Kevin's Weekly Health Tech Reads: A Fun Announcement

We're launching a new brand, a new Jobs board, and a monetization strategy!

Don’t want to read the rest of this post below and just want to check out the fun news / why we’re bothering you mid-week? Ok well here ya go - today we’re launching the following in our quest to support individuals building new ideas in healthcare:

More details on all of this below, including how we’d like you to take part! (hint hint: please consider supporting us so we can convince our families that spending weekends on this is still a good idea)

Note - if you just want to keep receiving the newsletter each Sunday don’t worry, nothing will change. The only difference moving forward is that it’ll be called “HTN Weekly Health Tech Reads” instead of “Kevin’s Weekly Health Tech Reads”.


Introducing Health Tech Nerds

Almost four years years ago, this newsletter started as a small missive I wrote over coffee on Sunday mornings to a handful friends and colleagues. Since then, it has grown to almost 10,000 members in the health tech community, an awesome Slack channel has emerged, and has become the go-to place to share cool new jobs in the health tech community.

As it has grown, all of this has become basically a full-time gig on its own. And with that, it’s about time to figure out a monetization strategy for how to support this work moving forward (yes, to date, it’s always been a free side-project).

Today we’re relaunching this newsletter under Health Tech Nerds, a media company providing a trusted perspective on all things health tech. My co-founder, Ryan Russell, and I have been working on this change in the background over the last few months and are excited to share it with you all today.

Our goal in launching Health Tech Nerds is to create a sustainable way for us to continue supporting the community of individuals building new ideas in healthcare - whether those individuals are startup founders, corporate executives, venture capital investors, or students looking to break into the industry. It’s a confusing space, with a lot of noise that can distract from all of our ultimate goals - some flavor of improving health outcomes without breaking the bank financially.

Our goal in this isn’t to build a media empire, but rather to build a sustainable small business that carves out a meaningful role supporting this community in improving healthcare. Today is our first step along that journey, and we’re excited for you to continue down that path with us.


Our Products: The Newsletter, a New Jobs Board, and the Slack Community!

Let’s take a brief look at what the initial Health Tech Nerds product looks like:

Newsletter.

The newsletter will continue to go out each Sunday to the audience of almost 10,000 health tech innovators. You’ll see the name change slightly to reflect the changes here, so it will be going out with the brilliant subject line: “HTN Weekly Health Tech Reads”. It really rolls off the tongue, right? The weekly newsletter will remain free, although we may experiment with advertising over time for people who are on the free newsletter. We’re implementing a ‘tip jar’ for people who love the newsletter and want to show their support for the work on an ongoing basis - think of it as a tip for the quality content you get each weekend.

Want to support us via the ‘Tip Jar’? Click here to sign up and ‘tip’ us $3/mo. You’ll be supporting us in providing independent perspective for the cost of a Starbucks latte each month.

Jobs Board.

We’re quite excited to share that we’ve added a brand new Jobs Board as a way to post jobs to the broader HTN Community. The Jobs section in the newsletter has been a hit - we’re posting between 50-80 jobs each month and getting good feedback on the targeted nature and quality of both postings and applicants. The formal Jobs Board will help better support both job posters and job applicants in streamlining the process, and we’re excited to see this grow.

If you want to post a job or view jobs that are up there currently, you can go over to the Jobs Board here.

Moving forward, we’re only going to include Featured Postings in the weekly newsletter. Those Featured Postings will cost $300 per job post. Companies are still free to post jobs on the Job Board site for free, and individuals who are in the Slack Community can still post jobs there for free as well.

Slack Community.

The Slack community has emerged organically from the newsletter over the last few years and become its own awesome community of over 2,000 health tech nerds. We’ve reached out to a number of folks in the community for feedback and heard a bunch of enthusiasm around a core set of features we’re adding to the community moving forward - a Member Directory, events and networking, databases, and office hours. In order to support these features, we’ve decided to start charging Community members.

If you’re new to the Slack Community, you can join here for $100/year (or $10/mo). You’ll be joining a group of individuals trading notes and ideas on everything going on in healthcare. Plus you’ll get to hang out with Ryan and I more, which our families have told us is quite fun.

