Category: Digital Health

The Current State of Hospital Finances

Posted on by Jason Barry

Although we touch on Kaufman Hall’s National Hospital Flash Reports pretty regularly, the consulting firm recently published a more in-depth update on the current state of hospital finances and it looks like we could be in for a rocky 2023.

The main themes are all laid out below, but the full 13-slide deck is a quick skim if you want to take a closer look at any of the highlights.

One of the most noteworthy findings was that employed labor expenses are projected to increase more than all non-labor costs combined by the end of this year.

  • Hospital labor expenses are expected to climb $86B from last year’s combined total, while non-labor expenses are looking at a $49B jump due primarily to inflation causing drug and supply costs to remain 20-25% above pre-pandemic levels.
  • Contract labor expenses remain nearly 500% higher than in 2019 as the battle for nursing talent continues to pressure margins despite this year’s slowdown.

Kaufman Haul’s optimistic projections for the rest of the year now indicate that hospital margins will be down 37% from pre-pandemic levels, but their pessimistic models point toward a significantly sharper 133% decline.

  • The most pessimistic scenarios include COVID-19 variant surges, sustained inflation and expense growth, sicker patients who have delayed care, aggressive payer negotiations, and increased mix of non-commercial payers.
  • Half of hospitals reported a negative operating margin in H1 2022, and 53% are expected to be in the red by the end of the year – a pretty bleak picture considering only a third of hospitals saw negative margins prior to the pandemic.

The Takeaway

Hospitals have been feeling the pain of sluggish volumes and climbing expenses since the early days of the pandemic, but they’re now faced with a total lack of foreseeable federal support to help stabilize their deteriorating financials. Unless the situation starts showing signs of improvement, it’s likely that the service cuts and restructuring moves are just getting started.

Rock Health Q3 2022 Funding Recap

Posted on by Jason Barry

The end of Q3 means it’s time for another digital health funding wrap-up from our friends over at Rock Health, and many of you can probably guess how the numbers looked:

  • Total Q3 funding plunged 48% to $2.2B, the lowest quarterly amount since Q4 2019.

The low total puts us on pace for less than half of last year’s $29.2B haul, but the full story isn’t as grim as it sounds. Smaller round sizes, rather than fewer rounds, dragged down the overall number.

  • Q3’s 125 deals only represented a 14% drop, but a newfound preference for early-stage startups caused the $100M+ mega-rounds to dry up completely with the exception of Cleerly ($223M Series C) and Alma ($130M Series D).
  • Only six Series C or higher rounds took place during the third quarter, accounting for less than 5% of total funding volume. By comparison, Q2 saw 19 late-stage rounds and Q1 had 32.

Rock Health floats three explanations for the late-stage slowdown: 1) Many rounds were pulled forward to 2021 to strike while the iron was hot. 2) Other raises are taking place behind the scenes through round extensions or venture debt. 3) We’re in the middle of the biggest bear market in a decade… so some funding just isn’t happening.

The other major shift taking place with investors can be seen with the top funded value propositions and clinical indications.

  • Value Props: Non-clinical workflow companies vaulted into first place ($1.8B YTD), suggesting that staffing shortages and employee burnout remain top priorities. 
  • Clinical Indications: Digital mental health companies held on to the throne ($1.7B YTD), but oncology ($1B) and cardiovascular startups ($0.9B) have been gaining ground.

The Takeaway

It’s no surprise that this year’s public market correction is causing private market investors to hold out for smoother sailing, but if Rock Health’s Q3 report shows us one thing it’s that truly innovative startups will attract capital no matter how turbulent the macroeconomic waters. Rock Health also left us with an important reminder that “rational prices promote long-term market health and, if anything, diminish near-term worries.”

Judge Greenlights UnitedHealth’s Change Acquisition

Posted on by Jason Barry

The big are getting bigger after a federal judge denied the DOJ’s attempt to block UnitedHealth Group’s $13B acquisition of Change Healthcare, delivering a huge victory to the healthcare giant as it continues to vertically integrate its business.

As part of the decision, UHG will be required to divest Change’s ClaimsXten service line (it already has TPG Capital set to pick it up for $2B), although not much else is known about the full opinion since it “may contain competitively sensitive information” and is under seal.

UnitedHealth Group needs little introduction, but in case you’re new to the industry, it runs one of the nation’s largest payors, operates a huge pharmacy benefit manager, and employs thousands of physicians through its care centers.

  • Change’s claim processing business is now getting rolled into UHG’s OptumInsight analytics arm, which it argued will help improve outcomes and reduce waste by providing better insights to physicians.
  • To give you an idea of UHG’s scale, OptumInsight contributed ~$12B to its insane $288B total revenue in 2021. By comparison, Change did about $3.5B in revenue last year, and even that is getting chopped as it sheds ClaimsXten.

