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FTC drops the hammer on premerger notification requirements–what will be M&A and investment effects?

October 15, 2024 | by Donna Cusano

Premerger Notification just got a lot tougher. As the Federal Trade Commission (FTC) and the Department of Justice (DOJ) Antitrust Division promised us back in June 2023, FTC has now finalized their changes on the Premerger Notification rules. Changes were pared back after public review and comments, notably by the American Hospital Association (AHA) but thousands of others. The Final Rule will take effect 90 days after publishing in the Federal Register.

Premerger Notification applies to mergers and acquisitions that fall under the 48-year-old Hart-Scott-Rodino Act (HSR). Companies larger than the threshold (previously $111.4 million) must submit information based on standard forms in advance of filing the merger or acquisition. Both agencies then have 30 days to determine whether or not the M&A is legal or not especially around antitrust and restricting competition. Either agency can request additional information from the companies, extending the process through a Second Request. The purpose is to deny M&A in advance that may violate primarily antitrust law–an approach that has had mixed results in the past decade or so.

This is the first time in just under 50 years that there have been other than minor changes to the Premerger Notification Form. The new rules considerably tighten requirements–and increase paperwork. The Final Rule changes from the FTC press release were clearly highlights and not a full list:

Additional transaction documents from the supervisor of each merging party’s deal team as well as a small set of high-level business plans related to competition.
A description of the business lines of each filer to reveal existing areas of competition between the merging firms (including for products or services that are in development) and supply relationships
Disclosure of investors in the buyer, including those with management rights. According to Healthcare Dive’s analysis, this will also include minority stakeholders and investors. FTC has recently focused on the rise of private equity investments across all M&A, which have increased to over 40% of transactions (2022), but less in healthcare varying by sector (e.g. 8% hospital, up to 11% of nursing homes).

The Healthcare Dive analysis, unlike the FTC release, confirmed that both acquirer and acquiree have to detail their prior acquisitions within a five-year window. FTC is going after “roll-ups,” the small, under-the-HSR-wire serial acquisitions that private equity groups and some companies utilize. Previously, only the acquirer had to disclose this information. Roll-ups have become popular in healthcare and health tech as startup companies with similar or complementary technologies attempt to grow and in some cases survive market evolutions.

The FTC’s Premerger Notification Office (PNO) will provide future compliance guidance in advance of the final rule’s effective date on the PNO’s website. The FTC estimates that the additional information required will increase the time required to complete the form to 105 hours from the current 37 hour average. In June, the proposed rule changes were estimated to require 144 hours.

The AHA’s objections centered around the extensive Federal disclosures hospitals already make in the course of business and transactions and the additional time taken administratively away from care.

Another online wrinkle to M&A: FTC’s new online portal for M&A commenters. FTC will collect comments on any and all proposed transactions submitted for premarket notification review. This will enable a long list of parties–consumers, workers, suppliers, rivals, business partners, advocacy organizations, professional and trade associations, local, state, and federal elected officials, academics, and others–itemized in the release to say their piece to the FTC about how the proposed M&A will affect competition. FTC can then point to the ‘public uproar’.

What will be the effect on M&A?

Possible end of year rush to complete any deals before the Final Rule takes effect
Rollups or complementary transactions will take place at earlier stages, under the HSR limits, but companies will limit them until they determine what is permissible and not if down the road they are acquired.
Longer term, it may overall further depress healthcare M&A from small to large, and investor exits–already barely recovering.
It may also affect large-scale funding for growth beyond Series A and B. Beyond that point, investors get larger, get on the FTC radar, and ultimately look to Other People’s Money to exit–if not an IPO, then to be acquired.

One wonders what creative solutions VCs, PEs, and Mr. Market will concoct.

Now CVS Health may be reviewing ‘options’–including a possible breakup–report

October 1, 2024 | by Donna Cusano

Perhaps CVS needs to take a medication for Corporate Indigestion. It turns out that CVS did not entirely avoid the agita that is sickening Walgreens. Instead, it has other reasons. Reuters reported that according to their sources (unnamed), their management, board, and financial advisers are exploring ‘options’ that may lead to a partial breakup of the company. Prominently mentioned: a spinoff of their insurance businesses from their retail business. CVS acquired Aetna for this back in 2018 for a pricey $69 billion. Being debated: where the Caremark pharmacy benefit manager (PBM) unit will reside, under retail or insurance. PBM feeds into both retail and the insurance plans.

Glenview Capital Management is reported to be one of the financial institutions in talks with management on an improvement plan. Glenview owns 1% of CVS stock according to the Wall Street Journal, but that 1% accounts for over $700 million of its $2.5 billion war chest. That gives them cause for concern–and leverage.

CVS has confirmed none of this, going to the Boilerplate Folder to pull copy about “driving performance and delivering high quality healthcare products and services enabled by our unmatched scale and integrated model.”

Industry observers aren’t expressing anything more than mild surprise about this, based on a concatenation of recent events and backwash from their 2022-2023 spending binge.

CVS cut its 2024 outlook again in August for the third quarter running…and has lost 25% in share value YTD.
The kneejerk of a $1 billion cost-cutting plan is being implemented; this week, about 2,900 corporate jobs will be cut. This is after a 5,000-employee layoff that was announced in October 2023, taking place into 2024.
Aetna’s Brian Kane was booted in August after less than one year on the job due to his numbers going the wrong way–and his job filled in and not replaced [TTA 8 August]. Who’s next?
The outlook for Medicare Advantage is glum into 2025 and later, with utilization costs soaring, new lower Federal reimbursement rates for diagnoses, and Federal clawbacks on overpayments from 2018 on. 2025 plan exits have multiplied with CVS’ affecting about 10% of their membership.
PBMs are under attack. The latest is a 20 September FTC administrative complaint (= suit) against the Big Three (CVS Caremark, Express Scripts/Cigna and Optum/UHG plus their respective group purchasing organizations for inflating insulin drug pricing. Insulin is the prime example of inflated drug costs in the FTC view. The latest action doubles down on FTC’s mid-year report. MedCityNews Readers should note that drug costs have been consistently under attack in Washington not only with this administration, but the prior one, which makes the current election a continuation of the same negative atmosphere.
In May, CVS openly sought private equity partners to expand their Oak Street Health locations to a promised 300 by 2026. No partner nor expansion has been announced to date. OSH was bought for a stunning $10.6 billion only 17 months ago.at the very tail end of the ‘buy anything/FOMO’ boom. This Editor noted that this summer, there were direct response TV commercials to rustle up members airing on various cable channels that target the mature demographic. OSH was regarded as the runt of the litter of primary care practice groups since the larger ones had already been bought by Walgreens and Amazon. Its drawbacks in addition to small size: its model was overly wedded to Medicare value-based (ACO REACH) and Medicare Advantage models, and it had never turned a profit nor was about to. Even at the time, CVS was heavily criticized as making “a deal that made no sense” and “CVS better have a plan they implement in 18 months or they’ll get slaughtered” by an industry figure. [TTA 2 Mar 2023,16 Mar 2023] We’re at 18 months. Is OSH quietly on the block?
Signify Health was another expensive 2022 buy that sounded good on calls to support the “integration” objective ($8 billion, cash). It put CVS into burgeoning home health and practices–but cost not only the inflated purchase price but also part of the cost of unwinding Remedy Health’s failed Episodes of Care model. CVS also put $100 million into Carbon Health which had to unwind several lines of business including public health before their Series D [TTA 11 Jan 2023], and earlier this year had both their CEO and their president depart. Biotech Networks