Other Products?

One of the things we’ve realized over the last few months as we launch Health Tech Nerds is that the only thing we really know is that we’re going to get this product offering wrong in some way at launch. To that end, we view this product offering as a next step and first test under the Health Tech Nerds brand. We’ll be looking at other products to add, and have been considering different types of content that we could begin publishing regularly in addition to the weekly newsletter.

So expect to see us experimenting with different types of content moving forward. Folks in the Slack Community will get to participate in some of that thinking with us as well!


Our Monetization Strategy

We’ve gone back and forth on a number of ways to try to make some money while building Health Tech Nerds as a business. We’ve thought long and hard about how to make an income from this work while remaining true to what we view as the core foundation of our work - our willingness to share an authentic perspective on everything going on in healthcare.

This is why we’ve made the decision to focus on charging our community members directly as the source our main revenue stream, via newsletter tips and Slack community memberships. We think this route aligns us most closely with the value our perspective provides to the community, and ensures we can remain authentic and honest in voicing our perspective each week. Charging for job postings also felt closely aligned to our values, as it doesn’t impact our editorial voice / perspective in a meaningful way.

We may introduce ads into the free newsletter at a later date, but haven’t quite gotten there yet on how to do so. It feels one step closer to an editorial conflict with any potential advertisers / sponsors, which we want to avoid.

And certainly, we know that there is no right answer to this question. There are tradeoffs associated with every monetization strategy. We have chosen the approach we feel is right for us, and we feel like it aligns to our core values.


How You Can Take Part (Aka Our Ask of You):

If you’ve been enjoying our newsletter and perspectives on the health tech space, consider supporting our growth by joining as a member in one of the following ways:

If you have any questions on this, or other comments / feedback for us, please reach out to us at hello@healthtechnerds.com!


That’s All - See You on Sundays (Or Every Day on Slack)!

We’re excited for what comes next – we think this awesome group of nerds has an opportunity to help each other make health care better for all of us. We know we’re just embarking on this journey, and are excited to continue supporting the community here by providing our perspectives on the space every weekend on the newsletter, and every day on the Slack Community. We hope you’ll join us on the journey!

Kevin's Weekly Health Tech Reads 6/20

Cano Health makes an acquisition, RIP Medical Debt eliminates $278m of patient bills, and more!

News

  • Cano Health, the recently SPAC-ed Medicare Advantage primary care provider, is acquiring University Health for $600 million. University is another MA primary care provider in South Florida, with 13 clinics and 24,000 Medicare Advantage members. Link.

  • On the public markets, two IPO valuation updates:

    • Bright Health is targeting a valuation of over $14 billion at its upcoming IPO. It is wild when you compare that to Oscar at just under $5 billion. Sure seems like we’re going to see a lot more of Bright’s growth via acquisition strategy over the next few years. Link.

    • Doximity is targeting a valuation of ~$4B. Link.

  • In some uplifting news, RIP Medical Debt is buying and eliminating $278M in patient hospital bills for 82,000 low-income patients from Ballad Health, a large health system in Virginia and Tennessee. What is striking is that many of these people should never have received bills to begin with because of financial aid programs that exist. But because those people don’t know they are eligible and/or it’s hard to apply, they can’t take advantage of the programs. With all the crazy valuations out there, seems like there is a significant opportunity just to make it easier for people to find and enroll in the programs that exist to help ease the financial burden of care. Kudos to RIP Medical Debt. Link.

  • Humana acquired Florida-based home health provider Onehome. Link.

  • Health insurance startup Sana has opened a primary care clinic in Austin in partnership with Proactive MD. Link.

  • Michigan-based health systems Beaumont Health and Spectrum are planning to merge. Link.


Funding:

  • Mental health startup Lyra Health formally announced it raised $200 million at a valuation of $4.6 billion. Link.

  • Brightline raised $72 million as the behavioral health for kids market continues to be a very attractive space for venture dollars. Brightline is currently in two states (Massachusetts and California), but plans to be in all 50 states by the end of the year. Link.

