HATCo CEO Dr. Marc Harrison

Value-Based Care

General Catalyst Launches HATCo, Sets Sights on Health System Acquisition

Last week’s action-packed news cycle brought plenty of headlines, but General Catalyst might have stolen the show with the announcement that its new company HATCo is on the hunt to acquire a health system that’ll serve as a proving ground for tech-enabled care.

While the blog post unveiling the Health Assurance Transformation Corporation left plenty to the imagination, it got the point across that “HATCo’s charter is not to disrupt healthcare systems,” but to be a blueprint for a better care experience guided by five foundational principles:

• Stakeholder alignment between providers, payors, and patients  
• More ‘patient’ capital with a decades-long time horizon 
• Reorientation around platform innovations as opposed to cost reductions
• “Radical collaboration” centered on an open platform and transparent best practices
• Decisive pivot to a value-based care model that’s better for patients and business

Sitting at the helm of the new company is former Intermountain Health CEO Marc Harrison, a seasoned leader who promptly laid out HATCo’s three strategic priorities:

• Work with GC’s 15+ health system partners to help execute their transformation journey 
• Build an interoperability model where digital solutions can scale across the enterprise
• Acquire and operate a health system to demonstrate a successful transformation

Investment firms are no strangers to hospital acquisitions and restructurings, but their ambitions have always stopped short of direct ownership and care delivery.

• VCs are typically searching for outsized returns from their top performers to offset their misses, and hospital margins don’t exactly offer much room for a 10x outcome.

• That said, the industry’s response seems to be cautious optimism, or at least a healthy appreciation for the fresh approach mixed with skepticism that VCs can put patient care ahead of shareholder value. 

The Takeaway

General Catalyst is flipping the standard approach to digital health on its head, acquiring a health system to serve as a sandbox for its portfolio companies as opposed to working with traditional providers to test new solutions. HATCo is the vehicle for a potentially seismic strategy, and its long-term focus might fill the holes in the Silicon Valley mantra of “move fast and break things.” The company’s real impact will ultimately be shaped by the acquisition target it lands on, but apparently we won’t have to wait more than a few months for that detail.

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The Wire

• Kaiser Reaches Strike-Ending Agreement: Last Friday, Kaiser Permanente reached a “tentative agreement” with the unions representing 75k KP employees, pausing the largest healthcare strike in history. If finalized, the new contract would secure an across-the-board 21% wage increase over four years, plus additional provisions to improve training practices and protect workers from outsourcing. Kaiser and the unions are meeting later this week to lock in an agreement, which could end nearly seven months of negotiations and avoid the possibility of a longer 10-day strike.

• Walgreens Makes Cuts After Tough Q4: Walgreens is planning to close 60 of its drugstore-attached VillageMD clinics as part of a $1B cost reduction strategy announced in the wake of the first Q4 loss in its 122-year history. On last week’s investor call, Walgreens said it plans to unlock the embedded value at VillageMD by “right-sizing the footprint” and focusing on best-fit markets. The other big news shared on the call? Walgreen appointed former Evernorth CEO Tim Wentworth as the CEO tasked with overseeing the turnaround.

• Distress Driving M&A Increase: Kaufman Hall’s Q3 Healthcare M&A Report found that transaction activity is regaining momentum as health systems continue consolidating in pursuit of long-term sustainability. The quarter’s 18 M&A moves easily eclipsed Q3 2022 (10) and Q3 2021 (7), although the challenges of the last two years were apparent in one of the included metrics: over one-third of the M&A moves involved a party citing financial distress as a driver for the transaction, well above historical benchmarks.

• 2024 MA Star Ratings: CMS released its 2024 Medicare Advantage and Part D Star Ratings, and only 31 contracts managed to achieve a 5 star rating (a sharp dropoff from the 57 top marks in 2023). Notable changes include ratings cuts for several leading NFP plans such as BCBS Minnesota, SCAN, and Highmark, as well as Kaiser losing its 5 star rating for the first time ever. Federal expenditures on MA star bonuses are slated to reach over $12.8B this year, drawing calls to reform the program due to its lack of evidence proving better outcomes than FFS Medicare. 

• WellSky Acquires Corridor: WellSky added post-acute coding and revenue cycle management company Corridor to its recent string of acquisitions. Corridor will begin leveraging WellSky’s comprehensive care coordination platform to better support VBC models across 2,600 client sites, while also advancing WellSky’s positioning in the post-acute segment and its push into skilled nursing facilities. The announcement arrives just two months after WellSky’s acquisition of Experience Care, another tech platform for long-term and post-acute care providers.

• Brain Breakthroughs: The most detailed human brain map ever created is laying the foundation for future cures and revealing new insights surrounding the development of disorders such as autism and schizophrenia. The NIH-funded catalog of brain cells and how their genes are used is the culmination of a five-year effort known as the BRAIN Initiative Cell Census Network, detailed in 21 studies published last week. The “neurological Human Genome Project” has already identified 3,300 types of human brain cells, just over half of the estimated total.

• OOP Gender Gap: Deloitte broke down the gender gap in OOP costs after analyzing 16M lives with employer coverage, finding that women ages 19 to 64 see 20% higher annual OOP costs than men, or an average of $266 per year. Excluding all pregnancy-related services surprisingly only narrowed the gap to 18%, in large part because women are far more proactive healthcare consumers. Deloitte found that men are over twice as likely to wait over two years between visits, and 46% of men have less than $1,000 in claims annually (vs. 35% of women).

• Sidekick Picks Up Obesity PDT: Sidekick Health acquired Hamburg-based aidhere, developer of the zanadio prescription digital therapeutic for people with obesity. The Sidekick platform includes a broad suite of personalized digital therapeutics targeting everything from diabetes to smoking cessation, enabling the delivery of synchronized interventions. For its part, aidhere’s zanadio is a standout performer in the PDT market, notching over 50k prescriptions to date and achieving 8% weight loss after 12 months.

• Scared to Death: An article from the University of Colorado School of Medicine revealed an often-overlooked cardiovascular risk factor poised to have a big month: haunted houses. The article detailed how haunted houses can activate the body’s fight or flight response, potentially prompting increases in heart rate and blood pressure, or even causing heart attacks. Although spooky to think about, the CU article assured that haunted house-caused cardiovascular events are extremely rare.

• Walmart Expands Included Virtual Care: Included Health scored a massive expansion with the nation’s largest employer, announcing that Walmart is now offering its virtual care benefits to over one million employees across 49 states. Included provides services such as virtual primary care and at-home lab testing, which demonstrated an 11% reduction in healthcare costs and a 38% reduction in hospital costs for Walmart employees during a three year pilot. Those are some considerable reductions, especially considering Walmart’s $6B in annual healthcare costs.

• A Trust Fall: Advisory firm Jarrard’s latest patient survey surfaced an unfortunate theme in care delivery: trust in healthcare is declining, and the cost to providers is rising. When US adults were asked whether their health system’s top priority was serving patients or generating revenue, a shockingly high two-thirds said revenue came first (up from about half last year). Not a great trend, and heading in the wrong direction quickly.

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