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

August 23, 2023 | by

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

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

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

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

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

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

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

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

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

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

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

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

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

Mid-week roundup: CVS-Oak Street closes, DEA extends controlled substance telehealth waiver, Bright Health selling CA MA plans, Talkspace, Teladoc turnarounds? (updated)

May 4, 2023 | by

CVS closed its $10.6 billion deal for Oak Street Health, well before the anticipated end of 2023. It picks up 169 primary care offices in 21 states–and an unprofitable operation that clocked a loss last year of $510 million without much of a change till 2025. The quick closing was likely spurred by both the Department of Justice (DOJ) and the Federal Trade Commission (FTC) letting their antitrust challenge period expire at the end of March with nary a whimper. DOJ and FTC, the latter which has been remarkably ‘pixelated’ of late on privacy issues with GoodRx and Teladoc’s BetterHelp, evidently passed on ‘egg on the face’ and let the ovoid land squarely on Elizabeth Warren’s Senate desk. She had asked FTC to ‘carefully scrutinize’ the deal. Shareholders received a tidy $39 per share. OSH will remain a multi-payer practice and now-former CEO Mike Pykosz will lead the company under CVS’ new healthcare delivery arm. This follows on CVS’ closing of Signify Health [TTA 30 March].  CVS release, FierceHealthcare Our prior gimlety coverage of CVS/OSH: 16 Feb, 2 March, Unlike OSH, CVS had a strong Q1 with $2.1 billion in profit, slightly down from 2022’s $2.4 billion, and an 11% boost in revenue. FierceHealthcare

DEA in-person prescribing requirements on Schedule II and higher controlled substances postponed indefinitely. The proposed rule would have added back in-person requirements for telehealth prescribing of controlled substances after the official end of the Public Health Emergency and its in-person waivers on 11 May. On 25 April, the DEA filed a draft temporary rule with the Office of Management and Budget for the extension. The Ryan Haight Online Pharmacy Consumer Protection Act of 2008 requires that Schedule II medications and narcotics (including Adderall and Ritalin) require an in-person prescription, while Schedule III or higher medications, including buprenorphine, Ambien, Valium, Xanax and ketamine can be prescribed for 30 days via telehealth but would require an in-person visit before a refill. The DEA was deluged with 38,000 comments and advocacy pressure from ATA. The change has also thrown a wrench in the works of online mental health companies which prescribe many of these drugs. FierceHealthcare  Updated–The ATA has weighed in favorably about the DEA postponement. Kyle Zebley, executive director of ATA Action, stated in their release that “Our hope is that the DEA will use the time of an extension to be responsive to the concerns of telehealth advocates, patients, and the American people to create rules that ensure access to clinical care that is not inappropriately restricted.”

Bright Health put its California Medicare Advantage plans up for sale. The company, staring down at bankruptcy [TTA 7 Apr, 20 Apr] does not yet have a buyer for the MA plans. When they are sold, it will be Bright’s exit as a health insurer, as it has exited MA plans in Florida and exchange plans everywhere else–in a flurry of state investigations ranging from Tennessee to Texas. Bright plans to focus on its provider arm, NeueHealth. Healthcare Dive

Talkspace narrowed its loss, increased revenue. The telemental health provider narrowed its Q1 net loss to $8.8 million compared to 2022’s $18.3 million in Q4 2022 and $20.4 million in Q1. Revenue increased to $33.3 million versus last year’s Q1 of $30.2 million. Their source of business has shifted to B2B with a 71% increase, a sharp departure from their formerly dominant consumer segment which has declined 40%.  Their 2023 forecast revenue is $130-135 million. It is still facing a Nasdaq delisting as trading below $1.00 per share and a class action lawsuit on subscription renewals. Mobihealthnews

Teladoc also waxed positive, ‘beating the Street’ with Q1 revenue growth of 11% to $629 million. This was powered as expected by BetterHelp, Teladoc’s direct-to-consumer mental health business. Their revenue grew to $279 million, a 21% increase. Teladoc’s enterprise business also had a 5% boost to almost $350 million. Their weight loss business is expected to be another net positive income generator, but not affecting results until 2024 as it won’t be introduced until Q3 [TTA 21 April]. The road to profitability will be a long one, as losses this quarter were $69.2 million, but compared to last year’s $6.7 billion writedown of Livongo, it’s positively smooth. Healthcare Dive

