The Biggest Company in the World

Venture capital giant Andreesen Horowitz (a16z) got right to the point in a recent blog post that made a huge splash across health tech social media: “We think the biggest company in the world will be a consumer health tech company.”

a16z lays out two paths that could let a healthcare company leapfrog over massive consumer icons like Google, Apple, Facebook, and Amazon to become the world’s most valuable company (Fun fact: the $4T US healthcare market is 5x the size of the global advertising industry).

Path 1 involves creating a vertically integrated “payvidor” that grows to own most care. Picture a company that looks something like if “UnitedHealth Group and Apple had a baby,” with the business model of UHG but the sleek consumer experience of Apple.

  • a16z believes that these companies will need to become big enough to cover most specialties, and also own a health plan that encourages patients to stay within the same care ecosystem (similar to Apple’s tech lineup).
  • Combining both components is essential so that the reimbursement arm can serve as a distribution channel for the care delivery services.

Path 2 centers around building a horizontal marketplace similar to Amazon where healthcare services are aggregated alongside trusted reviews and comparison data. 

  • According to a16z, the key to success for healthcare marketplaces is to serve as an acquisition channel for established players, in addition to being their own acquisition channel.
  • These companies will need to crack the code on how to direct patients to relevant services, while also leveraging the traditional healthcare system for both provider listings and patients.

The Takeaway

Some of the biggest companies in the world are consumer companies that were built in relatively small industries, and the US healthcare market is so big that it can support plenty of success stories with both vertical and horizontal models. That said, packaging something as complicated as healthcare into a consumer experience as simple as Amazon isn’t exactly an easy task, which is why a16z believes that the biggest company in the world will be the one that pulls it off.

HLTH 2022 Recap and Major Announcements

HLTH 2022 is officially a wrap, and we’re sending lots of good energy to the vendors currently breaking down their booths after spending a full week in Vegas.

Hats off to HLTH for putting together a stellar 9,000 person event with awesome attendees, a great speaking track, and the best lunch menu in the industry.

If you weren’t able to make it in person, we’ve got you covered with a roundup of some of the biggest announcements that were showcased in the exhibit hall.

  • 98point6’s new OEM platform tailored for health systems signed Tacoma-based MultiCare Health System as its first partner, licensing the virtual care solution within its hybrid ambulatory care platform, Indigo Health.
  • Awell and Healthie are partnering to enable care organizations to build clinical workflows in Awell’s low-code platform and easily integrate them into Healthie’s API to automate routine clinical tasks and synchronize data between systems.
  • Carenostics joined Bayer G4A’s portfolio of Digital Health Partnerships, providing the AI startup with a €200k convertible loan and coaching from industry experts to help enable earlier clinical intervention through machine learning on EHR data.
  • Google and Epic are partnering to create a new offering that’ll allow Epic hospitals to run their EHR on Google Cloud, with New Jersey-based Hackensack Meridian Health set to be among the first users.
  • General Catalyst tripled its health system partner roster with 10 new logos that it will work with to co-build startups: Banner Health, Cincinnati Children’s, Hackensack Meridian Health, Health First, MetroHealth, OhioHealth, MUSC, UC Davis Health, UC Irvine Health, and Universal Health Services.
  • Health Gorilla was selected by MEDITECH as the technology platform for Traverse Exchange Canada, a new interoperability network designed to enable the seamless flow of health information between participating organizations across Canada.
  • Hello Heart added Dot-to-Dot capabilities to its digital heart health program, leveraging AI to help people draw connections between their lifestyle choices, such as minutes walked or medication adherence, and their heart health.
  • Included Health, the digital health powerhouse formed by the merger of Doctor on Demand and Grand Rounds, launched an All-Included Health hybrid care service to provide primary, specialty, and behavioral care with personalized care teams.
  • Maven Clinic entered the unicorn club with a $90M Series E raise that’ll help the virtual maternity and family health clinic expand its parenting, pediatrics, and menopause platform beyond the 175 countries it already serves.
  • Nomi Health unveiled its Connect fintech platform to power real-time healthcare payments, enabling health plans and third-party administrators to drastically speed up their processes while cutting down on administrative waste.
  • Roche unified its digital health portfolio under the navify brand, providing a range of solutions that help provide evidence about optimizing operational processes and clinical decision making.
  • SonderMind acquired neuroscience company Total Brain to enable patients to better understand their mental state outside of therapy while helping therapists implement measurement-based care techniques.

