blaming Mr. Desai.

A podcasted discussion on Crain’s Daily Gist has expressed the opinion that some in tech and healthcare, especially in Chicago, believe the list of charges and heavy penalties are ‘unusual’ and ‘extreme’ for a startup, considering that the revelations started four years ago, the accused stepped down two years ago. and restitution has been made to the defrauded companies. Moreover, the business and the model was not far fetched or pie-in-sky–it was a reasonable model, according to report John Pletz. The company continues in business, albeit scaled down. Mr. Pletz believes that the outcome of Outcome Health will be far more due diligence on investors’ part (accentuated by the WeWork/Softbank crash in the same car) on startups. “Failure is expected–fraud is not.” The resolution of the charges will also be far in the future, perhaps years, due to this being an extraordinarily complicated case. There will be further hearings in January, but do expect it to drag on. A mini-surprise in his commentary was stating that the analysts may turn their plea to guilty. 

Another round this Wednesday in the CVS-Aetna merger hearings

July 17, 2019 | by

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

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

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

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

The CVS-Aetna hearing is on the move–finally

June 5, 2019 | by

The train that is the CVS-Aetna hearing, in the courtroom presided over by Judge Richard Leon of the US District Court for the District of Columbia, is at long last chugging down the tracks. And Pauline is still tied up. Tuesday 4 June was Day 1 of this hearing. Early reports are just being filed. The issue is whether Judge Leon will authorize the Department of Justice’s approval of the merger or dissolve a closed merger, based on his authority under the Tunney Act and his own repeated intent to search for harm that the merger might do to the public. 

Today’s hearing focused on Aetna’s divestiture of its Medicare Part D business as a prelude to the merger, and whether it was quite enough. Much of the discussion was on the relative strength of the buyer, WellCare (itself in the early stages of being acquired), and whether it could be truly competitive in the Part D market. The other factor is that CVS as a dominant pharmacy benefits manager (PBM) could undermine WellCare in several ways. PBMs operate opaquely and are highly concentrated, with CVS, Optum (UnitedHealthcare), and Cigna-Express Scripts accounting for 70 percent of the market. Modern Healthcare

Other issues for Days 2 and 3 will cover the effects on competition in health insurance, retail pharmacy and specialty pharmacy.

Healthcare Dive discusses how these hearings are already setting precedent on how Tunney Act hearings are conducted, their scope (Judge Leon has ruled against every attempt by CVS-Aetna to limit it), and the unprecedented live testimony.  There is the good possibility that Judge Leon will decide to dissolve the merger for competitive reasons, which DOJ likely would appeal. Add to this the cost of the delayed integration and the precedent set by the District Court on scrutiny of any healthcare merger, and this tedious hearing along with Judge Leon’s actions leading to it hold major consequences.

The Theranos Story, ch. 50: DOJ indicts Holmes, Balwani for fraud (updated)

June 16, 2018 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]The other shoe drops into this bottomless well. If Elizabeth Holmes and Sunny Balwani thought that the March SEC action [TTA 15 Mar] would be it, they were misinformed. Today, the Department of Justice, US Attorney’s Office for the Northern District of California, charged them with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. According to CNBC, they were arraigned in US District Court in San Jose Friday morning. Both were released on $500,000 bond each and ordered to surrender their passports. Holmes’ parents appeared with her in court.

If found guilty, both Ms. Holmes and Mr. Balwani face up to 20 years in prison, plus $250,000 in fines and clawing back of investor funds. 

“Wire fraud” in US law is fraud that is enabled and takes place over phone lines or involves electronic communications. By appearing online, making phone calls, emailing materials such as marketing materials, statements to the media, financial statements, models, and other information, Ms. Holmes and Mr. Balwani defrauded potential investors. Patients and doctors were defrauded by ads and other types of solicitations to use Theranos’ blood testing services at Walgreens, despite the fact that they knew the test results were unreliable.

Both Ms. Holmes and Mr. Balwani will have plenty of time to explain their sincere belief that their test devices and methods would be validated with time…but they had to, in Silicon Valley parlance, fake it till they made it. Indictments of this type take about two years to conclude, especially if they are big (as a formerly $9 bn valued company is) and tangled. Ms. Holmes will undoubtedly release statements on how she is being martyred like Saint Joan, how this doesn’t happen to men in Silicon Valley, and that they are allowed to fail but she can’t. Perhaps she was under the spell of the 19 years-her-senior Svengali Balwani. (Minus the Jobsian black turtlenecks, one anticipates her next choice of wardrobe. Sackcloth tied with a rope? Chain mail?)

Expect the doors to shut soon. Fortress Investment Group, which loaned Theranos $65 million (of a reported $100 million) in December 2017, was reportedly coming for the assets (as they are wont to do) by the end of July, according to the Wall Street Journal and other sources. 

