Cigna and Humana Eye Blockbuster Merger

The headline of the week – and possibly the year – goes to the Wall Street Journal’s scoop on the upcoming mega-merger between Cigna and Humana, which could create a new payor powerhouse before the end of next month.

Although “sources close to the matter” didn’t disclose the structure or terms, the combined company would be worth some $140 billion, making it the third largest player in the sector behind only UnitedHealth and Elevance.

Cigna hauled in upwards of $180 billion in revenue last year, mostly from its strong position in the commercial coverage market. The acquisition of Express Scripts in 2018 also made Cigna one of the biggest names in pharmacy benefits, and its Evernorth health services arm has been adding more fuel to the fire.

  • The glaring white space in that portfolio happens to be one of the biggest growth engines for insurers, the Medicare segment.
  • While Cigna’s been trying to build momentum in Medicare Advantage since picking up HealthSpring in 2011, just this month it announced that it’s “evaluating options” to offload its underperforming MA unit.

Humana is the second largest Medicare insurer, and last reported that its MA enrollment stands at about 5.9M members – 3x more than Cigna. 

  • On top of that, Humana’s CenterWell home-health business and growing network of primary care clinics give it a big leg up in managed-care and VBC, two areas that would complement Cigna’s Evernorth operations.
  • Despite those strengths, last year’s revenue was about half of Cigna’s at ~$93B, and Humana recently announced that it would be shedding its commercial business to focus on its core MA line.

It’s worth noting that this isn’t the first time Cigna and Humana have considered merging, but previous attempts circa 2015 either fell apart or were blocked on antitrust grounds. This time around, with Cigna exiting Medicare at the same time that Humana bails on commercial, the pair seem to be building a decent case that a merger wouldn’t decrease competition.

The Takeaway

Joining forces would vault Cigna and Humana into the top tier of integrated healthcare firms, not to mention give the M&A market a much needed jolt with 2023’s biggest transaction across all industries. We’ll apparently have all the details in the next few weeks, followed by what’s sure to be a lively antitrust case.

How Health-Tech Founders Can Survive a Brutal 2024

Journalist-turned-VC extraordinaire Christina Farr put out a feast of insights just in time for Thanksgiving, with the latest issue of Second Opinion sharing “How Health-Tech Founders Can Survive a Brutal 2024” instead of a rosy predictions post.

Why might things get worse in 2024? In part because most companies raise funding every 18 to 24 months, and those that raised at the top of the market but had a healthy enough burn rate to sit out 2023 will have to come back to the table. Some startups won’t like what they hear when the music stops.

  1. Don’t forget that there’s no shame in letting go… Farr opens her survival guide with some heartfelt advice and a light at the end of the tunnel for the startups that don’t make it. If you end up starting over with a clean slate, you’ll have: 1) a faster path to funding because you’ll know more investors; 2) a better sense of the right hires for the early team; 3) more experience finding the right customers.
  1. Don’t be afraid of a rollup. For companies that are “features” as opposed to platforms, firms are actively looking to invest in roll-ups that keep talented teams intact as they merge with other companies to build comprehensive solutions.
  1. Practice ruthless prioritization to get to break-even. Farr recommends that founders start operating as if they won’t raise another dime. The hard decisions, like cutting a growth initiative that might not pan out, are ultimately what will get expenditures equal to income.
  1. Think through what a liquidity event looks like for your business. Not all companies will see a $1 billion exit. Now’s the time to be realistic about your company’s potential and make smart decisions around that. “If you don’t expect in your heart of hearts that your company can IPO, don’t waste cycles trying to raise a big round at a big valuation.”
  1. Get into short-term survival mode. Farr is in the camp that now probably isn’t the time to step on the gas. Rather than being forced to shut down because of lack of capital, play it tight and maintain optionality. “Sometimes, particularly in healthcare when things tend to be slower, that’s all you need.”
  1. Think carefully about a down round versus structure. When debating whether it’s better to take the hit on valuation or take a term sheet that preserves valuation but includes “structure” provisions that are less favorable, Farr’s team at OMERS Ventures mostly agreed that a down round is preferential. That said, “in 2024, take whatever you can to stay alive!”

The Takeaway

The takeaway here is simple: the frontrunner for this year’s best prediction post is a survival guide, and you should probably be tuning in to Second Opinion.

Forward Closes $100M For AI CarePods

The doctor’s office of the future might not even have a doctor in it, at least if Forward can execute on its vision for CarePods using the $100M of Series E funding it locked in last week.

Forward got its start in 2016 building high-tech primary care clinics that offload as much as possible from doctors and nurses onto hardware and software. Now, it’s looking to take that model to the extreme with fully self-service AI medical stations called CarePods.

CarePods use proprietary AI layered on top of full-body scans, diagnostic tools, and lab tests to generate care plans called Health Apps, which patients can access via the Forward mobile app. Here’s how it works:

  • You unlock the CarePod using your smartphone, then step in to find a large touchscreen and a glowing ring on the floor that marks the full-body scanner.
  • A voice starts guiding you through the process, and the screen begins serving up Health Apps for conditions such as diabetes, hypertension, and anxiety.
  • Depending on the selection, a drawer will open with the sensors needed to perform the test, as well as a needleless collection device to draw blood for any lab work.
  • After the ~15 minute process, the diagnosis is displayed on the screen and an AI-generated care plan gets reviewed by a physician and pushed to the app.