UHG’s position as the US’ most profitable healthcare company paints a huge target on its back for antitrust lawyers.

  • The DOJ argued that acquiring Change would give UHG access to a treasure trove of data on its payor competitors and create a virtual monopoly in the claims processing space, leading to lower quality and less innovation.
  • UHG countered that it already has access to this competitor data, and has never misused it since doing so would create a huge blowback on its business (we’ll also assume they said something about it being unethical). Some version of this argument clearly stuck.

The Takeaway

Whether or not it created a monopoly, the Optum-Change combination is now a major powerhouse that doesn’t sound fun to try and compete with. DOJ top brass Jonathan Kanter wasn’t very enthused about the outcome, saying “we respectfully disagree with the court’s decision and are reviewing the opinion closely to evaluate next steps.” That looks to us an awful lot like the DOJ is planning to appeal the judgment, but UHG and Change are moving forward with combining the companies “as quickly as possible.”

AMA Report Shows Strong Digital Health Adoption

Posted on by Jason Barry

Just in time to kickoff Telehealth Awareness Week, the American Medical Association released its latest digital health research report, giving us some fresh insight into the emerging tech landscape while reaffirming many of the trends we frequently cover.

The AMA surveyed 1,300 physicians in 2016, 2019, and 2022, tracking not only their current usage stats, but also their motivations for adopting new solutions.

The top line takeaway from the report is that physician adoption of digital health tools is accelerating even faster than it was prior to the pandemic, with the largest growth by-far coming from telehealth visits.

  • Tele-visit utilization grew from 14% of practices in 2016, to 28% in 2019, then spiked to 80% in 2022. Remote monitoring devices lagged quite a ways behind, but still climbed from 12% to 30% over the same period.
  • The adoption was driven by physicians across all practice sizes, settings, and specialties, with the average number of tools in use growing from 2.2 in 2016 to 3.8 in 2022. Definitely worth taking a look at the full usage breakdowns on slide 9.

Physicians jumped on the digital health bandwagon for a variety of reasons outside of COVID-19’s negative shock to in-person encounters.

  • Improved clinical outcomes (88%) and increased work efficiency (88%) topped the list for overall digital health adoption, which is a bit surprising considering that unproven clinical benefits and new workflows are frequently cited as drawbacks of virtual care.
  • Interestingly, the top motivators for adopting “remote care tech” differed completely. 72% said that adopting tools like telehealth and RPM improved resource allocation for staff, 70% said it supported value-based care, and 66% said it supported health equity. 

The Takeaway
The AMA report is a useful roadmap for anyone looking to understand where physicians are in their digital health journeys, as well as the motivations driving them to adopt new technologies. There are also some hidden gems for those diligent enough to make down to the appendix on slide 24 of the report, which includes technology adoption curves and planned timelines for adopting different subsets of tools.

General Catalyst and WellSpan’s Digital Transformation

Posted on by Jason Barry

One of healthcare’s biggest venture capital hot streaks is adding fuel to the fire, with General Catalyst and WellSpan Health entering a new partnership to drive digital transformation.

General Catalyst and Pennsylvania-based WellSpan are aiming to improve care models and patient engagement by embedding tech from the VC firm’s “health assurance network” into the health system’s operations.

GC’s health assurance network is comprised of portfolio companies with broad expertise in everything from employer benefits to population health, and includes marquee names such as Aidoc, Cadence, Olive, Sword Health, and Transcarent.

  • The partnership involves no financial commitment from either party, but provides GC with insights from real-world clinical applications and allows WellSpan to invest in any co-developed solutions.
  • The formula appears to be working. This is GC’s fourth health system partnership of this kind, adding to collaborations with Intermountain Healthcare, Jefferson Health, and HCA Healthcare.

General Catalyst originally found success with grandslam investments in Airbnb, Instacart, and Snapchat, but it’s been pretty hard to miss the huge waves it’s been making with its dive into healthcare.

  • In July, GC raised its second $600M+ healthcare fund, which it followed up by tapping then-Intermountain Healthcare CEO Marc Harrison to helm its investment platform.
  • That also wasn’t exactly GC’s first hospital exec hire, with former Jefferson Health CEO Stephen Klasko joining the firm in February… Looking back up to the names of GC’s health system partners, WellSpan might want to take a hard look at its incentive packages if it wants to hold onto its leadership.

The Takeaway

General Catalyst couldn’t make its stance on healthcare transformation any more clear: incumbents hold the keys to the innovation kingdom. The VC firm is also keen on catalyzing its own thesis, so expect plenty more health system partnerships to be inked before the end of the year.

Amazon Ends Amazon Care, Pursues Signify

Posted on by Jason Barry

What a week for Amazon. Just when you think that entering the bidding war for Signify Health would be enough excitement for one top story, the tech giant had to overshadow the news with another major announcement:

Amazon Care will shut down at the end of the year.

