Month: May 2023

Florence Acquires Zipnosis From Bright Health

Posted on by Jason Barry

Florence isn’t wasting any time putting its $20M seed round to good use, picking up asynchronous telehealth platform Zipnosis off of struggling insurtech Bright Health less than two months after closing the funding.

Florence was founded to unlock clinical capacity by giving patients mobile-first experiences that rival consumer industries, allowing them to update their clinical information, fill prescriptions, initiate self-discharge, and book follow-ups. Here’s our full overview.

  • Although Florence initially set its sights on the ED, acquiring Zipnosis broadens its product suite with device-agnostic asynchronous telehealth and immediately allows it to accelerate its roadmap to new sites of care – particularly the home.
  • The cherry on top of the acquisition is that Zipnosis also brings 50+ health system customers, giving Florence a solid foot in the door to start offering its core ED services.

For its part, Bright Health acquired Zipnosis for roughly $50M just two years ago as it looked to bulk up its capabilities ahead of an IPO that ended up valuing the company at $11.2 billion.

  • As with most high-flying public debuts around that time, Bright… struggled to grow into its valuation. The company has since exited ACA exchanges, begun looking to cut its last two MA markets, and overdrawn a $300M+ line of credit.
  • That combo forced Bright to offload business lines like Zipnosis to avoid bankruptcy, and although the financial terms of the acquisition weren’t disclosed, Florence’s entire seed round doesn’t seem like it would put much of a dent in Bright’s problems.

The Takeaway

All-in-all, this looks like textbook execution by Florence. The company had just 70 employees prior to doubling its head count with Zipnosis team members, and acquiring complementary capabilities and an existing customer base was probably a lot more efficient than building them in-house. It’s also safe to say that Bright isn’t the only distressed business looking to trim units, and it’s likely that we’ll see more stories like this one as strategic acquirers scoop them up.

Hippocratic Emerges to Bring LLMs to Healthcare

Posted on by Jason Barry

Although we touched on Hippocratic AI’s emergence from stealth last week, the startup struck all the right chords with its talk of generative AI and large language models so we’re doing a deeper dive to unpack the hype. 

Hippocratic AI debuted with $50M from a massive seed round co-led by the VC power duo of General Catalyst and a16z, giving the company a “triple-digit millions” valuation right out of the gate.

  • The company’s mission is to transform healthcare through the power of “safety-focused” generative AI, but potential use cases are still in the works, with early ideas revolving around consumer-facing tasks like diet planning and medication reminders.
  • The founders even told STAT that their goals for the funding are only exploratory: developing a LLM that’s fine-tuned for healthcare, heavily testing it against knowledge benchmarks, then measuring its bedside manner. 

If including Hippocratic in the name wasn’t enough of a hint, pressure-testing the model’s accuracy is in the company’s DNA, and it isn’t planning on rushing into clinical care.

  • Accuracy is ensured through reinforcement learning from human feedback (RLHF) performed by medical professionals – a strategy that’s apparently outperforming GPT-4 on 105 of 114 healthcare certifications. [Comparison Chart]
  • As for bedside manner, Hippocratic is planning on “detecting tone” and “communicating empathy” better than rival models, and developed its own benchmark for behaviors such as “taking a personal interest in a patient’s life.”

The Takeaway

Healthcare hasn’t always been kind to AI-first businesses, with IBM having to let go of its Watson Health division and Babylon recently meeting the end of its road as a publicly traded company. That said, both of those examples paddled too early to catch the current generative AI wave with its mile-long barrel of new tech and excitement. It’s too early to tell whether Hippocratic will buck the trend, but if there was ever a moment to try it – this is it.

Clarify Research: The Kids Are Not Alright

Posted on by Jason Barry

The youth mental health crisis is past the tipping point. The number of mental health hospitalizations among children and young adults doubled between 2016 and 2022, with inpatient stays for anxiety-related issues and eating disorders tripling over the same period.