Is it time to call healthcare the Sick Man of the American Economy? Or just these big pillars? Crain’s Chicago Business. FierceHealthcare, Healthcare Dive

First half digital health investment — a true rebound or a ‘dead cat bounce’? A Gimlety look at Rock Health’s H1 report.

July 30, 2024 | by Donna Cusano

First, your Editor assures our Readers that no felines were harmed or poorly thought of. It’s just words expressing concepts!

In ever-dapper Mr. Market’s picturesque and blunt language of finance, a ‘dead cat bounce’ is a temporary improvement, a short-term recovery that does not reverse the reality of the long-term downward trend, which resumes shortly thereafter the pick-me-up. It’s applied to assets, stock prices, market sectors, and even political polling.

So…let’s debate the point. Is digital health investment in the US recovering, or taking a few lungfuls of air at the surface before sinking again?

Rock Health’s first half (H1) report. It is, like most of theirs, heavy on the optimistic ‘glass half full’ view. Its headline ‘Resilience Leads to Brilliance’ is certainly a catchy rhyme or meme, but in this Editor’s Gimlety View, an overstatement. It does look like the logjam in funding and M&A has broken, but where’s the brilliance?

Let’s take a cold look at the Rock Health findings for the first half (H1) of 2024. Rock Health only looks at US digital health fundings above $2 million and includes some companies those of us in the professional field do not consider ‘digital health’. FTR:

US digital health startups raised $5.7B across 266 deals. Average deal size: $21.4 million.
The action was in Series A and B raises, which were roughly comparable to prior years. Series C and D were anemic, with Series C especially lagging even anemic 2023.
40% of H1 2024’s fundraises (107 deals) were unlabeled; by quarter, Q1 47% and Q2 33%. This is only slightly down from the 44% for full year (FY) 2023.
The top ‘value propositions’ for fundraising companies were disease treatment (including food as medicine), non-clinical workflow, R&D, clinical workflow, on demand healthcare and precision medicine. The first two are no change from FY 2023. The biggest shifts up from FY2023? Clinical workflow, on-demand healthcare, and precision medicine. These categories are not defined by Rock Health.
The top ‘clinical indications’ are mental health, cardiovascular, oncology, weight management, reproductive/maternal health, and neurology. Again, the first three are basically little changed from FY 2023. The big upward shift was funding for reproductive health.
“AI momentum underpinned deals in categories next on the list, including nonclinical workflow ($896M), R&D for pharma and medical devices ($737M), and clinical workflow ($639M).”
Until Q2 2024, there had not been any into the public markets for 21 months. Starting in May and June, there were three: fetal monitoring Nuvo (public exit via SPAC (!!) in May) and two in June: revenue cycle management company Waystar and precision diagnostics Tempus AI.
There were only 66 acquisition deals made in H1, about half between digital health companies. Private equity acquired 10 companies and 12 in “other”.

In nearly every metric above, H1’s trends are comparable to 2023 extrapolated to a full year, as well as in line in numbers to pre-inflationary 2019–the investments in absolute terms are worth less.

But overall, it is as if the boom of 2020-2022 never happened except in the wreckage of overfunded/foolish funded companies. And 2023 was marked by four tech bank lender bankruptcies and many high profile bankruptcies such as Babylon Health, Quil Health, and Pear Therapeutics. 2024 should look better than 2023, by that logic.

But let’s factor in the following for 2024 H2:

The raises are there and they’re fairly steady–but with only a few exceptions, usually AI related, they are far less than in the past, again using 2019-2020 as a baseline.
At the same time, layoffs are also prevalent and substantial at all levels, indicative of retrenching. And there is little real hiring versus resume collection.
This is an election year like no other in the US, UK, and France, as well as political and terror turmoil worldwide.
Two active wars in Ukraine and Israel, possibly a third on the horizon with major impact (Taiwan)
Drying up of now unwanted Chinese capital that fed into Sand Road VCs
The very underdiscussed FTC/DOJ pre-merger notification and Merger Guidelines–and a hostile FTC

Socially and physically, there’s little respite, from the fool’s spectacle of the opening Olympic ceremony to increased volcanic activity worldwide seen from Yellowstone to Italy. Natural disasters add to nervousness.

As usual, there are two metrics missing from Rock Health’s analysis: companies in deep trouble or bankrupt. Capital destruction matters. Granted, Rock’s report is about digital health investment, but considering what and why it fails is part of the investment picture. What comes after all those rounds and exits?

Bankruptcies: Cue Health, Cano Health, Invitae, SmileDirectClub (late Dec 2023)
On the way: 23andme, NeueHealth (probably 2025), Amwell (which avoided delisting by a reverse stock split)

There is also the shutdown of Walmart Health’s telehealth / remote health unit, formerly MeMD, acquired by Fabric. There is also the Veradigm mystery–delisted and as of May, up for sale, despite having positive revenue. Added context: the failure of melding retail health with clinic operations–Walgreens’ VillageMD, CVS scaling back Oak Street, Amazon folding Clinic into One Medical.

AI is also proving to be ‘not all that’. Health systems are using them to automate procedures and some interfaces with patients. But the investment/payout equation is still tilted heavily to the former.

Conclusion: this Editor is leaning towards ‘dead cat bounce’ through this year unless something drastically changes, as in improves.