The plan is to start by launching 25 CarePods in malls and offices before doubling the footprint next year, with a $99/mo membership providing unlimited access to the CarePods, Forward app, and virtual visits with Forward doctors.

  • It’s worth noting that TechCrunch quoted Forward as planning to launch over 3,200 CarePods by the end of 2024… ambitious if true.

The initial reaction to CarePods was unsurprisingly polarized. The believers think that an accessible AI diagnosis is better than a skipped screening and no diagnosis at all. Easy enough to see their point.

  • Others are up in arms arguing that “jukebox medicine” underestimates how much gets lost when you take human interaction out of the equation. You might be able to automate primary care services, but automating primary care is out of the question.

The Takeaway

Forward’s mission is to deliver “the world’s best healthcare to one billion people,” and the only way that’s going to happen is if it can succeed in transforming “healthcare services” into “healthcare products.”  There simply aren’t enough clinicians to deliver that much care without reimagining how that care gets delivered, and Forward sees CarePods as the next piece in solving that puzzle.

Measure What Matters… To Patients

Despite years of provider attention focused on getting out in front of consumerism, health system performance metrics remain centered on transactions rather than the strength of patient relationships. 

Kaufman Hall’s 2023 State of the Healthcare Consumer Report explores the key findings distilled from a survey of 59 healthcare executives, each revolving around quantifying consumer relationships and incorporating that data into operations.

The use of consumer-focused measurement remains limited among health system leaders, and organizations over-rely on traditional transaction-focused metrics.

  • An FFS model that incentivizes volume gives rise to performance metrics that track the same, such as visit volume (tracked by 100%), market share (89%), and revenue per visit (86%).
  • Only half of respondents track at least one advanced consumer-focused measure, such as share of a patient’s total healthcare spend, their lifetime value to the system, or churn.

While traditional metrics provide valuable insights, they don’t capture the “stickiness” of patient relationships, a key driver of both better outcomes and business improvements.

  • One exec noted that most health systems deliver a wide range of services, but they rarely package and articulate them to consumers in a way that provides more touch points along the care continuum.
  • By contrast, financial-service companies lean in on consumer-facing metrics, which allows them to go after share of wallet and lifetime value through integrated solutions.

Kaufman Hall then offers a Glide Path to Success for health systems looking to recalibrate toward a more relationship-based strategy.

  • Perform an assessment of each service line using consumer-centric metrics
  • Identify loyalty drivers by analyzing how patient choices impact upstream utilization
  • Identify services that could be improved or added to improve consumer metrics
  • Measure ROI to determine whether changes are creating the expected return and pivot if they’re not

The Takeaway

If the industry intends to shift from volume to value, it’s important to continue asking what exactly it is that patients value in their healthcare. Asking them directly is an obvious option, but consumers vote every day with their wallets and their business, so tracking that data seems like a critical first step to delivering on what really matters.

A Hospital Sector Under Siege

Flare Capital’s Michael Greeley and Dr. Gary Gottlieb published a stellar breakdown of the current challenges barraging US hospitals, unpacking how the convergence of cost pressures and workforce issues is creating a perfect storm of financial distress.

It’s a thorough overview to say the least, but most of the issues fit into a few main buckets that are worth considering when mapping out how to best partner to help tackle them:

  • The median debt-to-EBITDA ratio for US hospitals stands at approximately 3.9x (up from 2.5x in 2021), and 60 health systems have seen their debt ratings downgraded this year. The looming restructuring negotiations are going to be painful.
  • CMS hospital star ratings for 2023, which measure performance along five key areas (mortality, safety of care, readmission, patient experience, timely/effective care), showed slight declines across the board. That directly translates to worse reimbursement.
  • Over 600 of the country’s 1,800 rural hospitals are at risk of closing, and mostly in states with a large number of disenrolled Medicaid members. The upcoming spike in disenrolled patients that no longer have health coverage could be the tipping point for many of these hospitals due to increased bad debt and charity cases.

One “promising shiny penny” for avoiding hospital closures has been the broader adoption of technology to reduce clinical and administrative costs.

  • In today’s environment, hospitals need a clear ROI from their vendors. The writeup makes the case that a more patient-centric care delivery system might sound seductive, but could also actually increase a provider’s overall cost structure. That might give solutions that directly drive better star ratings an edge in the current market.

The Takeaway

Hospitals are a customer base that’s under siege from a ton of angles. It’s tough to solve these problems without first identifying their root causes, and this article is a great tool for honing in on those underlying issues.

Telehealth Linked to Physician EHR Burden

Telehealth is great for a lot of things, but reducing physician EHR burdens isn’t one of them, according to a new study in JAMA Internal Medicine

Researchers analyzed the EHR metadata of 1,052 ambulatory physicians at UCSF Health over 115 weeks straddling the onset of the pandemic, comparing usage from August 2018 – September 2019 to August 2020 – September 2021.