That’s according to an analysis of claims data for over 24M Americans under the age of 21 in the new The Kids Are Not Alright report from Clarify Health Institute, whose high quality research is matched only by its stellar report titles.

To frame up just how dire the youth mental health crisis has gotten (2016-2022):

  • Clarify found a 124% overall increase in mental health inpatient (IP) hospital admissions
  • A 250% increase in IP admissions for anxiety and fear-related disorders
  • A 221% increase in IP admissions for feeding and eating disorders
  • A 96% increase in IP admissions for depressive disorders
  • A 45% increase in mental health ED visits, including a 74% increase for suicidal ideation, attempts, and other self-harm

Looking at the annual incidence rates between conditions (vs. the utilization stats above), Clarify found a steep climb in new diagnoses for 8 of the 9 leading disorders:

  • Feeding and eating disorders had the highest rate of growth (44%), followed by anxiety and fear disorders (40%), and obsessive-compulsive disorders (38%).
  • Only diagnoses for disruptive and conduct disorders decreased (16%) between 2016-2022, although some volatility in diagnosing was seen at the start of the pandemic (Ex. anxiety conditions saw a 14% decrease in 2020, followed by a 36% YoY increase).

Another interesting slice of the data highlighted the differences in mental health IP utilization by age and sex, showing a particularly tough increase for girls between the ages of 12 and 18.

  • IP admissions for adolescent girls were twice as high as boys in the same age group across the entire time period (27 vs 11 per 1k), with Clarify pointing to ubiquitous social media as a primary contributor.

The Takeaway

If the goal of Clarify’s report was to provide a clearer picture of youth mental health care utilization, it succeeded by highlighting just how bleak the current landscape looks. It’s well known that the pandemic didn’t do younger generations’ mental health any favors, but these statistics are a stark reminder that there’s an urgent need to heed the calls-to-action from groups like these pediatric mental health societies and the Surgeon General.

Mid-Year Digital Health Predictions

Posted on by Jason Barry

The digital health sector has gotten a bit of an ego check since the white hot market at the start of the pandemic. Rising interest rates and a minor banking crisis continue to put a damper on startups’ ability to raise capital, but a mid-year prediction roundup from some of healthcare’s top dealmakers gives a good preview of what might come next as the market cools.

Dudley Baker, Canaccord Genuity. Notable moves: Privia Health IPO, Doximity IPO

  • Since 2020, many startups have sprung up to provide specialized behavioral health and chronic condition management benefits to employers, but the surge in valuations made many of them too expensive to acquire. These companies could have a hard time raising more capital on their own, so Baker expects them to seek out mergers of equals instead.

Claire Pearson, Barclays. Notable moves: Cricket’s merger with InterWell and Fresenius 

  • Pearson sees four areas ripe for M&A centered around new tech capabilities and scale: women’s health, orthopedics, cardiology, and kidney care. Pearson pointed to Cricket’s merger with InterWell and Fresenius as an example of what works in each of these sectors – it combined contracting, providers, and technology under one roof.

Fletcher Gregory, General Atlantic. Notable investments: Included Health, Vida Health

  • Employers weary from working with too many vendors have begun narrowing their focus to companies that can deliver outcomes and lower costs. To make the cut, Gregory predicts that digital health startups working on a single problem are going to have to improve their clinical models in ways that they likely can’t do without combining.

Seth Kneller, TripleTree. Notable moves: KKR’s acquisition of Therapy Brands.

  • Kneller favors companies that are addressing the labor crisis by helping hospitals and health systems become more efficient. Companies using AI to take over tasks like clinical documentation and administrative work look especially attractive to acquirers, but only if they can prove cost reductions for hospitals. 

Karl Palasz, William Blair. Notable moves: Fortive’s acquisition of Provation

  • Companies that employ behavioral health providers to deliver virtual care have struggled to live up to expectations due to a lack of differentiation and the clinician shortage. Palasz has his eye on companies that provide software to niche behavioral health practices, such as substance-use recovery or autism.