Welcome to all of our new readers that we met at HLTH, and stay tuned for deeper dives into many of these announcements in next week’s Digital Health Wire.

2022 Digital Health M&A Trends

One of the best reads of last week was Rock Health’s deep dive into the digital health M&A trends that have defined 2022 as the funding bubble lets some air out.

While big ticket acquisitions have taken up most of the spotlight, Rock Health makes the case that declining valuations, customer overwhelm, and an unfriendly IPO market are setting us up for a widespread upswing in M&A activity.

This year’s 144 M&A moves have been shaped in part by supply-side dynamics (harsh fundraising conditions make M&A look more appealing than a down round or shaky IPO), but the report lays out four acquirer archetypes that are likely to drive the next wave.

  • Consolidation for inorganic growth – Lets startups grow their customer base while building confidence from investors looking for growth. This approach is particularly useful as purse strings tighten and customer acquisition costs climb.
  • Enhancing core operations – These acquisitions ideally offset their cost with the internal efficiencies gained in areas such as data integration or analytics. Provider orgs are leaning into this approach, logging 11 transactions Q1-Q3 2022 (3x 2021’s total).
  • Buy-and-build – Acquiring complementary features that enable the acquirer to move along the care delivery value chain or into adjacent categories. Examples include Quest Diagnostics’ acquisition of Pack Health (pushed Quest beyond lab testing into patient engagement / condition management) and Advocate Aurora’s acquisition of MobileHelp (propelled the health system into in-home care).
  • Disruptive innovation – Transforms an acquirer’s existing services and positions them to create a new business model or drastically differentiate in the market (Ex. Amazon acquiring One Medical). Rock Health predicts that the most likely targets will have strong clinical evidence and user bases, but may be struggling with their business model.

The Takeaway

Rock Health makes a pretty convincing argument that digital health M&A is poised for an active year ahead, but also wraps up the report with a warning that acquisition announcements are rarely the end of the story.

“Successful M&A approaches are determined by important choices (e.g. how best to integrate tech stacks as well as cultures and operations, what to keep and where to cut bait, workforce strategy, etc.)… but assessing these frameworks alongside financial, cultural, and operational aspects of M&A is necessary to help organizations—both acquirer and target—maximize impact.”

Headspace Launches Unified Mental Health Platform

Headspace Health just took a massive step forward in delivering on the promise of last year’s $3B merger with Ginger, rolling out a new unified product experience that combines the services of both companies into a comprehensive mental health platform.

The integrated experience brings together Headspace’s meditation and mindfulness offerings with Ginger’s on-demand coaching, therapy, and psychiatry solutions – all within the Headspace app.

The Headspace Health overhaul is set to debut in January 2023, which should be welcome news to the employers and employees that have been calling for more mental health support as the pandemic drags on.

For employees, the new experience provides seamless navigation between Headpace’s wellness content and Ginger’s clinical services.

  • An onboarding survey helps Headspace get to know its members and create personalized care plans, then ongoing check-ins help scale the level of support to individual needs.
  • A sample program might include meditation, a mindfulness walk, and a Sleepcast, with easy escalation to text-based behavioral health coaching or therapy if warranted.

For employers, the single platform approach is designed to eliminate administrative burden, while providing high-level insights for understanding their employees’ mental health needs.

  • Employers can access joint enrollment and engagement trends, such as the percent of members using both Headspace and Ginger simultaneously, as well as aggregate outcomes data for each product.
  • An included Employee Assistance Program bolts on work-life services, critical incident support, workplace training, and manager consultations.

The Takeaway
As we enter the fourth year of the pandemic, most employers are making mental healthcare a top strategic priority, but they’re also trying to avoid cobbling together point solutions to make it happen. The new Headspace Health experience sets out to be the end-to-end solution employers are calling for, although their biggest competitor seems to have gotten the same memo. Headspace will be up against Calm’s new clinical mental health product that was announced last month.