  • Jonathan Bush’s new effort Zus Health made waves this week, announcing a $34 million round from Andreessen and others. Zus launched with an interesting set of health care delivery disruptors as customers - Oak Street, Cityblock, Firefly Health, and Dorsata. From a strategic perspective, you can see why there’s a lot of excitement around this idea as it fits very neatly into the thesis that new infrastructure platforms will emerge to enable new care delivery models. There are a lot of big names associated with it and it is launching with some big customer names in startup land. All signs seem to point to it being a good idea coming along at the right moment in time as digital-first care models ramp up. It’ll certainly be worth watching what adoption of the Zus platform looks like over the coming months / years. Link.

    A handful of interesting questions in here:

    1. If the back-end of “tech-enabled care delivery” startups can be abstracted away to a single platform like Zus, how much of the proprietary tech that the care delivery models have developed - and drives so much of the valuations - is actually that unique? A couple of years from now I could see platforms like Zus deflating valuations in the care delivery market as more folks realize many of these companies are functionally just provider orgs that maybe have a unique contracting strategy. Not that that’s a bad thing - and it’s probably a good thing for Zus - it just seems that there’s perhaps too large of a valuation gap between the VC-backed care delivery models and the local provider group.

    2. How long until these new care models Zus is targeting have a meaningful portion of the population in the US under management? Between Oak Street (~100k members) and Cityblock (~70k members), Zus has around 170k patients. So round up and say in total that’s 200k patients. For perspective, that’s probably less than half of the patients that the regional health system in the closes metro area to you serves each year. And Oak and Cityblock are two of the biggest new care delivery players out there! So it seems like a big bet that that number of patients attributed to new care delivery entities will dramatically accelerate over the next few years. Either that or you see Zus start working with more incumbent providers as well (which seems like it would be quite smart on their part).

    3. What will be the competitive reaction of different care delivery companies playing together on this platform? I am particularly curious about how the virtual primary care companies will react to Bush’s dabbling as both the platform (via Zus) and the care delivery company (via Firefly Health, where he is Exec Chair). If I’m Galileo, Amazon Care, or others in this market, I’d have a lot of questions about the competitive dynamics at hand with Bush playing both roles.

  • The Pill Club, an app that allows people to mail-order birth control, raised $41.9 million. Link.

  • Stork Club, a startup helping navigate people through fertility journeys, raised $30 million. I love the concept here and these sorts of solutions are desperately needed in the fertility space. I do wonder about the business model a bit though - Stork Club is focusing on selling the service to employers as a way to reduce healthcare spend by preventing million dollar babies. Of course employers seem to be excited by it, evidenced by Stork Club’s 5x revenue growth last year. But what does Stork Club do when employer interests diverge from user interests? Link.

  • Sempre Health, a startup working on reducing out-of-pocket costs for medications, raised $15 million. Link.

  • Form Health, a startup building a telehealth model for obesity, raised $12 million. Link.

  • Uplift raised $3.1 million to help people find in-network therapists. Link.

  • Ksana raised $2 million to build a platform that passively collects phone data to measure mental health. Link.


Opinions:

  • MedPAC continues to pick a fight with all your favorite Medicare Advantage payors as it again suggests Medicare Advantage actually increases costs versus Medicare FFS programs, this time in its June 2021 report to Congress. It recommended that CMS adjust Medicare Advantage benchmarks as a way to reduce costs. It also suggested streamlining alternative payment models. The drumbeat continues to get louder on that front. Link (Summary). Link (Report).

  • Apple was featured this week as the latest tech giant struggling in its quest to disrupt healthcare. A WSJ article suggests that its decision to takeover its primary care clinics from Crossover Health a few years back hasn’t quite worked out as originally planned. Turns out scaling primary care clinic models is hard? Shocking. Link.

  • Google was also in the news with a reorg of the Google Health team in what appears to be a blend of struggling to show progress in the consumer health side of things and realizing the need, and opportunity, to refocus efforts on platform businesses in healthcare. The team reassigned about 20% of employees to other groups within Google and restructured Health into 3 groups: 1) Care Studio - platform allowing to providers to “essentially perform Google searches on patients’ EHRs, 2) Health AI - software tools to aid is screening and diagnosis; 3) Clinical and regulatory focused team. The consumer health team (health devices and apps) also appears to be no longer with most of those employees reassigned to Fitbit team in the Devices and Services group. The move makes sense for Google to focus on doing what it does well in setting up the infrastructure and platforms for companies (in this case providers) to do what they do well. The question then becomes will Google ever know healthcare well enough to do that better than other companies closer to the healthcare market. Say like… Zus? I’m skeptical, but we’ll see… Link.