The Takeaway

Pending any major economic catastrophe, it seems like the general consensus is that the tide could start turning for digital health M&A within the next few months. Although the IPO market will probably stay limited, the partnerships that are forming now are setting the stage for more M&A in the back half of the year as companies look to combine so they can better weather the tough funding environment.

Amino Lands $80M for Benefits Navigation

Posted on by Jason Barry

Health benefits navigation platform Amino Health just gave our lackluster Q2 funding totals a nice eight-figure lift after landing $80M in an even mix of equity and debt financing.

Amino got its start as a direct-to-consumer healthcare guidance product before recently evolving into an enterprise subscription model serving health plan members, third-party administrators, and benefits administrators.

  • Amino’s platform offers customizable tools to guide its users toward efficient care, using over 200 clinical quality measures to assess the quality and necessity of various treatments for everything from migraines to surgery.
  • The company says its D2C roots “battle tested” the platform’s user experience, and it now supports over 1.6M members with 97% customer retention – usage that’s generated 26 billion claims to date.

Within the last quarter, Amino added over 500k providers by including groups like nurse practitioners and physician assistants, and the new funding will accelerate further marketing and product development efforts.

  • As the benefits market expands and grapples with new regulatory requirements and an explosion of data – particularly from the federal Transparency in Coverage Rule – startups providing navigation tools have had some positive tailwinds.
  • The funding environment for these companies has held up better than the broader sector, with recent rounds including HealthJoy’s $60M Series D and Transcarent’s $200M Series C.

The Takeaway

Amino’s transition away from D2C gives the company a more capital-efficient model that allows its product to get sponsored by either the employers that are purchasing the benefits directly or the partners who are helping people find them. The large funding round gives Amino credit for the pivot, as well as $80M to help it execute on the new strategy.

How to Scale a Health Tech Business to $100M ARR

Posted on by Jason Barry

Bessemer Venture Partners recently put out a top-tier blog post outlining how to scale a health tech business to $100M in annual recurring revenue (ARR) and the benchmarks to look out for along the way.

We won’t dive into the full finance lesson, but here’s an overview of the key benchmarks Bessemer gave to help understand how top performers compare to similar companies. 

Every company is different, but Bessemer segments health tech businesses into two main buckets.

  • Healthcare SaaS – Cloud-based software alongside data and analytics with highly recurring revenue. Examples include Doximity, Mindbody, and Veeva.
  • Tech-Enabled Services – Care or navigation support to patients via either B2B2C or direct-to-consumer models. Revenue is mostly recurring from either an enterprise or consumer via subscriptions. Examples include Hims & Hers, Livongo, and Accolade.

It takes roughly a decade to reach $100M in ARR across most health tech businesses. However, tech-enabled services businesses scale to their first $10M ARR in an average of three years, whereas healthcare SaaS businesses take an average of six years due to longer sales and implementation cycles.

Growth slows as companies scale their ARR. Bessemer found that both business categories see revenue growth of over 200% until $10M ARR, and each grow half as fast by the time they reach $25M ARR. Tech-enabled services grow faster than SaaS at every step.

Improving margins unlocks scalability. Tech-enabled services businesses steadily improve gross margins as they scale due to several factors (pricing power follows proven outcomes, tech improvements improve care quality, provider panels get more efficient). Healthcare SaaS businesses see more stable 65-70% gross margins across all stages.

The Takeaway

Bessemer’s full analysis breaks down pretty much every metric a health tech startup could ask for to inform their scaling decisions, but the three charts above give a quick snapshot of top performers. For a full benchmark overview by company size, make sure to bookmark these cheat sheets for Healthcare SaaS and Tech-Enabled Services.

Option Care Health Acquires Amedisys for $3.6B

Posted on by Jason Barry

There’s a new home health giant on the block after infusion services provider Option Care Health shelled out $3.6B of stock to acquire in-home care and hospice company Amedisys.

The acquisition creates a massive entity specializing in nearly every type of home care, with over $6B in annual revenue between its 16k+ employees and 46 state footprint. 