Agree? Disagree? Comment below!

Referenced: Rock Health FY 2023 report, Rock Health Q1 2024 ‘flat spin’ report, Mobihealthnews

What the DOJ and FTC Merger Guidelines mean for healthcare M&A–review of the Epstein Becker Green podcast

April 23, 2024 | by Donna Cusano

Are you in the (mostly) lucky group of companies seeking to buy or be bought? This podcast is a ‘must hear’ as likely you’ll be affected. Healthcare law firm Epstein Becker Green’s roundtable podcast in the ‘Diagnosing Health Care’ series is their half-hour condensed view on the new Federal Merger Guidelines that the Department of Justice (DOJ) and the Federal Trade Commission (FTC) finalized last 18 December. Their view on how it will affect healthcare organizations is not too different from your Editor’s lengthy review of the DOJ/FTC document published on 20 December. The DOJ/FTC end-of-year drop perhaps (ahem) was timed to bury the bad news, drowning it in a punch bowl of good cheer or in holiday busy-ness.

This Editor (note: not a lawyer nor do I play one on TV or YouTube) took the view that it was that it was a whole scuttle of coal for healthcare holiday stockings (right) and that it would discourage much of 2024’s healthcare M&A until companies figured what mergers would likely past muster, among other predictions. The EBG folks mostly agree. They also point out that the final Guidelines’ language is “more aggressive” than the draft that many healthcare organizations took issue with–what the article referred to as “substantially more restrictive language and interpretation”. There are some wins from the draft, but much of the language, especially on vertical mergers, simply moved into one or another of the 11 Guidelines.

The EBG team on the podcast (available for play on the web page and download) are Trish Wagner, John Steren, and Jeremy Morris, moderated by Dan Fahey. Below are some key points made by the team on the podcast. Your Editor recommends that you pull up our 20 December article as a reference to the specific Guideline references they make.

Background: Horizontal merger Guidelines were last updated in 2010. Vertical merger Guidelines were issued in 2020 but later rescinded. These new Guidelines apply to both horizontal and vertical mergers and acquisitions. US antitrust 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. The Guidelines since then are based on them as well as case law. (From the wrapup) Courts tend to be very deferential to the Guidelines.
The wording of Guideline #8, When a Merger is Part of a Series of Multiple Acquisitions, the Agencies May Examine the Whole Series, is both interesting and aggressive in that it will be considered and opens up a pattern of acquisitions. This can be by private equity (PE) or other owners.
Guidelines #1, Mergers Raise a Presumption of Illegality When They Significantly Increase Concentration in a Highly Concentrated Market, and 2, Mergers Can Violate the Law When They Eliminate Substantial Competition Between Firms, impact hospital mergers. Prior merger guidelines focused on highly concentrated markets using a point system (HHI, the Herfindahl-Hirschman Index, is a common measure of market concentration). This measure sets a lower bar.
- To trigger #1, a market share above 30% and an HHI over 100 can trigger it even in unconcentrated markets.
- On #2, elimination of direct competition is maybe in and of itself harmful
Guideline #6, Mergers Can Violate the Law When They Entrench or Extend a Dominant Position: for horizontal mergers, ‘entrench’ is in practice the operative term, whereas ‘extend’ applies mainly to vertical mergers. Companies will have to demonstrate that the beneficial competitive effects outweigh the anticompetitive, especially when involving consumers. And they will have to demonstrate why the merger is necessary.
Wrapping up:
- Ms. Wagner: the Guidelines don’t have the force of law, but they do have impact because they are about the process on how mergers are evaluated. Courts have been very deferential to the Guidelines.
- Mr. Morris: hospital leaders will have to contemplate this “huge change in a moment” which he questioned. He emphasized that organizations involve their antitrust counsel now even earlier than previously.
- Mr. Steren: “healthcare has a bullseye on its back”. It is immediately more restrictive. It fits right in with what current enforcers do in trying to bring “persuasive authority” to bring new, novel, cases into court. He seconded Mr. Morris’ last remark.

This Editor, as the Canary in the Coal Mine, will assume that UnitedHealth Group and others have already anticipated that they will have difficulty now making new acquisitions, obtaining approvals for ones that haven’t been finalized, or making quick sales of units they no longer want (Walgreens). Hospitals will find that divestiture and regional mergers will be discouraged. Acquirers who’ve been concentrating on filling out their platforms with vertical acquisitions may find that these Guidelines are also written to trip them up–and once tripped, each Guideline knocks on another. (For other predicted consequences, see the 20 December article.)

News roundup: VillageMD sued on Meta Pixel trackers; Cerebral pays $7.1M FTC fine on data sharing, cancellation policy; VA may resume Oracle Cerner implementation during FY2025; Epic-Particle Health dispute on PHI sharing

April 16, 2024 | by Donna Cusano

It’s all about personal health data–sharing, bad sharing, and bad transfers in this roundup.

VillageMD takes another hit, this time on Meta Pixel ad tracker issues. A class-action lawsuit filed on 10 April charges VillageMD (formally Village Practice Management Company), via its Village Medical website, of using the Meta Pixel ad tracker for disclosing user-protected health information (PHI) and other identifiable information generally classified as PII. This included visitors to their website villagemedical.com seeking information and patient users of Village Medical’s web-based tools for scheduling and the patient portal. The lawsuit by a “John Doe”, a patient since January 2023 resident in Quincy, Massachusetts but brought by three Midwest law firms in the US District Court for the Northern District of Illinois, states that VillageMD used trackers that transferred this personal information to Meta Networks’ Facebook and Instagram, as well as other third parties like Google, for use in targeted advertising, in violation of HIPAA and other regulations. The lawsuit seeks 1) an injunction stopping Village Medical from using ad trackers and 2) monetary redress via damages–actual, compensatory, statutory, and punitive for the entire affected class. The suit also alleges that VillageMD violated its own internal procedures. Crain’s Health Pulse, Healthcare Dive

Readers will recall that in June 2022, STAT and The Markup published a study and follow-ups on Meta Pixel and ad tracker use by healthcare organizations. Ostensibly, the ad trackers were there to better track website performance and to tailor information for the patient [TTA 17 June, 21 June 2022], but they sent information to third parties that violated HIPAA and privacy guidelines. Ad trackers were also monetized. Meta blamed the health systems [TTA 16 May 2023] for misuse though they used the data for ad serving. Congressional hearings, FTC, and DOJ followed later in 2022 and 2023. Multiple class action lawsuits against providers large and small have ensued. Providers have pushed back on FTC and HHS rules on ad trackers, stating the restrictions hamper their ability to build better websites based on customer usage and to serve individuals with useful information.