Ms. Holmes is–finally–removed as CEO. Theranos announced that David Taylor, the company’s general counsel, has been appointed CEO as well as general counsel, while Ms. Holmes will remain as founder and board chair. None of this is reflected on their website. In fact, Mr. Taylor is nowhere to be found on the website’s leadership page. 

The estimable John Carreyrou, who broke the story in the WSJ and is the author of Bad Blood [TTA 13 June], on The Street’s Technically Speaking podcast at 06:00 shared this insight on how Theranos got away with bad tests. While both FDA and CMS highly regulate lab testing and the machines that perform them, neither actively police “lab-developed tests, which refer to tests fashioned with their own methods and devices” for blood testing. Basically, according to Mr. Carreyrou, Holmes and Balwani, our Bonnie and Clyde, “drove a truck right thru that loophole and took advantage of it.” Far beyond B&C, $1 bn of investors’ money is the Federal Reserve of banks.

On the indictment: WSJ, CNBC. The Northern District release on the indictment is here. Another essay by Mr. Carreyrou published 18 May is available to those who can get past the paywall. Hat tip to Bill Oravecz of WTO Consultants.

Updated: For additional coverage of what’s next in the legal vein for Holmes and Balwani, see the NY Times on potential defense strategies for the duo, including that they truly believed what they were saying to investors was true and they were bamboozled like everyone else, ‘materiality’–that investors didn’t use the statements as a basis for investing, and ‘prove it’. Will they take a plea deal? Stay tuned. 

Analysis of the CVS-Aetna merger: a new era, a canary in a mine–or both?

December 6, 2017 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2017/12/canary-in-the-coal-mine.jpgw595.jpeg” thumb_width=”150″ /]This Editor has been at two healthcare conferences in the last four business days (with tomorrow being a third). They should be abuzz about how the CVS-Aetna merger may transform healthcare delivery. To her surprise, there’s been a surprising lack of talk. There is a certain element of ‘old news’, as the initial reports date back five weeks but the sheer size of it ($240bn combined future value, $69bn purchase, an estimated $750 million in near-term synergies), being the largest health insurance deal in history, and the anticipated effects on the health delivery model normally would be a breaking news topic. To this Editor, it is a sign that no one truly knows what to make of it, and perhaps it’s too big–or threatening–to grasp for provider and payer executives especially.

For an overview of what we saw at the time as reasons why and possible competitor reaction, Readers should look back to our original article [TTA 28 Oct]. It’s being presented by both companies as a vertical merger of two complementary organizations, which already were moving towards this model, integrating their different services into “America’s front door to quality health care” (CVS CEO Larry Merlo)–a lower cost setting that saves premium dollars and brings integrated care to consumers’ doorsteps.

CVS brings to the table huge point of care assets: 9,700 pharmacy locations, 1,100 MinuteClinics, Omnicare’s senior pharmacy solutions, Coram’s infusion services, and the more than 4,000 CVS Health nursing professionals providing in-clinic and home-based care. Aetna has about 23.1 million medical members, 14.5 million dental members, and 15.2 million pharmacy benefit management (PBM) services members. Aetna also has a wealth of advanced data analytics capabilities through two subsidiaries, ActiveHealth Management and  Medicity’s health information exchange technology.

Seeking Alpha has an intriguing POV on this entry into a ‘new era’: that both CVS and Aetna consider this to be a long-term reshaping of their business model under the threat posed by Amazon, and are willing to do this despite little short-term financial benefit for either company. The problem as the writer sees it: execution. This is re-engineering care on a national scale, and its benefits are based upon combining intangibles, a murky area indeed especially in healthcare. Time is also a factor, as Amazon is getting pharmacy licenses in multiple states, and is rather an expert at combining intangibles.

Does it signal that the approach to a ‘new era’ in healthcare is accelerating? If this is a preview, 2018 will be extremely interesting. Our ‘canary in the coal mine’ may tweet–or fall over on its perch, asphyxiated.

Some additional points to consider: (more…)

DC District Court judge to block Anthem-Cigna merger: report

January 19, 2017 | by

Breaking News  Judge Amy Berman Jackson of the Federal District Court for the District of Columbia is expected to rule against the Anthem-Cigna merger on anti-trust grounds, sources have informed the New York Post. In anticipation of the appeal, Anthem has already filed an extension to the merger deadline from 31 January to 30 April, which Cigna is reportedly opposing in hopes of killing the merger.

The lawsuit was brought by the Department of Justice after Senate anti-trust subcommittee hearings and the displeasure of many state insurance regulators [TTA 21 July]. The hearing starting 21 November had two phases: the first on the merger’s effect on national employers, the second starting 12 Dec on local markets [TTA 21 Nov]. The huge stumbling block, according to the report, is Anthem’s unresolved conflict in a merger due to the ‘Blues Rule’, which requires that they have no more than one-third of its marketed products from other insurers in a state where they also market Blue Cross Blue Shield plans. Anthem is the licensee for Blue plans in 15 states, and according to court testimony by Anthem VP of corporate development Steven Schlegel, may have faced a $3 bn (£2.43 bn) penalty. This likely would have come from the Blue Cross Blue Shield Association, the licensor. Anthem’s hope reportedly was to transfer Cigna customers to its Blue plans to balance this out.

