Category: Digital Health

The pent-up-demand narrative is back on the menu. Speaking at Goldman Sachs’ Global Healthcare Conference, the CEO of UnitedHealthcare’s Medicare business Tim Noel said that costs are on the rise due to elevated demand for outpatient procedures.

• “We’re seeing that more seniors are just more comfortable accessing services for things that they might have pushed off a bit like knees and hips.”

That quip sent shares of UnitedHealth Group sliding over 6%, wiping out roughly $29B from the healthcare giant’s market capitalization in one of its largest single-day drops in years.

• United now expects its Q2 medical loss ratio (percentage of spend on claims versus premiums collected) to be moderately above its full year forecast (82.1% to 83.1%).

• The stocks of other major Medicare players took a pretty significant sympathy dive, with CVS (-7%) and Humana (-11%) getting the worst of it.

Why is this important? Payors have been enjoying a lull in surgery expenses due to hospital-wary patients postponing care during the pandemic, but that trend might be reversing.

• Although several surveys have suggested that some of these skipped appointments are lost for good, United’s comments show that Medicare patients are getting back on track.

That’s good news for hospital operators and medical device companies, whose revenue is closely tied to surgery frequency.

• Shares of hospital operators Tenet Healthcare and HCA Healthcare each jumped on the news, while joint replacement and implant manufacturers like Stryker and Zimmer Biomet climbed around 4%.

The Takeaway

Investors are listening closely for any signs of increased payor costs as patients start catching up on postponed care, and United’s role as the bellwether for the group means that even off-the-cuff comments at conferences are heard loud and clear. While the extent of the pent-up-demand remains to be seen, United seems to think the pressure could start shifting from hospitals to payors in the second half of the year.

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.

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.”