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

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

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

March 2, 2023 | by

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

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

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

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

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

February 23, 2023 | by

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

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

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

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

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

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

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

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

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

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

February 16, 2023 | by

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

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

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

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

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

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

February 9, 2023 | by

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

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

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

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

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

CVS works their plan in Oak Street Health buy talks, Carbon Health $100M investment + clinic pilot; VillageMD-Summit finalizes (updated)

January 11, 2023 | by

CVS, Walgreens, Amazon, Walmart all chasing the same type of companies to expand their service continuum. During their Q2 2022 earnings call, CVS Health announced that they were determined to enhance their services in three categories: primary care, provider enablement, and home health. And CVS’ CEO Karen Lynch was pretty blunt about it: “We can’t be in the primary care without M&A” (sic). So CVS’ latest moves should come as no surprise.

Oak Street Health: CVS is in talks with this value-based care primary care provider for primarily older adults in Medicare and Medicare Advantage plans. With 100 offices nationally, it’s not too small, not too large to combine with other operations. As a public company traded on the NYSE but puttering along in the $13-$22 per share range since the fall from a high of $30 in August, the news of CVS’ interest has boosted them above $28 and a market cap of just under $7 billion. Although Oak Street has previously maintained that they have no interest in a sale, it has never been profitable and is on track to lose $200 million this year. That is not a good look for CVS but they are working a strategy. Previously, CVS walked away from primary care group Cano Health [TTA 21 Oct 22]. Bloomberg News (paywalled) reported that CVS could pay $10 billion which would be over $40 a share. Healthcare Dive, Reuters

Carbon Health: CVS leads their Series D with a $100 million investment plus piloting Carbon Health operations in primary and urgent care clinics in their retail stores. However, the deal came at a price. Last week, prior to the investment announcement, Carbon announced that it would wind down lines of business in public health, remote patient monitoring, hardware, and chronic care programs, cutting 200 jobs in addition to a June cut of 250, at the time about 8% of their workforce. Carbon will now concentrate on their clinic core business. 100 are presently located across Arizona, Nevada, Colorado, Kansas, Florida, Massachusetts, and California (San Francisco, Bay Area, and San Jose).

In the last two years, Carbon raised $350 million and grew by acquiring four clinic chains. It diversified by buying Steady Health (chronic care management in diabetes) and Alertive Health (remote patient management)–both businesses they are departing. Reportedly last month they bought Inofab Health, an Istanbul-based digital health platform for patients with asthma, chronic obstructive pulmonary disorder, and cystic fibrosis. Crunchbase, FierceHealthcare, Mobihealthnews, SF BizJournal,

CVS is still working its Signify Health acquisition past the Department of Justice (DOJ) and the Federal Trade Commission (FTC). It went into a Second Request for information in late October under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR), which adds 30 days to the review timetable after the Second Request has been complied with. There is some competitive overlap between CVS and Signify in home health management and accountable care organization (ACO) operations, and some divestitures may be necessary. A closing in Q1 as planned seems optimistic. Acquiring Oak Street may complicate matters since their clinics operate as a Direct Contracting Entity (DCE, now ACO REACH). This present administration is not friendly towards healthcare consolidation of any type, especially with entities participating in Federal programs. (See UHG’s acquisition of Change Healthcare, with court approval being appealed by DOJ.) Reaching (so to speak) deep into CMS programs could be a red flag.

Walgreens’ VillageMD finalized their Summit Health acquisition for $8.9 billion yesterday (9 Jan) (updated). Now with 680 provider locations in 26 markets and 20,000 employees, the group adds to VillageMD’s primary care practices specialty practices in neurology, chiropractic, cardiology, orthopedics, and dermatology plus 150 City MD urgent care locations. 200 VillageMD locations are already adjacent to Walgreens locations. Walgreens Boots Alliance (WBA) and Evernorth, the health services business of Cigna, were the two investors. WBA raised full-year sales guidance from $133.5 billion to $137.5 billion. The current chair and former chief executive officer of Summit Health, Jeffrey Le Benger, MD, will be the interim president until VillageMD finds a permanent president reporting to VillageMD CEO Tim Barry. Release, RevCycleIntelligence, Forbes  At this point, Walgreens hasn’t moved forward with the rumored acquisition of ACO management services organization Evolent Health [TTA 1 Oct 22], which would be far more complex. 