Another ‘oversharing’ company, troubled telemental Cerebral, whacked with $7.1 million FTC fine on disclosing consumer information via ad trackers plus ‘negative option’ cancellation policy. The proposed order for a permanent injunction filed by the Department of Justice (DOJ) and docketed on 15 April has to be approved by the Federal District Court for the Southern District of Florida. The fine for the company only penalized the following:

Cerebral released 3.2 million consumers’ information to third parties such as practices, LinkedIn, and TikTok. This included PHI and PII such as names, medical histories, addresses, IP addresses, payment methods including insurance, sexual orientation, and more. Even more outrageously, they also used the mail for postcards that had sensitive information such as diagnosis printed on them. The insult on injury was that Cerebral failed to disclose or buried information on data sharing to consumers signing up for their ‘safe, secure, and discreet’ services. Cerebral now has to restrict nearly all information to third parties.
Cerebral also set up their service cancellation as a ‘negative option’ cancellation policy, which in reality meant that it was renewed indefinitely unless the customer took action to cancel. It was not adequately disclosed in violation of the federal Restore Online Shoppers’ Confidence Act (ROSCA). Then Cerebral made it extremely difficult to cancel by instituting a complex procedure that required multiple steps and often took several days to execute. They even eliminated a one-step cancel button at their then-CEO Kyle Robertson’s direction. The order requires this to be corrected including deleting the negative option.
Former employees were not blocked from accessing patient medical records from May to December 2021. It also failed to ensure that providers were only able to access their patients’ records.

Cerebral’s settlement with the FTC and DOJ breaks down to $5.1 million to provide partial refunds to consumers impacted by their deceptive cancellation practices. They also levied a civil penalty of $10 million, reduced to $2 million as Cerebral was unable to pay the full amount. The decision and fine do not cover charges to be decided by the court against the former Cerebral CEO Robertson due to his extensive personal involvement in these practices. Those have not been settled and apparently were severed from the company as a separate action (FTC case information). Since 2022, Mr. Robertson has consistently blamed company management and investors for pushing for bad practices such as prescribing restricted stimulant drugs. Cerebral countersued him for defaulting on a $49.8 million loan taken in January 2022 to buy 1.06 million shares of Cerebral common stock. More to come, as the order also does not address other Federal violations under investigation, such as those under the Controlled Substances Act. FTC release, FierceHealthcare

VA to possibly resume Oracle Cerner EHR implementation at VA sites before the end of FY 2025, even if not in budget. During House Veterans’ Affairs Committee hearings on FY 2025 and 2026 budgets, VA Secretary Denis McDonough last Thursday (11 April) said that the VA intends to resume deploying the Oracle Cerner EHR as part of VA’s Electronic Health Records Modernization (EHRM) before the end of FY 2025. As Federal years go from October to September, FY 2025 starts October 2024 and ends September 2025. When asked if VA plans to maintain the “program reset” as they termed it in April 2023 for all of FY25, Secy. McDonough said that “we do not.”However, there is no budget allocated for additional implementations in either FY. The plan is to use carryover funding.

Oracle Cerner’s Millenium EHR was implemented at five VA locations before suspending in April 2023 for a massive re-evaluation which involved reworking systems such as the Health Data Repository which created critical scheduling and pharmacy problems detailed by the Office of Inspector General (OIG) [TTA 28 Mar]. The joint VA and MHS/Genesis Lovell FHCC implementation, which went live in March, is not included. NextGov/FCW, Healthcare Dive

And in another dispute about data sharing, leading EHR Epic cut off requests made by some Particle Health customers, expressing concern about privacy risks. Particle Health is a health data exchange API platform for developers. Both Epic and Particle are part of Carequality, a large scale data exchange group that connects 600,000 care providers, 50,000 clinics, and 4,200 hospitals to facilitate the exchange of patient medical records On 21 March, Epic filed a dispute with Carequality that some of Particle’s users “might be inaccurately representing the purpose associated with their record retrievals.” and stopped responding to some Particle Health customer queries. This has now degenerated into a ‘who said what‘ dispute, with Particle and their CEO alleging that Epic implied that it completely disconnected Particle Health and its customers from Epic’s data, while Epic has said that after a review by its 15-member Care Everywhere Governing Council, they flagged three companies who were using Particle’s Carequality connection to access data not related to patient care or treatment. There’s also a larger concern being brought up by providers on the use of these mass data exchanges for fraudulent extraction of data or use that would violate HIPAA guidelines. FierceHealthcare, CNBC, Becker’s, Morningstar

Peering through the cloudy crystal ball into 2024 healthcare investment and company health

January 25, 2024 | by Donna Cusano

Will 2024 be the mirror image of 2023? This time last year, signs pointed to slow, steady growth after the bubble bath of 2020-early 2022 was followed by failures of tech-leveraged banks (SVB and Signature in March 2023) leading to a mid-year bust [TTA 11 Aug 23]. Some big deals kicked off the year (CVS’ Carbon Health investment, Oak Street mega-buy TTA 16 Feb 23). Then as the year went on, they were followed by sheer turmoil–huge losses and business divestitures (Cano Health, Bright Health, insurtechs like Clover and Oscar), bankruptcies and shutdowns (Babylon, Pear, Quil, OliveAI, Smile Direct, Cureatr, Rite Aid), IP lawsuits (Apple-Masimo, Apple-AliveCor, FruitStreet-Sharecare), C-levels walking the plank (Walgreens, Noom), and big layoffs nearly every week. Cigna and Humana called off merging again, perhaps because Cigna didn’t like what it saw. M&A fell to its lowest level in years and IPOs fell to zero.

To cap the year, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) issued new Merger Guidelines that made the M&A mountain even steeper, and will follow up this year with Pre-Merger Notification guidelines that will make that part even more costly. Both signal hard times for M&A. Add to that the overt hostility the chair of the FTC has to any kind of M&A and the weaponization of the tools government has at hand…..Even early-stage, independent companies which allegedly these agencies are trying to foster don’t catch a break. A change in the tax law hitting hardest in 2023 forces annual expenses in research and experimentation (R&E) to be amortized over five years versus one year which severely affects their financials. (Section 174 explained here)

The crystal ball promises to be more like a Magic 8 Ball this year. Other than a flurry of smaller-scale investments, a rumor of a $5 billion EHR company sale (Netsmart), and predictable layoffs in health systems, the start of the year in healthcare has been fairly (ominously?) quiet.