  • This is a super interesting article in Time looking at mental telehealth and disparities in telehealth adoption. Link.

  • KHN shared a really in depth report on HCA’s use of trauma centers and how it makes a pretty penny of trauma centers. Reports like these highlight the challenging mix of incentives in for-profit healthcare. Are more trauma centers helpful for patients? Probably yes (although the article makes a good point about multiple trauma centers in one city). Is HCA profiting nicely off this strategy? Probably yes - look at the chart below of what HCA is charging versus other trauma centers. Most are more than twice as high as non-HCA hospitals. Does this increase healthcare costs in this country? Probably yes. Do HCA shareholders benefit? Uhhhh… yes. Link.


Data:

  • This is a good piece from Axios looking at predatory billing practice of hospitals. Interesting to see the data that ten hospitals in this country are responsible for 97% of lawsuits against patients. Link.


Jobs:

  • Amino, a startup helping employees find / navigate care, is hiring a data analyst and a data scientist. Link. Link.

  • Commure, provider workflow platform startup, is hiring an Accessibility Designer. Link.

  • Conceive, a startup building a community and resources for women's health focused currently on fertility, is hiring a Founding Engineer. Link.

  • ICANotes, a behavioral health EMR+PM company, is hiring a Product Manager. Link.

  • ixLayer, an end to end software platform for precision health testing startup, is hiring a Senior Product Marketing Manager. Link.

  • Meru Health, an online mental health provider startup, is hiring an SVP of Ops, a RVP of Sales (Western) and a CFO. Link 1. Link 2. Link 3.

  • Truepill, an API-connected healthcare infrastructure startup, is hiring for various Strategic Finance roles. Link.

  • Vim, a digital infrastructure startup connecting data and provider workflows, is hiring a Product Marketing Manager. Link.

  • Zus Health, a startup focused on building a platform of healthcare-oriented, API-first services, is hiring a UX Research and Design Lead. Link.

Kevin's Weekly Health Tech Reads 6/13

An active M&A week (One Medical / Iora, Carbon / Steady, Ciox / Datavant), four $100+ million fundraises (Allyalign, Monogram, LetsGetChecked, Cerebral), and more!

Reads for the week of 6/6 - 6/12

News:

  • One Medical and Iora Health announced they’re merging this week, with One Medical buying Iora for $2.1 billion in an all-stock deal. This is a big move in the primary care market that we covered at length earlier in the week in a special edition of this newsletter - see the link for lots more thoughts on the transaction. Link.

  • Carbon Health announced it is acquiring virtual diabetes clinic Steady Health. Presumably, this means we’ll see them on the hunt for other tuck-in acquisitions as well in your typical set of spaces - mental health, hypertension, etc. It’s interesting to read through the press release as it focuses heavily on their expansion into home care / remote monitoring as well as building out value-based offerings for employers / payers. It starts to feel like Carbon could be moving quickly in the direction of building a virtual IDN tied to its primary care footprint, which would be a really interesting play for them. It’s worth watching how Carbon and One Medical both seek to expand their businesses away from FFS primary care to more risk-based models - there is obviously a lot of investor appetite for capturing more of the healthcare dollar via risk-based contracts these days. Link.

  • Ciox and Datavant, two players in the health data space, announced they’re merging with the combined organization being worth $7 billion. It appears that Datavant is the more tech-forward organization, with a platform for exchanging de-identified clinical data. Meanwhile Ciox has built a network of. relationships with health systems to collect identifiable heath information. So combining the two appears to make sense at face value - one provides the underlying platform and the other provides the end users to connect it to. The CEO’s blog post on the combined organization’s vision is an interesting one to check out - they aim to be the middle layer that connects all of the world’s health data and then charge a transaction fee for use of that data. It’s a big vision, although I am always a little skeptical of the following problem / solution statement: problem: the data are fragmented in healthcare in too many silos. solution: our company is going to end healthcare data fragmentation by getting everybody to use our new, better approach that connects all the other silos. Oh btw and then they’re all going to pay us to use it. It certainly seems an approach that will lead Datavant to build a big company in the healthcare data space, it just doesn’t strike me as the answer to connecting the US’s healthcare data. Link (CEO blog post). Link (Press release).