Amazon is still awaiting Federal approval for One Medical as well as in multiple states (Oregon only the first; expect scrutiny). It is also closing Amazon Care and opening asynchronous non-face-to-face telehealth service Amazon Clinic.  Walmart continues on an internal strategy of opening Walmart Health clinics in underserved areas. Earlier in 2022, they announced the opening of more health ‘superstores’ in Florida, having established 20 in Arkansas, Illinois, and Georgia starting in 2019. Walmart’s approach to retailing health services and products, since getting serious about it in 2018, has wavered with multiple changes of strategy and executive departures [TTA 22 Nov 22]

News & deal roundup: Oak Street adds telespecialty RubiconMD, ATA plumps for wider telehealth access, yet claims fall to 4%, West Suffolk NHS adds Zivver mail/file security, Northwell’s $100M for AI–and miss industry shows yet?

October 29, 2021 | by

Primary care network Oak Street Health acquired virtual specialty telehealth provider RubiconMD for $130 million. Oak Street is a 19-state network of physicians in care centers who specialize in Medicare patients. RubiconMD has 230 specialists who provide doctor-to-doctor teleconsults (eConsults) in 120 specialties, with an emphasis on cardiology, nephrology, and pulmonology, which is a strong fit for Oak Street. RubiconMD also has separate offerings for specialty care panels and behavioral health. The $130 million includes up to $60 million in cash or cash/stock, subject to achievement of defined performance milestones. Management transitions were not disclosed. Release, FierceHealthcare

The American Telemedicine Association wants to preserve wider telehealth access into 2022–even if the public health emergency (PHE) for Covid has to be extended. Although the Medicare Physician Fee Schedule proposed by CMS for 2022 includes areas of wider telehealth access and reimbursement (temporary access under Schedule 3 added in 2021) into 2023 regardless of the PHE, Congressional action is required to permanently expand telehealth beyond the existing programs mostly for rural areas. If necessary, ATA is advocating that Health & Human Services (HHS) extend the PHE through 2022 so that telehealth access and reimbursement are preserved. ATA release, FierceHealthcare

While this Editor can understand ATA’s frustration and the sincerity of its aims, it distorts the emergency meaning of a PHE that is just about nonexistent except for mandates. And telehealth claims, even with current access, have sunk down to a tick above 4%, 60% of which are mental health codes (FAIR Health July national data). Too many providers, too little demand? 

The West Suffolk NHS Foundation Trust (WSFT) has selected Zivver UK to secure its mail and file transfer systems, as it migrates from NHS Mail to Microsoft 365. It includes encrypted email to patients as a core requirement meeting NHS digital standards, and ease of use for both sender and recipient in MS Outlook. 4,800 staff at WSFT, which covers 280,000 people who live in West Suffolk. Release. Hat tip to HISTalk for this and the next two stories.

Northwell Health backs AI health startups via joint venture with Aegis Ventures with $100 million stake. The JV between the two New York-based companies “will ideate, launch, and scale AI-driven companies to address healthcare’s most challenging quality, equity, and cost problems” with stakeholders across Northwell’s extremely large system. According to the release, “Northwell has a track record of success in AI research, including the development of a landmark algorithm that predicts patients’ overnight stability to reduce the need to wake them for vital sign checks.” Nice to know that a health system appreciates patient sleep. 

And finally–miss the grip and grin of a F2F industry trade show and presentations? Your Editor, who was once a habitué of meetings from Boston to Florida, does. Really! Virtual conferences, once fun, are now tedious. So enjoy this walk through of HLTH21 by Ben Rooks, the Investor Man, at the Boston Seaport (a great venue, though not precisely central), right down to the barbers, puppy rescue, disco ball, and juice shots. Courtesy of HISTalk