HealthcareFinance talked to two partners in law firm Akerman’s healthcare practice group to get their take, weaving in some findings from a PWC report:

Buyer interest in acquiring practices and surgery centers
Partnerships on rise, for example Amazon’s One Medical with health systems
Smaller hospitals in mid-America will merge as there is “safety in numbers’
More investment in life sciences and drug development, especially diabetes/weight loss drugs in the GLP-1 category
Anything around AI attracts interest

The two big factors: interest rates (the Federal Reserve has signaled no further increases, and maybe cuts in 2024) and (of course) a presidential election as well as all of the House, much of the Senate, and state gubernatorial offices.

Bubbling under this are reports of two big pending IPOs:

Home health, pharmacy, and eldercare services provider BrightSpring Health filed with the SEC on 3 January for a near-billion dollar IPO (publicly released on 17th). This is estimated to raise $960 million, valuing the company at about $3 billion. Common stock will debut between $15 and $18 on Nasdaq under the symbol BTSG. They are also selling 8 million tangible equity units at $50. Proceeds will go from the offerings to repay outstanding debt under various credit facilities and pay penalties associated with terminating its monitoring agreement with Kohlberg Kravis Roberts & Co. L.P. (KKR, the current owner) and Walgreens Boots Alliance. BrightSpring serves 400,000 daily patients and dispensed 34 million prescriptions in 2022. IPO timing is still to be announced. This is the second time the company has filed, abandoning its first attempt in late 2021 as the market softened in 2022. KKR is signalling an exit…will it happen this time? Release, FierceHealthcare
Waystar’s IPO is still pending after being announced late last year [TTA 26 Oct 23]. The RCM and payments software company delayed it to 2024 due to an uncertain market at year’s end. Reportedly the roadshows were postponed to December but there has been no confirmation that they took place. Will it happen?

Fasten your seatbelts…it may be a bumpy ride.

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

December 20, 2023 | by Donna Cusano

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 Donna Cusano

Cigna 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!

News roundup: Walgreens & CVS pharmacy staff 3 day walkout, DOJ ramping up healthcare acquisition scrutiny, Cantata Health sold to TT Capital, Lancashire County Council chooses Progress Lifeline for TECS (UK)

October 31, 2023 | by Donna Cusano

Kicking off the week, a walkout. Pharmacy staff at both Walgreens and CVS locations are participating in a three-day walkout that started today (30 October) and will go through Wednesday (1 November). The scope is limited–organizers are urging pharmacists to call in sick on those days and the actions appear to be somewhat scattered by state. This follows an earlier mid-October three-day walkout [TTA 11 Oct]. The Walgreens action, according to organizers, will end on Wednesday with Wednesday with a planned demonstration outside Walgreens’ headquarters in the Chicago suburb of Deerfield, Illinois.

The organizer quoted by MedCityNews and CNN, Shane Jerominski, a former Walgreens pharmacist and now with an independent pharmacy, stated that the issues are over short-staffing and overwork. In addition to their main tasks of accurately filling prescriptions, he said that they also deal with requests for administering vaccinations, testing, setting up auto-refills and other tasks. Mr. Jerominski claims that 2,500 Walgreens pharmacists and technicians will participate, which is coming as a surprise to Walgreens management. He also claimed to CNN 25 store closures.

Pharmacy workers are not currently unionized, but both the United Food and Commercial Workers International Union (UFCW) and the Service Employees International Union-United Healthcare Workers West (SEIU) are interested and support the walkouts. The American Pharmacists Association (APhA) also issued a statement of support from their CEO including issues such as patient harassment, burnout, quotas, and additional fees imposed by pharmacy benefit managers (PBMs) such as Express Scripts and Optum. Becker’s

Meanwhile, the Department of Justice (DOJ) continues its warning shots over the bow to Big Healthcare. POLITICO, the daily broadsheet of the political class, reported that Andrew Forman, a deputy assistant attorney general in the DOJ’s antitrust division, warned that DOJ would be 1) closely scrutinizing all deals for antitrust and 2) stepping up post-merger investigations. This is all about “monopoly’ of healthcare markets as deemed by DOJ–and the Federal Trade Commission (FTC), currently ax-tossing at Amazon. Mr. Forman cited national economic data, blame-gaming among health care providers, insurers and drug makers, and economic analysts–as well as the public comments registered as part of DOJ’s draft merger guidelines. Hiding behind value-based care isn’t going to help as DOJ is questioning whether payer/provider consolidation actually delivers on VBC, but instead “delivers on increased power and conduct that increases barriers and otherwise harms competition”. A far more complete summary of his remarks at the Health Care Competition Conference of The Capitol Forum is at Medical Economics.

Our backgrounders on both DOJ and FTC actions around antitrust and mergers are summarized on 24 August (lead item) including our 20 July analysis of the Draft Merger Guidelines and this Editor’s educated guesses on the cloudy future of M&A. Also Becker’s

Slipping in under the DOJ radar is Cantata Health’s majority sale to a private equity group, TT Capital Partners (TTCP). Cantata developed and markets the Arize EHR and revenue cycle management platform for behavioral health, human services, acute and post-acute care. Arize is in 280 healthcare facilities across 45 states, as well as Canada, the Bahamas, Puerto Rico, and Guam. Investment amount nor percentage are disclosed, nor who exited or management changes. However, a look back at a 2017 release about Cantata’s formation states that another PE, GPB Capital, acquired NTT DATA’s healthcare software assets for acute and long-term care. TTCP release

In Lancashire, the County Council has chosen a new preferred provider for technology enabled care services (TECS), Progress Lifeline, in a competitive bid. The Council currently provides personal alarm button pendants, wristbands, and wireless home sensors and detectors to local residents for a monthly fee. A significant factor in these new bids is enabling a smooth analogue-to-digital changeover, a critical issue for UK telecare providers. Progress release Hat tip to Diane Gannon of Progress

Teladoc narrows loss in Q3 and YTD, grows revenue, adjusted profits…but stock sinks?