  • It appears Clover Health has officially become a Reddit meme stock this week, as its stock price briefly hit $28.85 on Tuesday. I’m frankly not even sure what to write about this one - it is a very strange world we live in that meme stocks exist. Any analysis of this company based on the reality of the business itself points to some massive red flags. But Chamath has mobilized a Reddit army that clearly has the ability to move the market and is gambling it can beat Wall Street at its own game. Craziness aside, I have to wonder what this does to the morale of Clover employees. They’re now working for a meme stock company who’s value is swinging wildly by the day as it has essentially turned into a gambling bet between Reddit day traders and Wall Street hedge funds. Their leadership team has seemingly embraced and even encouraged this to happen - i.e. see its inclusion of questions from Reddit from the last earnings call. If you’re actually attempting to build an enduring business that can change healthcare, I can’t fathom why you’d actively try to insert yourself in the middle of this game. Rather than, ya know, focusing on building a business that could disrupt a really challenging industry. I do suppose it is a nice way to distract onlookers from asking meaningful questions about the fundamentals of your business. Link.

  • In actual news this week on Clover, they announced a partnership with Upward Health, an in-home primary care provider, focused on Direct Contracting patients. Seems like a low-risk, potential win-win for both parties - if Upward can enroll patients via Clover’s DCE they both stand to benefit from the economics. Link.

  • UHG got a bit of egg on its face this week as it was pressured to reverse a policy it announced last week denying coverage for ER visits it deemed non-urgent. In this ongoing battle between payers and providers around how to manage utilization and unit costs of healthcare, the one constant is that it always seems to be the patient who loses out at the end of the day. Link.

  • League, a relatively under-the-radar startup in the employer benefits navigation space, announced a partnership with Humana to be the “digital front door” for Humana’s Employer Group and Specialty insurance members. Link.


Funding:

  • AllyAlign, a Medicare Advantage plan / primary care model for senior living facilities, raised $300 million from NEA. AllyAlign has been around in this space for a while although relatively under the radar in the traditional venture backed community. This is a very good interview with the CEO from a few years back on the dynamics of the model. I’d love to see an S-1 from AllyAlign one day to get under the hood more on the financials. Link.

  • Monogram, a home-based kidney care delivery startup, raised $160 million as that space continues to be white hot for investors. Link.

  • LetsGetChecked, a company that started in home testing kits, has raised $150 million to expand its product offering significantly into virtual care including telehealth and pharmacy services. It shares in the press release that it is in the process of acquiring a pharmacy in Florida. Revenue has grown by 1500% for LetsGetChecked over the last year - you see why investors are so excited about this space at the moment. Link.

  • Cerebral, a mental health startup that launched January 2020, raised $127 million at a $1.2 billion valuation. Cerebral has an app that gets patients medications for a variety of mental health issues via e-consults with providers it works with. Talk about hitting timing right on a relatively straightforward concept. Link.

  • Glen Tullman’s encore to Livongo, Transcarent, raised $58 million at a $500 million valuation to help employers manage health benefits. Is anybody going to bet against this company doing incredibly well at this point? The Business Insider article is a really good read and includes a interview with Tullman. It asks a very interesting question about whether folks at Teladoc are pissed off about Tullman immediately leaving to start a company that seems awfully competitive. The answer - a version of “I don’t know but employers like it” probably says all you need to know. Link (Press Release). Link (Business Insider - Paywall).

  • Medallion announced it has raised $20 million to build a provider credentialing platform for virtual health providers and is working with orgs like Ro and Ginger. This seems like a no brainer as these digital health organizations scale. Link.

  • Hawthorne Effect raised $20 million to decentralize clinical trials. Link.

  • Mendel raised $18 million to structure unstructured clinical data. Link.