Providers Double Down on Software Investment

A new 2022 Healthcare Provider IT Report from Bain & Company and KLAS Research drew a lot of coverage this week with a headline takeaway that served as a nice break from recent bleak healthcare forecasts:

  • Providers are doubling down on software investments, even in the face of macroeconomic turbulence.

The research includes plenty of interesting data that’s worth checking out if you have half an hour to absorb it all, but here are the highlights for the visual learners with 3 minutes to spare.

  • Over 75% of providers expect to make new software investments next year, and one-third plan to invest more than usual (Figure 1). This signals a turning point in the provider IT market as many orgs who have stayed on the sidelines are now looking to retool software roadmaps for a “new normal.”
  • Of those investing heavily, nearly 80% cite labor shortages, inflation concerns, or restructuring (M&A, change in leadership) as the top catalysts (Figure 2).
  • Providers are particularly interested in revenue cycle management, security, and patient intake solutions as they look to address rising margin pressure and improve the productivity of limited staff (Figure 3).

The other main point that the report drives home is that providers are feeling increasingly overwhelmed by their expanding tech stacks and the proliferation of new vendors.

  • Over half are struggling with the flood of offerings and 24% believe that their existing tech stack keeps them too busy to stay current on new solutions (Figure 4). 
  • As a result, providers are actively trying to streamline their bloated tech stacks, with 72% attempting to expand with existing vendors before considering new ones and 63% looking to cut back on third-party software solutions over the next year (Figure 5).

The Takeaway

The consensus among providers appears to be that falling behind on software investment isn’t the way to turn around struggling performance, and neither is overloading their staff with disjointed products. That seems like a telltale sign that we’re in for more consolidation, especially with the report concluding that software vendors should pursue bolt-on acquisitions and strategic partnerships to create sticky platform offerings in a crowded field.

2022 Trends Shaping the Health Economy

Trilliant Health just released its 2022 Trends Shaping the Health Economy Annual Report, providing a unique perspective on the healthcare market through the lens of supply and demand.

Even though these dynamics don’t play out in healthcare exactly how they would in an “ideal market,” the 147-page report does a good job turning the core principles into a framework for examining 13 different secular trends.   

Perhaps the biggest trend, at least on the demand side, is what looks to be a shrinking total addressable market. The share of Americans with commercial health coverage dropped 0.6 percentage points from 2020 to 2021.

  • On top of this, care forgone during the pandemic appears to be permanently lost rather than delayed. Pandemic-related care is driving the appearance of a rebound, but with COVID treatment and vaccination omitted, healthcare encounters are down 6.2%.
  • The widespread availability of virtual care options hasn’t saved the day either, with Trilliant’s data showing that half of telehealth users in 2021 only used the modality once.

At the same time as demand is contracting, a growing supply of new entrants like CVS, Walmart, and Amazon is making consumer loyalty harder to capture. 

  • Trilliant makes the case that these retailers are commoditizing low-acuity services, leveraging their scale and large customer bases to pressure established players. 
  • This is taking place against a backdrop of burnout among traditional providers, with 9.8% of physicians leaving the field between 2019 and 2022. When accounting for new physicians entering the industry, the U.S. saw a -2% reduction in the physician workforce during the same period.

The Takeaway

If the full report makes one thing clear, it’s that the health economy is quickly turning into a negative-sum game as the number of patients with commercial health coverage decreases and new entrants swarm the field. Even though Trilliant doesn’t set out to give a solution to this problem, its research is a solid tool to help each stakeholder make sure they’re at least asking the right questions.

DHW Q&A: The New Staffing Landscape With connectRN

With Ted Jeanloz
connectRN, CEO

Nurse staffing and burnout issues existed long before the pandemic, but they’ve taken center stage as nursing becomes more challenging as a profession. 

In this Digital Health Wire Q&A, we sat down with connectRN CEO Ted Jeanloz to discuss technology’s role in solving these problems and the new ways that human-centered design can help support healthcare staff.