October 27, 2023 | by Donna Cusano

Teladoc seemingly can’t get any respect from Mr. Market. 2023 seems to be a waypoint in the company’s recovery after their disastrous 2022 (TTA 4 May 22, 23 Feb). Focusing on operational efficiencies since then, Teladoc posted some decent numbers compared to 2022 in their Q3 report:

Q3 revenue increased 8% to $660.2 million; nine-month revenue increased 10% to $1,941.9 million
Q3 net loss went down 10 cents per share to a total of $57.1 million, or $0.35 per share. Nine-month net loss was $191.5 million, or $1.17 per share (2022’s was $61.09)
Adjusted EBITDA in Q3 increased 73% to $88.8 million; nine-month EBITDA increased 40% to $213.7 million
Finally, cash flow from operations was $105.6 million in Q3, a 68% increase. For the nine months, $219.9 million, up 77%.

Yet the share price has taken a tumble from July’s end above $29, closing today at $16.09.

This Editor is no stock picker, but informed heads think that CEO Jason Gorevic has emphasized operational efficiencies over sales and profitable revenue growth. Yet EBITDA is booming with a 2023 guidance of $320-330 million. Amazon’s aggressiveness in taking over virtual care is much on the minds of these ‘informed heads’. In this context, too much pullback on sales and growth is not a positive sign of Teladoc’s long-term future, an indication that Mr. Gorevic, now trimmed, needs to trim his sails to the now-prevailing winds to increase share value. The much-touted BetterHelp in telemental health is not quite panning out with flat revenue and wobbly EBITDA. There’s such a thing as depending on one part of the business, with the rest going too lean and not having capacity, walking away from growth while the competition picks off your business. Seeking Alpha

Is Amazon a chimera of blue smoke and mirrors? The comparison with Amazon is despite their being a target of the Federal Trade Commission (FTC) on monopoly and anticompetitive charges (see the FTC release and the Vox discussion on why the US government wants to break up Amazon). More pain points are AWS’ slowing growth and emerging difficulties (ahem) in implementing their healthcare strategy with One Medical and Amazon Clinic, which this Editor has previously noted. What we view as a juggernaut is facing more than their share of distractions and changing circumstance. Even Jeff Bezos is pulling back his support of the Washington Post. (Need we remind our Readers that 2024 is a general election, and Amazon Hater Senator Elizabeth Warren is up for reelection?)

Short takes: FTC’s Lina Khan’s vendetta on tech, employers disillusioned with virtual care, telepsychiatry cuts LOS and inpatient ED, Lotte’s AI-assisted telepsych diagnostics, ThymeCare’s $60M Series B

August 24, 2023 | by Donna Cusano

FTC, the new three-letter Headache for Healthcare. Your Editor has been closely following the Federal Trade Commission (FTC) and Department of Justice (DOJ) changes to antitrust filing processes and merger guidelines. She has been alarmed by the weaponization of the previously fast-asleep 2009 Health Breach Notification Rule against ad trackers to collect quick fines from GoodRx and Teladoc/BetterHelp and creating new policy. In fact, she has been feeling a bit like Cassandra shouting into a Category 4 hurricane. Comes along City Journal, published by the Manhattan Institute think tank, that delves deep into the belief system of FTC chair Lina Khan. In a phrase, she has an ax to throw at businesses that seek to expand or sell through M&A, based upon her subjective philosophies about antitrust that often conflict with established case law. The article features where she and the FTC commissioners routinely overstep guidelines and recusals, plus get reversed in Federal court. Khan’s nemesis is Amazon. Beware, Bezos. Our articles on the FTC follies, such as the changes to the HSR premerger notification filing process and the Draft Merger Guidelines, so you can Share The Alarm:

Healthcare M&A hit a 3 year low in Q2 2023, to the surprise of none: KPMG (scroll down to last paragraphs)

FTC, DOJ float enhanced information requirements for HSR premerger notification filing process–what will be M&A effects?

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

Just in time for the downturn in digital health funding, employers are becoming tired of telehealth hype. Virtual health may have been touted too loudly as a cost and time-saving panacea to enterprises, ‘transformative’ in and of itself. In the Business Group on Health’s omnibus survey of employer healthcare, they have concerns including a lack of integration among solutions. They are also less confident that it will impact health delivery: from 85% of employers in 2021, boosted artificially by the pandemic, it dropped to 74% in 2022 and 64% in 2023. Employers are also demanding more of partnerships and vendors for value and cost–and demanding reporting on metrics such as health equity. 152 large companies with 19 million workers were polled between 1 June and 18 July. Business Group release, FierceHealthcare

Telepsychiatry can help hospitals with emergency mental health, as well as shorten length of stay on med-surg floors and the ICU. Allina Health, a health system in Minnesota and Wisconsin, implemented Iris Healthcare, a telepsychiatry service to cover the shortage of psychiatrists and more fully utilize psychiatry in other areas. Psychiatric patients in the ED were staying the longest on average. With telehealth support, the length of stay (LOS) decreased by 25%–from 12 to 9 hours. Behavioral health is now part of ED evaluation and it moved 63% of patients to an outpatient plan from 55% plus shortened LOS in Allina’s Med-Surg and ICU floors by half a day. HealthcareITNews

South Korea’s Lotte Healthcare is partnering with iMediSync to create new AI-utilizing evaluation tools. iMediSync has EEG screening capability for diagnosing neuropsychiatric disorders like Alzheimer’s disease that Lotte will integrate into their mobile health app, Cazzle. Cazzle then creates personalized health recommendations for users. The South Korean market is unusual in that the rate for accessing mental health services is only about 1/10th of the population, yet mental illness is growing. Mobihealthnews

To end on a positive funding note, ThymeCare scored $60 million in a Series B round. This was led by Town Hall Ventures and Foresite Capital with participation from existing investors Andreessen Horowitz Bio + Health, AlleyCorp, Casdin Capital, and Frist Cressey Ventures. ThymeCare is a platform for those diagnosed with cancer to better understand their diagnosis and recommend personalized interventions and care navigation to patients to quickly connect them to care with its platform, Thyme Box. It utilizes data analytics to crunch information from payer, EHR, and health information exchange sources. FierceHealthcare

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

August 11, 2023 | by Donna Cusano

“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)

Amazon Clinic announces 50-state rollout 1 August. Were the privacy issues fixed?