  • Duos raised a $6 million Seed round to build out a platform to help seniors age independently. The model sounds like it has some similarities with Papa as it pairs a “Duo” assistant with a senior to help them navigate daily life needs. Duos has partnered with Magellan Health to roll out the service. Link.

  • Nirvana Health raised $4.2 million. All my Apologies for putting Smells Like Teen Spirit in your head the rest of the day y’all. Oh well, whatever, Nevermind. heh heh see what I did there. Link.


Opinions:

  • Medicare Advantage primary care startups aren’t the only organizations seeing a opportunity in the Direct Contracting market - Humana also sees it as a massive opportunity for its CenterWell Senior Primary Care Group, which has over 160 primary care clinics and serves 200,000 patients in the US. Link.

  • Kaiser Health News did a deep dive on how COVID-19 has opened the door for telehealth use and considerations moving forward. For close observers of the space, a lot of this article will rehash things already apparent. But for folks who want a good 101 overview of how COVID-19 has changed the telehealth landscape, it’s a good summary. Link.

  • This is a good read on health coaches and how primary care startups like Iora Health and Parsley Health have used them effectively. Health coaches are one example of how the health care industry befuddles me regularly - it seems so obvious that health coaches are a good, helpful (and relatively low cost) thing. Certainly for individuals going through a health journey, and probably for anyone who’d be willing to work with a health coach. So why is the industry so slow in adopting this role more broadly? That’s a rhetorical question. Link.

  • The Substack Health Tech Writers Guild again shared some solid content this week:

    • Gabe Strauss wrote a piece on the value proposition associated with mental health tech startups. The section at the end is quite interesting regarding how mental health startups can move from targeting self-insured employers, to fully-insured plans, to Medicare Advantage, to CMS. Link.

    • Zach Markin shared his thoughts on the Babylon SPAC, diving into a number of questions about the approach. His concerns echo a lot of what we heard in survey responses (see below) - questions about proof of Babylon’s claims, etc. Worth checking out if you want to see a thorough bearish perspective on the company. Link.


Data:

  • The results from our bull / bear poll on Babylon are in, with a significant majority of people who responded taking the bear position - only 6 out of 35 respondents (17%) were bullish:

    Again, the bear responses were more numerous, lengthy, and detailed - here were some interesting themes on each side:

    Bull Cases: Seemed to focus on the international opportunity that Babylon has in front of it:

    While US healthcare is hard, I think we can see that the company has been effective in UK and has a good foothold in APAC. That kind of scale will be very helpful in the US compared to the long list of competitors e.g., 98point6, Curai, Buoy, K Health, Teladoc, etc. While some would point to lack of focus on the US market commercialization, I am bullish on tech stack and operational scale, which will convert to low cost leader.

    Have already seen UK success in VBC approach - rolling out to other countries makes logical next step.

    Bear Cases: Many of the responses focused on the general lack of proof supporting Babylon’s claims and skepticism around its ability to manage risk successfully:

    If Agilon couldn’t manage the PCP group profitably, I’m not sure how Babylon can magically get 30% profit margin on 75% MLR subcap per their own chart.

    Doesn't seem like they have a real idea (let alone proven model) about how to manage costs and scale effectively. Winning companies have a scalable, repeatable process--Babylon still seems like they are throwing a bunch of random stuff on the wall and seeing what sticks and then call that their process.

    There's not much data to substantiate their cost savings argument to make VBC profitable. They have some (flimsy) data around ER utilization reduction, but I didn't see much data around reducing other, more substantial drivers of healthcare spend. I'm also curious what their engagement numbers look like for their consumer-facing technology, and how often members are *actually* using the tech.

    Babylon has shown no signs of being able to handle a large, clinically complex population. The Hammersmith and Fulham report made it clear that their UK practice was almost exclusively young, affluent, and healthy, without complex chronic or polychronic needs. I have no faith in Babylon being able to manage their costs or population when clinical complexity increases.


Jobs:

  • Axle Health, an in-home healthcare platform and provider start-up, is hiring for a software engineering roles. Link.

  • CareJourney, a value-based care analytics/IT start-up, is hiring a UX Designer. Link.