Let’s kick things off with some background. Can you tell us a little bit about yourself and connectRN’s overall strategy?

Since our early days in 2018, our hypothesis has been that nurses were being squeezed out of the profession because of the rigidity of their schedules. They might be going back to school and need to make time for exams, or they might have a child and need more time for them. What they all have in common is that they need schedules built around their lives, not around work.

We initially thought maybe 10% of nurses would fall in that category of really wanting more flexibility. And with 6.5 million nurses and CNAs in the country, 10% of those would be a solid total addressable market. 

We quickly learned that our assumption that only 10% of nurses want flexibility was way off base. It turns out that 100% of nurses want flexibility. Back in 2019 we just weren’t programmed to realize it was possible, but the pandemic helped show us that flexibility and productivity aren’t mutually exclusive.

That’s at the core of what drives connectRN.

Can you share more about the platform? What are some of the ways that you create this flexibility?

As far as creating flexibility, there’s a bedside component and a virtual component. As far as in-person care we bring flexibility to that part of the equation by first and foremost giving nurses the ability to choose their shifts – timing, care setting, and anything in between.

They can also use the social component of our platform to elect to work with friends. They can say “these are the people I like working with,” coordinate with them on the details, then make the shift happen. That’s been working really well for a lot of our nurses.

We’re also moving towards a world where more care is delivered outside of facilities through things like RPM or telephone triage. If a nurse doesn’t have time for a full shift on Saturday, now they can do a home health visit for someone in their community. We have nurses licensed in all 50 states, so we’ll effectively be able to create an environment where nurses can contribute wherever the system needs them.

It seems like the platform is designed around the nurses in many ways outside of shift matching. Can you talk us through some of that?

One of the key ways that we’re focused on building around the nurses themselves is by facilitating their education. We have a ton of data coming in from both the supply side with the nurses and the demand side with the facilities. This gives us a lot of visibility into what the market is calling for and where there’s a gap.

That allows us to cross-check the skills that are needed with what’s in short supply, then give our nurses a list of next-step credentials that might immediately help their career. If a nurse has a certain set of shifts available to them based on their current qualifications, we can show them exactly how much their opportunity set would expand if they added what’s often a single certification.

By helping nurses get a little bit of training, we can hopefully increase their value in the market, increase the talent pool for providers, and if we can get all that aligned then it’ll move us to a place where nurses are truly better off.

Burnout is one of the bigger themes we cover, and adding more flexibility to the system probably helps with that. What are your views on if there’s a long term solution?

One of the problems with burnout is that there was this big pandemic shock, and it shocked us into a spiral that’s going to be really hard to get out of. It led to short staffing and a lot of nurses getting burnt out, so they ended up leaving, so there’s even fewer people, which creates more burnout and a pretty brutal cycle.

Our perspective is that giving nurses more options for how they work is a way that we can really help. Almost every nurse we talk to, when you ask them why they chose nursing, they all love their job. They all love patient care. It’s universal, but many of them say, “I love it, but I just can’t do it anymore.”

If there’s a long term solution, part of it is creating a way to keep them contributing but at a different scale. If we can let them pick their hours, pick their facilities, and pick how much they work, then they’re going to be happier when they’re there and be able to deliver better care.

That seems like a better mental health place for everybody and I think we can get there.

If you look back on connectRN’s growth, was there a secret sauce that you could share with other founders?

I really think it’s the team that we put together. Phenomenal companies are built by teams of phenomenally hardworking, phenomenally smart people. 

To have a successful startup, I think the first thing you need is a great problem to solve. Once you have that, you need to put together a great team to go after it. The third thing that helps is great investors, and we’ve had the support of really world class investors that have been there for us all along the way.

If you have those three things I think you can consistently succeed as a startup, but if we’re being 100% honest there’s also an element of luck. You absolutely make your own luck in some cases, but having the right solution at the right time is important.

For connectRN, the key has been to keep the flexibility and the nurses at the center of everything we do. We’re not optimizing for a full time schedule, we’re optimizing to help nurses build their careers.

For more on connectRN’s platform, head over to their website.

The Current State of Hospital Finances

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

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

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.”

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-- The Digital Health Wire team