In an internal memo obtained by The Wall Street Journal, Amazon Health Services SVP Neil Lindsay explained that the primary care offering wasn’t “the right long-term solution” for its enterprise customers.

  • The move comes as quite the surprise given that CEO Andy Jassy recently highlighted Amazon Care in his first letter to shareholders, as well as the fact that we just covered a new partnership with Ginger that would’ve brought behavioral healthcare to the service.
  • Although Lindsay didn’t give too many details on the matter, earlier this month The Washington Post reported on a growing tension over Amazon Care’s ability to balance growth with proper medical safeguards, as well as a nursing shortage that’s been hampering expansion. 

Amazon said that its decision to pull the plug on Amazon Care was made prior to last month’s $3.9B acquisition of One Medical, but the company’s second major headline from this week might cast some light on the course correction:

Amazon is on the list of heavy hitters competing for the Signify Health acquisition.

  • Other companies vying for Signify include CVS Health and UnitedHealth Group, with the latter bringing the highest reported offer (so far) to roughly $8B – implying a 20% premium at $34 per share.
  • We covered Signify’s core home care business in our initial writeup, but Amazon’s angle could center more around the treasure troves of data that the company collects on the Medicare Advantage population that just so happens to be the same patients served by the Iora segment of One Medical.

The Takeaway

Regardless of the outcome of the Signify acquisition, Amazon’s interest in the company and the abrupt end to Amazon Care seem to signal that it’s done its diligence and has decided to hone its focus on a combination of senior care (Signify + Iora), primary care clinics (One Medical), and prescription delivery (Pillpack). 

We’ll leave further speculation alone for now since we luckily shouldn’t have to wait too long for an official update. Signify is set to have a board meeting on Monday to discuss the offers, and negotiations are expected to conclude shortly after Labor Day.

Incredible Health Closes $80M Series B

Posted on by Jason Barry

Nurse staffing platform Incredible Health landed $80M in Series B funding as it looks to flip the script on the healthcare worker shortage by having hospitals apply for nurses, rather than the other way around.

The round brings Incredible Health’s total funding to $97M and vaults it into the unicorn club with a $1.65B valuation.

Incredible Health’s hiring platform uses machine learning algorithms to match candidates to open nursing positions at health systems, focusing on permanent placements as opposed to temporary ones.

  • The platform first gathers information on each nurse’s licenses and certifications, then asks candidates about their goals, working preferences, and any skills they wish to gain.
  • This allows provider organizations to streamline hiring with highly curated lists of best-fitting candidates, which Incredible Health reports has reduced its average hiring time to 14 days (vs. an industry average of 82 days).

The fresh funding is earmarked to scale the platform from 35 states to 90% of the US nurse workforce while adding more support for users (skill growth, educational scholarships, cross-training) to help attract talent away from increasingly well-financed competition.

Here’s a snapshot of activity in the space within just the last year:

  • June 2022 – Nomad Health raised $105M in growth financing ($218M total funding)
  • April 2022 – Clipboard Health raised an $80M Series C ($94M total funding)
  • April 2022 – IntelyCare raised a $115M Series C ($171M total funding)
  • December 2021 – connectRN raised a $76M venture round ($96M total funding)
  • November 2021 – Trusted Health raised a $149M Series C ($175M total funding)

The Takeaway
Incredible Health’s funding arrives at a critical time, with 100k registered nurses leaving the workforce in 2021 alone. This has created a huge demand for solutions that can help address the problem, but it’s also led to a crowded competitive landscape that makes differentiated features like Incredible Health’s hospital-to-nurse application structure a necessity.

CVS Health 2022 Health Care Insights Study

Posted on by Jason Barry

CVS Health’s 2022 Health Care Insights Study revealed that people are eager for the next chapter in their health journeys after multiple years of delayed care and lifestyle disruptions. CVS surveyed 1,000 US consumers and 400 providers about their ideal care delivery experience, finding that the pandemic unsurprisingly caused many people to redefine what healthcare should look like.

The full study has 14 slides of insights to catch you up on the latest sentiment towards everything from patient engagement to primary care (the 1-pager can get you pretty close), but the biggest highlights fell into two main buckets.

Patients are embracing a more holistic view of their health, with 54% saying that it’s important for care plans to involve diet, exercise, and counseling. The pandemic proved to be a catalyst for positive change, with 22% of consumers reporting that they care more about their health than ever before.

  • As a result, patients are taking a more active role in managing their own healthcare, with 17% saying they’re now more likely to book their annual wellness checks.
  • 83% of consumers said good patient-provider communication and continuous care coordination is important to their health, yet 88% of providers reported that they don’t have enough time for strong patient engagement.