They found that telehealth use correlated to more time spent in the EHR both during and outside of patient scheduled hours (PSHs), although the extra work was mostly related to documenting visits rather than messaging patients.

  • Comparing the pre- and post-pandemic windows, telehealth use increased from 3.1% to 49.3% of all encounters.
  • Time spent working in the EHR during PSHs increased from 4.53 to 5.46 hours for every eight PSHs.
  • Time spent working in the EHR outside of PSHs increased from 4.29 to 5.34 hours for every eight PSHs.
  • Weekly messages received from patients increased from 16.7 to 30.3, and messages sent to patients increased from 13.8 to 29.8. Despite the spike, further analysis showed that documentation added the bulk of the extra time rather than messaging.

The authors give several explanations for why telehealth might be leading to more time in the EHR, including the fact it allows the physician to compose the note throughout the encounter (instead of a shorter burst afterwards).

  • That still wouldn’t account for the increase in EHR time outside of PSHs, which the authors believe might be because telehealth improves appointment adherence and reduces the time between visits that was previously used for documentation.
  • It could also be that telehealth requires more before-visit EHR review in the absence of a physical examination.

The Takeaway

There’s plenty of research suggesting that telehealth reduces provider burnout, but this study adds a wrinkle to the underlying explanation. These results make it clear that telehealth isn’t reducing EHR time, which points to other benefits like convenience driving lower burnout, such as more flexibility, autonomy, and even engagement with work.

AI Executive Order, the Full Breakdown

The White House’s long-awaited executive order on “Safe, Secure, and Trustworthy” artificial intelligence is finally here, and it left little room to miss its underlying message: the laissez-faire era of AI regulation is over.

Among the 100+ pages of actions guiding the direction of responsible AI development, President Biden laid out several initiatives poised to make an immediate impact within healthcare, including…

  • Calling on HHS to create an AI task force within six months to assess new models before they go to market and oversee their performance once they do
  • Requiring that task force to build a regulatory structure that can “maintain appropriate levels of quality” in AI used for care delivery, research, and drug development
  • That structure will require healthcare AI developers to share their safety testing outcomes with the government
  • Balancing the added regulation by ramping up grantmaking for AI development in areas such as personalized immune-response treatments, burnout, and improving data quality
  • Standing up to serve as the go-to resource for federal AI standards and hiring, a decent signal that there’ll be actual follow-through to cultivate public sector AI talent

The FDA has already approved upwards of 520 AI algorithms, and has done well with predictive models that take in data and propose probable outcomes. 

  • However, generative AI products that respond to human queries require “a vastly different paradigm” to regulate, and FDA Digital Health Director Troy Tazbaz believes any new structure will involve ongoing audits to ensure continuous safety.

There’s already been tons of great post-game analysis on these developments, with the general consensus looking like a cautious optimism. 

  • While some appreciate the order’s whole-of-government approach to AI, others worry that “excessive preemptive regulation” could slow AI’s progress and delay its benefits.
  • Others are skeptical that the directives will be carried out at all, given the difficulty of hiring enough AI experts in government and passing the needed legislation.

The Takeaway

President Biden’s executive order aims to thread the needle between providing protection and encouraging innovation, but time will tell whether it’ll deliver on some much-needed guardrails. Although AI is a lightning-quick industry that doesn’t exactly lend itself to the type of centralized long-term planning envisioned in the executive order, more structure should be an improvement over regulatory uncertainty.

Patients Flock to Online Records and Health Apps

Digital patient experiences are becoming more important than ever, with new figures from the ONC showing a massive jump in demand for ways to access health information online.

The 2022 Health Information National Trends Survey (n=6,252) found that the portion of US adults who accessed their medical records through online tools jumped 50% between 2020 and 2022, from 38% to 57%.

  • Over the same period, the share of adults who were offered online access to their medical records by a payor or provider increased 24% to about 3 in 4.
  • Patients who were offered digital access to their records also used them more frequently, with 54% accessing them at least three times in 2022 (vs. 38% in 2020).

The ONC attributed the trend in part to the Cures Act Final Rule, which in 2020 introduced new requirements for standardized APIs for smartphone health apps.

  • In 2022, almost half of people who accessed their online medical records used only a website, whereas 19% used only an app and 32% used both.
  • The combined 51% of people who accessed their online records using an app represents a 13 percentage-point increase from 2020, and those app users also accessed their records more frequently than web-only users. 

Most of the patients accessing their online records or patient portals are using them to view test results (90%) and clinical notes (70%), but only 1 in 3 are sharing that info with a third party.

  • A vast majority (98%) also aren’t using a personal health record or portal organizing app to combine info from different sources, which the ONC suggested reflects a patient preference for tools supplied by their providers (it also probably points to a general lack of awareness around these apps and their utility).

The Takeaway

Despite the strides we’re making in patient access and the use of online medical records, the ONC’s report highlights plenty of room for improvement. Nearly half of all patients either weren’t offered or didn’t access their records / portal in 2022, and recent studies have shown significant disparities in those who do. There’s also still a relatively low percentage of patients sharing their health information, which like many of these issues, indicates a need for better education on these features.

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