August 1, 2023 | by Donna Cusano | 2 Comments

At least the disclaimers are new and improved. Amazon today, on its news page, announced that Amazon Clinic was being rolled out to all 50 US states from the previous 33. You will be paying in cash (no insurance accepted) for services, which now include live 24/7 telehealth (via two ‘white-labels’, Wheel and SteadyMD) in addition to asynchronous (messaging) telehealth, for treatment of about 30 common mild and chronic conditions such as rosacea, gout, eczema, UTIs, and the ever-popular erectile dysfunction and hair loss. Access is provided through the Clinic website or the Amazon app. Providers set fees on a one-time and ongoing basis. Prescriptions can be filled individually or through Amazon Pharmacy. The service is not available to those below 18 or above 64, which is a mystery as those 65+ are perfectly capable of paying in cash and suffer from the same maladies. (Age discrimination, anyone?)

As to the reported delay from 27 June on the service expansion [TTA 27 June], an Amazon spokesperson denied that privacy concerns expressed by two US senators (Warren and Welch) and in the Washington Post had any effect and in fact, denied that there was any delay. FierceHealthcare.

It is unknown whether Amazon replied to the senators’ letter that cited where consumer information went, that it may be redisclosed, and denial of service (inability to complete registration) if a user during registration did not agree to waive HIPAA and give Amazon access to the patient’s personal information file.

Looking at the news, website and privacy disclosures, there are multiple disclaimers wherever one looks that seem to address these concerns. On the news release, there is a link labeled Read more about how privacy is built into Amazon Clinic’s core. Excerpts below (main points in red):

We do not sell customer information.

Amazon doesn’t sell customers’ personal information. Amazon Clinic also doesn’t use a customer’s personal health information to market or advertise other products in the Amazon.com store.

We ask for HIPAA authorization to make things easier for customers.
One of the complaints we hear a lot about traditional health care is how many times customers are asked to fill out forms over and over again. To solve this problem, Amazon Clinic asks customers for permission (through the HIPAA authorization) to allow us to save their information and patient records if their health care provider leaves Amazon Clinic. This supports continuity of care and makes it easier for customers to work with different provider groups, because they won’t have to fill out the same form multiple times or lose access to their visit history. Customers have the option to accept or decline the HIPAA authorization before getting treatment—customers who decline can still receive care from Amazon Clinic.

Privacy disclosure on the Amazon Clinic site is the same in consumer-oriented language and with a revocation notice:

What we do (and don’t do) with your information
We use your information to make your healthcare experience easier. We send it to your healthcare providers and pharmacies when you’re being treated, and we save it so you won’t have to fill out the same forms over and over again—even if your healthcare provider were to leave Amazon Clinic. We’ll never sell your information to anyone and we don’t use your personal health information to market or advertise other products available on Amazon.com.
We respect your preferences
If you don’t want us to save your health information, you can still get care through Amazon Clinic. However, you should know that if the healthcare provider(s) you’ve used leave Amazon, we’ll be required by law to delete your health information and you’ll have to re-enter it if you visit us again.
You can change your mind
If you give us permission to save your health information, then change your mind, that’s OK. To revoke your HIPAA Authorization, just email your request to clinic.privacy@amazon.clinic. Make sure to include your name, date of birth, address, and phone number, or download the HIPAA revocation form, fill it out, and send it as an attachment to your email.

Unless this is not operating reality, Amazon may have come to its senses and installed proper guardrails on this service. Amazon is making a massive bet on healthcare by building Clinic, Amazon Pharmacy, and paying $3.9 billion for One Medical which is currently unprofitable. They are betting that to their captive audience, basic healthcare can be delivered like merchandise and that more complex primary care can be folded into the Amazon continuum. In Amazon Clinic, it’s betting that it can one-up established players like Ro and Hims as well as Teladoc and Amwell.

A hard look at Amazon reveals that the strategy compensates for losses in other areas, such as their basic businesses with layoffs of 27,000, including Amazon Pharmacy and the Washington Post, and shuttering Amazon Care last year. Technology hasn’t been much of a winner, with Halo terminated yesterday and with privacy concerns (again) around Alexa, Kindle, and Ring security cameras. AWS is no longer the cash cow mooing in the meadow that subsidizes various ventures, with growth down by half and plenty of competition [TTA 16 June]. Amazon has few friends in DC, not even at the Washington Post. The Federal Trade Commission (FTC) and the Department of Justice (DOJ) have held up their $1.7 billion buy of iRobot for one year as of this month, and are still scrutinizing One Medical.

If the guardrails are made of Silly Putty and there are consumer complaints, Senator Warren, who has a long history of sparring with Amazon, will be issuing more letters. She will huddle with FTC and DOJ, where there’s a dartboard with Amazon’s name on it. Note to Amazon: Senator Warren is up for reelection in 2024, and she needs a high-profile issue.

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

July 20, 2023 | by Donna Cusano

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.”

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

In 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.

FTC, DOJ float enhanced information requirements for HSR premerger notification filing process–what will be M&A effects?

June 29, 2023 | by Donna Cusano

FTC, DOJ are now coming after M&A–and you thought they were tough before? New information disclosure requirements proposed by the US Federal Trade Commission (FTC) and the Department of Justice (DOJ) Antitrust Division for mergers and acquisitions that fall under the Hart-Scott-Rodino Act (HSR) may put a damper on an already stagnant business area. On Tuesday 27 June, FTC, notably taking the lead with the concurrence of DOJ, released multiple proposed changes to the premerger notification filing process, the most extensive since they were first published in 1978 after HSR was passed in 1976. HSR premerger notification is required for transactions that exceed the threshold currently set at $111.4 million.

These changes will be formally submitted for the standard 60-day public review and comment later this week in the Federal Register. Changes are typically made after that time before final rules are published, a process that may take months.

From FTC’s release, the proposed changes fall under these areas.

Provision of details about transaction rationale and details surrounding investment vehicles or corporate relationships.
Provision of information related to products or services in both horizontal products and services, and non-horizontal business relationships such as supply agreements.
Provision of projected revenue streams, transactional analyses and internal documents describing market conditions, and structure of entities involved such as private equity investments.
Provision of details regarding previous acquisitions.
Disclosure of information that screens for labor market issues by classifying employees based on current Standard Occupational Classification system categories.
These proposed changes also address Congressional concerns that subsidies from foreign entities of concern [North Korea, China, Russia, and Iran–Ed.] can distort the competitive process or otherwise change the business strategies of a subsidized firm in ways that undermine competition following an acquisition.