Virtual care is helping providers keep pace with rising consumer expectations. Nearly all consumers (92%) value convenience above all other factors when selecting a primary care physician, while 59% said it’s important to their health to have access to telehealth services.

  • 62% of consumers are likely to consider virtual visits if a physical exam isn’t needed, primarily due to convenience-related reasons such as not having to leave home (41%) or saving time (37%).
  • 53% of providers said that adding telehealth resulted in more patient visits, and a majority also believe it made patients more likely to make appointments (93%) and keep them (88%).

The Takeaway

If the CVS Health report made one thing clear, it’s that patients are engaging in their care with a renewed sense of urgency towards holistic wellness and convenience. All signs are pointing towards “coordination” and “communication” being two of the biggest watchwords for post-pandemic healthcare, and that’s a strong demand signal for solutions that make them possible.

Rock Health: Funding Cools Off in H1 2022

Posted on by Jason Barry

The numbers are in. After a record shattering year for digital health funding in 2021, the latest Rock Health venture recap shows that the sector’s frothiness has officially turned to a fade, which might actually be good news for opportunistic startups.

First things first, digital health funding totaled $10.3B across 329 rounds in H1 2022, placing it on a trajectory to end the year significantly lower than 2021’s $29.1B. As the broader market plummeted in response to recession worries and global conflict, digital health companies weren’t immune, resulting in a full year funding projection of $21B.

  • Rock Health is quick to point out that “there are two sides to every (market) story.”  While this year’s funding will likely fall far short of last year, it’s still on track to outpace 2020’s $14.7B, representing an important return to long-term growth and supporting the view that digital health is a sustainable investment sector.

The slowdown impacted nearly every corner of the digital health market. Series B round sizes declined by an average of 25% in the first half of the year, while Series C and D+ rounds fell by 22% and 12%, respectively. The one bright spot was early-stage startups unburdened by an outdated sky-high valuation, with the average Series A size of $18M staying on par with 2021.

  • We’ve covered this often but it’s worth restating here: companies prioritizing growth-at-all-costs over a sustainably profitable business model are struggling in the current funding environment. As investors re-evaluate future revenue with a less favorable outlook, not a single digital health company decided the timing was right to go public in H1 2022, down from 23 in 2021.

The most-funded clinical area defended its title once again, with mental health startups bringing in $1.3B during H1 2022 on the back of a huge round from Lyra Health ($235M). This chart gives a full breakdown of the top clinical indications.

  • The value propositions that attracted the most investment were research and development at $1.6B, followed-by on-demand healthcare and disease monitoring each bringing in $1.4B. Administrative / clinical workflow automation also saw large totals as health systems continue to build back up their worn down workforces.

The Takeaway

Although the first half of the year brought a pullback in digital health funding, the return to a multi-year growth trend is a healthy sign for a sector that was overheating throughout 2021. This particular market moment gives companies a chance to tighten their belts and reorient towards a more fundamentals-driven direction, and we should start to see more differentiation and clinical rigor from the businesses that successfully navigate the transition.

Tebra Closes $72M to Become Digital Backbone for Independent Practices

Posted on by Jason Barry

True to its name originating from “vertebra,” physician enablement company Tebra closed $72M in growth financing to become the digital backbone for independent healthcare practices.

The funding brings Tebra’s total raise to $137M while minting a new digital health unicorn that’s looking to use the fresh capital to expand its market share, launch additional service lines, and overhaul its branding.

To jog the memory, Tebra was formed through the merger of Kareo and PatientPop late last year, and provides private practices a “complete operating system for practice success.” 

  • Tebra’s Care Delivery platform enables physicians to operate independently by providing a fully certified EHR, scheduling and billing support, and telehealth capabilities. Its Practice Growth service helps in areas such as patient marketing, website overhauls, and reputation management.
  • Since the merger, Tebra has launched a two-way product integration that allows both platforms to share data and optimize performance, and it now supports over 100k providers delivering care to 90M patients.

Physician enablement companies have seen business boom throughout the pandemic as doctors look to keep pace with rising consumer expectations for personalized and remote care.

  • Tebra counts athenahealth, ZocDoc, and Privia among its direct competitors, but new entrants like NexHealth and Podium have also been raising some huge funding rounds to compete in the healthcare arena.
  • Tebra points to its unification of fragmented software as its biggest differentiator, and outside of combining Kareo and PatientPop’s solutions, it’s been building its all-in-one platform through acquisitions such as billing-automation company PatientlySpeaking and patient-communications tool DoctorBase.

The Takeaway

As healthcare systems invest heavily in digital innovation, Tebra’s practice management platform is a lifeline for private practices trying to keep up. Without the financial buffer of larger systems, independent physicians have acutely felt the pandemic-driven declines in patient volumes, and Tebra’s new funding should help it support these practices by letting them offload administration and growth functions so that they can focus on delivering care.

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