It’s worth mentioning that the initial analyst reaction to the merger was… not great. The news sent shares of Option Care’s stock sliding over 20% as investors grappled with Amedisys’ reliance on Medicare reimbursement that hasn’t been friendly to home health.

Option Care is one of the largest providers of home and alternate site infusion services, with nearly all of its revenue (88%) stemming from commercial health plans.

Amedisys ranks among the nation’s top independent providers of home health services, offering everything from nursing to hospice. It’s also a major hospital-at-home player thanks to its 2021 acquisition of Contessa Health. A majority of Amedisys’ revenue (76%) comes from Medicare and other government plans.

Combining the two is expected to reduce costs by $50M right out of the gate, due primarily to tech-enabled efficiencies, an optimized geographic footprint, and realigning costs through combined purchasing volumes.

  • Revenue is also projected to increase by ~$25M through enhanced care coordination across each company’s respective patient base, as well as new programs. That’s about a 4% increase over the $622M the businesses generated last year.

Although a one-stop home health provider looks good on paper, the mixed response centered around Medicare’s recent reimbursement cuts for in-home therapies, with more cuts likely on the horizon in next month’s proposed rule for 2024.

  • That’s on top of the ongoing shift to Medicare Advantage and its meaningfully lower rates, not to mention the acquisition arrives just two months into Richard Ashworth’s tenure as Amedisys CEO.

The Takeaway

Regardless of the timing, combining Amedisys’ home health and hospice solutions with Option Care’s alternate site infusion services creates a juggernaut in-home provider at a time when healthcare continues to move away from the hospital. The combined business undoubtedly has a more diversified payor mix than either one independently, and the leadership team believes the synergies and joint negotiating power will more than offset any reimbursement headwinds. Time will tell.

ChatGPT Crowned the Champ of Bedside Manner

Posted on by Jason Barry

The most talked about research of the week was easily the JAMA Internal Medicine study that found that licensed medical professionals prefer ChatGPT’s responses to patient questions better than doctors’ responses 79% of the time – in part because ChatGPT is more empathetic.

What wasn’t discussed as much was the fact that the doctors’ responses were sourced from questions on Reddit – AKA from doctors with the time and empathy to share their thoughts in the first place – so it’s possible that ChatGPT’s lead is even wider than it’s getting credit for.

Here’s how it worked. Researchers randomly pulled 195 exchanges from the r/AskDocs subreddit where a verified physician responded to a patient question.

  • ChatGPT responses were then generated by entering the original question into a fresh session (without prior questions to work with). The anonymized responses were then evaluated by five licensed medical professionals.
  • Evaluators chose “which response was better,” then judged “the quality of information provided” (very poor, poor, acceptable, good, or very good) and “the empathy or bedside manner provided” (not empathetic, slightly empathetic, moderately empathetic, empathetic, and very empathetic). Outcomes were transferred to a 5 point scale.

The results were a blowout. The proportion of responses rated as “good” or “very good” quality was 3.6x higher for ChatGPT, with 78.5% of ChatGPT responses scoring ≥4 points versus… 22.1% for physicians.

  • The proportion of responses rated as “empathetic” or “very empathetic” was a whopping 9.8x higher for ChatGPT, with 45.1% of ChatGPT responses scoring ≥4 points versus just 4.6% for physicians. 
  • Disclaimer: It probably wasn’t too hard for the judges to discern between ChatGPT’s well-punctuated prose (not to mention its 211 word average response length) and the off-the-cuff Reddit comments of the physicians (52 word average).

The Takeaway

When it comes to answering the health questions of random Reddit users, tireless AI robots appear to be far better than physicians donating their time. That said, overflowing EHR inboxes remain a leading contributor to physician burnout, and the authors summed it up perfectly with: “Despite the limitations of this study and the frequent overhyping of new technologies, studying the addition of AI assistants to patient messaging workflows holds promise with the potential to improve both clinician and patient outcomes.”

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