The NYP report also adds fuel to two years of rumors concerning governance and management succession conflicts between the two insurers. One revelation in the DOJ complaint was that in April 2016 “Anthem had established a separate, highly confidential team to work on integration planning without Cigna’s participation”. Earlier reports publicized that Cigna hoped that the DOJ lawsuit would have killed the merger; now Cigna wants no extension and to collect its $1.85 bn breakup fee. Sounds like a Fatal Case of Merger Remorse. Stay tuned. 

The separate Aetna-Humana hearing concluded on 30 December under a different DC District Judge, John D. Bates. Arguments here focused on overlaps in two areas: exchange policies (sold by Aetna in only four states, with overlap in 17 counties) and Medicare Advantage monopolies or near-monopolies. The judge’s ruling is still pending. Bloomberg, Hartford Courant, which lets hometown Aetna have its say.

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.

DOJ sues to derail Aetna-Humana, Anthem-Cigna mergers on anti-trust grounds (updated)

July 21, 2016 | by

Breaking News. The anticipated shoe has dropped. With all the US news concentrating on the Republican convention, the US Department of Justice, late today, without much fanfare beyond the presser, lobbed lawsuits at Aetna and Anthem to stop their respective acquisitions of Humana and Cigna. US Attorney General Loretta Lynch was joined by Principal Deputy Associate Attorney General William Baer, who had been the DOJ’s point person for this anti-trust review.

According to CNN’s report, Mr Baer said “the two mergers would leave consumers at risk by reducing benefits and raising premiums. He also stressed that the most vulnerable would be hit the hardest and that competition would be reduced. “These are so-called solutions that we cannot accept,” Baer said. He added that the mergers are a “convenient shortcut to increase profit for these two companies,” and that the DOJ had “zero confidence” that they would benefit consumers.”

Reuters reported that Aetna and Humana expect “to vigorously defend the companies’ pending merger,” Anthem’s response was “more muted”, as industry observers expected, as it has been more problematic not only in size and with Medicare Advantage divestiture, but also with reports of disagreements on management and governance.

If these mergers were successful, the Big Five in US health insurance would be reduced to the Big Three, with the $48 bn Anthem-Cigna matchup besting UnitedHealthCare for the #1 pole position with 45 million covered persons.

Why is this important to those of us in telehealth, telemedicine and telecare? We are still seeking ‘who pays for it’ (remember our Five Big Questions/FBQs?) and when five becomes three, and things are unsettled….negotiations grind to a halt. (This Editor will reference the post-2008 years where health tech US deals and development came to a screeching stop as we waited to find out what was in that mystery ACA bill. Recovery/reset took years….)

Earlier reports via Bloomberg News and Reuters noted that both sets of insurance companies faced substantial opposition from the start. (more…)

Theranos’ triple whammy: CMS, DOJ and SEC

April 20, 2016 | by | 1 Comment

[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2015/11/shockedshocked.jpg” thumb_width=”150″ /] Shocked, shocked! Theranos CEO Elizabeth Holmes is a bit more wide-eyed than ever. On the popular morning (breakfast=UK) program Today, interviewed by the oddly ‘browed Maria Shriver and sans the usual Steve Jobs-channeling black turtleneck, she stated she was ‘devastated’ that they didn’t catch the lab testing issues faster. On CNBC, she was mildly defiant and justifying:

“I know what we’ve built and I know what we’ve created and I know what it means to people and it is a change that needs to happen in the world”

(Yes, it does mean a lot to people when their test results are wrong or not reliable. And the disappointment of those of us who’d like simple, less expensive testing that works.)

Last week CMS proposed (but not yet imposed) sanctions that include banning Ms Holmes and president Sunny Balwani from running or owning labs for two years, and removing licenses from Theranos’ labs in Newark and Palo Alto California. Wall Street Journal. The effect would be to remove them from the company. Yesterday, Federal prosecutors started the process of discovery by subpoenaing Walgreens Boots Alliance, their former customer, and the New York State Department of Health seeking broad information on how Theranos described its technologies to gain Walgreens’ business and NYS licensure. That information may also have misled government officials.

The third whammy is the Securities and Exchange Commission (SEC) looking into a parallel claim–that deceptive claims were made to investors.  No one at the above organizations is commenting to the Wall Street Journal, which broke the story earlier this year. While the company has $700 million in the bank, the famed $9 billion Unicorn Valuation is moving towards $9.

Ed. note: If the WSJ articles are paywalled, search on the headlines “Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years” and “Theranos Is Subject of Criminal Probe by U.S.” to get around them. Alternatively, see TechCrunch and MedCityNews, which is playing the World’s Smallest Violin about this.