The National Law Review goes into far more detail on exactly what additional information will be required. This includes disclosure of what foreign jurisdictions are reviewing the deal. The rationale for the changes is that transactions have become far more complex since the original requirements were set and that the additional information will “more effectively and efficiently screen transactions for potential competition issues within the initial waiting period, which is typically 30 days.” According to FierceHealthcare, the FTC said it expects the proposed changes will take merging entities 144 hours per filing, up from the current 37-hour average. It’s clear that the mountain of information already needed to file a pre-merger notification and the time needed to gather such information will be much higher, perhaps to months and reveal far more than perhaps some companies want to disclose.

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 (more…)

Short takes and updates: FTC may not be done with CVS-Oak Street, VistA moves to cloud–why?, Oracle Cerner lays off 10%. at least

March 24, 2023 | by Donna Cusano

The CVS-Oak Street Health buy may be finalized on paper for $10.6 billion, but it’s not a done deal. While the papers are signed and the preparations may be underway for a closing at the end of the year, it’s still subject to Federal and state approvals [TTA 9 Feb]. This week, Senator Elizabeth Warren, a one-time presidential candidate who cherishes her bully pulpit as a member of two finance committees (but chair of none), sent a letter (office release) to the Federal Trade Commission (FTC) to “carefully scrutinize” the deal. In addition, she urges FTC to “retrospectively review similarly consummated deals and challenge in court any mergers that have reduced competition in violation of antitrust laws”. FTC is a prime candidate for a nudge because their newly activist stance needs little encouragement for the commissioners to pull out the cudgels.

CVS may very well find itself challenged as well by the Department of Justice (DOJ)–a more complicated action since it requires preparing a case, going to Federal Court, filing papers, and convincing a judge that it involves true antitrust issues worthy of further examination. CVS may well be spending time in Federal and state courts before the closing, and likely expects it. Even so, DOJ appears to be positioned on the sidelines. There is a memorandum of understanding between DOJ and Health and Human Services sharing concerns about antitrust. DOJ may also be tired of complicated, labor-intensive suits like UnitedHealth Group and Change Healthcare that wound up in favor of the defendants and with egg on DOJ’s face [TTA 23 Mar]. Unlike DOJ, FTC has more latitude and they have been using it. Thus Sen. Warren’s appeal is a strategic one. FierceHealthcare

Yet where does it end? Horizontal integration or consolidation–businesses buying similar businesses–has obvious limits. But vertical integration–owning part or all of the care continuum or means of production–is less obvious. It can make healthcare more available and effective. But it may reduce competitive opportunity and create a ‘one or none’ business model. That is where the Feds tend to step in unless it’s a bank (of late).

VistA’s new tune is ‘I’m Still Here’–in the cloud. Yes, VistA, facing phase-out at the VA, is moving its system to the cloud, and has major reasons why. Reginald Cummings, the deputy chief information officer for VA’s infrastructure operations, explained during a panel discussion of the Association for Federal IRM (AFFIRM) that the ‘lift and shift’ (the hip IT term for this) was done for two things: to move it away from being multiple systems running at each facility, and to ‘containerize’ it, packaging the application together with the resources it needs to operate, such as the operating system itself, the storage and interfaces. This improves security and portability. The real news is that VA is now admitting that it will take years to transition to Oracle Cerner. According to Daniel McCune, a VA software executive, VA may need VistA for another 10 years. (Perhaps 15?) Supposedly, this isn’t modernization…but it does keep a legacy system running indefinitely, like the Energizer Bunny, which would 1) suit many at VA, and 2) perhaps avoid dealing with the Oracle Cerner issues. No mention is made in the article if this makes transitioning to Oracle Cerner easier, which this Editor finds odd. The chair of the panel discussion, Tom Temin, is also the article author on Federal News Network. As some of our international Readers know, VistA is used in countries such as India as open-source software (WorldVista.org).

And speaking of Oracle Cerner, the layoffs are on. Rumors have it as high as 10% of Oracle Cerner’s global workforce of about 28,000. It is surmised that at Cerner’s former HQ sites in Kansas City, the layoffs may be several hundred, though no WARN notices for group layoffs have been filed with Missouri. These notices are required when layoffs are at least 50-499 employees if they represent at least 33% of the total active workforce, excluding any part-time employees; or 500 or more employees (excluding any part-time employees) in which case the 33% does not apply. (DOL WARN Act guide) The Cerner workforce in the KC area was about 12,000 at one point. Severance packages were reported to be four weeks plus one week per year of service.

In addition, Oracle employees who were working from an Oracle office but transitioned to remote work during the pandemic must return to in-office work at their previous campus. They will be notified by managers in the next 30 days whether they will be full time in office, ‘flex’ or hybrid without an assigned space, or continuing as remote. Perhaps this is why WARN notices were not filed. Many workers moved out of area, and refusal to return to office can be called quitting. HISTalk, Becker’s

FTC drops the hammer on premerger notification requirements–what will be M&A and investment effects?

Now CVS Health may be reviewing ‘options’–including a possible breakup–report

First half digital health investment — a true rebound or a ‘dead cat bounce’? A Gimlety look at Rock Health’s H1 report.

What the DOJ and FTC Merger Guidelines mean for healthcare M&A–review of the Epstein Becker Green podcast

News roundup: VillageMD sued on Meta Pixel trackers; Cerebral pays $7.1M FTC fine on data sharing, cancellation policy; VA may resume Oracle Cerner implementation during FY2025; Epic-Particle Health dispute on PHI sharing

Peering through the cloudy crystal ball into 2024 healthcare investment and company health

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

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?

News roundup: Walgreens & CVS pharmacy staff 3 day walkout, DOJ ramping up healthcare acquisition scrutiny, Cantata Health sold to TT Capital, Lancashire County Council chooses Progress Lifeline for TECS (UK)

Teladoc narrows loss in Q3 and YTD, grows revenue, adjusted profits…but stock sinks?

Short takes: FTC’s Lina Khan’s vendetta on tech, employers disillusioned with virtual care, telepsychiatry cuts LOS and inpatient ED, Lotte’s AI-assisted telepsych diagnostics, ThymeCare’s $60M Series B

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

Amazon Clinic announces 50-state rollout 1 August. Were the privacy issues fixed?

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

FTC, DOJ float enhanced information requirements for HSR premerger notification filing process–what will be M&A effects?

Short takes and updates: FTC may not be done with CVS-Oak Street, VistA moves to cloud–why?, Oracle Cerner lays off 10%. at least

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