  • CoachMe Health, a health coaching non-profit focused on low-income patients with diabetes and heart disease, is hiring a Product Ops Manager. Link.

  • Firefly Health, a virtual first primary care and behavioral health start-up, is hiring a Product Manager. Link.

  • Health Evolution, an organization that brings together industry leaders to collaborate on different topics, is hiring a Manager or Director. Link 1. Link 2.

  • Icario, a platform helping health plans engage members, is hiring a number of roles across client services, tech, operations, product, and more. Link.

  • Limbix, a mental health digital therapeutics platform start-up, is hiring an Associate Product Manager. Link.

  • Medical Alley, an association focused on building health care innovation in Minnesota, is looking for a start-up focused intern. Link.

  • Perx Health, a digital care start-up focused on chronic condition management, is hiring for BD and Engineering roles. Link 1. Link 2.

Kevin's Weekly Health Tech Reads: The One Medical / Iora Edition

A special edition unpacking the news of Monday's merger between Iora and One Medical

Breaking Down the Iora / One Medical Transaction

Hey y’all - I’ve received a number of folks asking for some perspective on the One Medical / Iora Health acquisition that was announced Monday morning. So if you’ll allow an interruption to your work week, we wanted to share some perspectives on the merger.


One Medical is acquiring Iora Health in an all-stock deal worth roughly $2.1 billion. One Medical will own 73% of the combined entity moving forward, while Iora will own 27%. They’ll now be in 28 markets in total, with Iora in 10 markets and One Medical in 22. The combined organizations will have roughly 636,000 members - 598,000 via One Medical and 38,000 via Iora. In 2021, One Medical expects to generate $475 million of revenue in 2021 and -$10 million of EBITDA, while Iora expects $299 million revenue and -$90 million EBITDA. We’ve included a number of reactions below - here are the links if you want to peruse the merger materials yourself: Link (Investor Presentation). Link (Webcast).

Business Model Diversification

  • One Medical has always had an opportunistic approach toward business models that drive its next phase of growth, and it appears to have found its next growth story as an organization in value-based care. Remember that One Medical started as a D2C concierge primary care play over a decade ago, subsequently morphed into an employer offering, then added on a health system FFS revenue component, and is now adding a value based care revenue stream. This latest move highlights the allure of capturing the full premium dollar for primary care organizations is apparent. The valuation difference between a FFS commercial primary care member and a value-based Medicare Advantage primary care member is stark - One Medical has roughly 16x the membership of Iora, but is still giving Iora 27% of the combined entity moving forward. Using 2020 revenue and Q1 2021 membership, Iora’s annual revenue per member ($5,605) is nearly ~9x that of One Medical’s annual revenue per member ($635). It makes sense that One Medical would want to move this direction to capture more of the upside associated with value-based models.

Strategic Rationale

Direct Contracting

Market Overlap / Synergies

  • One Medical and Iora expect to see $350 million in revenue synergies from this transaction by 2025, which is quite a large number given their combined estimated revenue in 2021 is only $774 million. These synergies will be driven by the sort activities you’d expect here - One Medical markets expanding into Medicare, Iora markets expanding into commercial, and transitioning One Medical commercial patients to Iora MA patients as they age-in, among other things.

    There are lots of questions to answer related to how the organizations integrate the models moving forward across the different consumer types they’re serving. The synergies slides (23 - 24) mentions that they expect to have reciprocal access across various clinics, which makes sense that they will do so. While Iora primarily treats Medicare Advantage patients, as long time Iora observers will remember, Iora has always tinkered with populations outside the Medicare Advantage book of business. Working with commercial populations won’t necessarily be new to them. Iora has struggled growing membership though, and clearly a portion of the synergies baked in here are leveraging One Medical’s consumer centric approach to help Iora grow membership faster moving forward. The age-in opportunity could be massive by itself - assuming One Medical’s membership is evenly distributed among the adult population, they have roughly 12,800 members (600,000 members / 47 years) aging-in to Medicare every year. If they can convert even half of those members to Iora, it’s a massive opportunity for both orgs.

    It will be also interesting to watch how One Medical and Iora define customer segments moving forward and how they think about what brand those consumers have a relationship with. Certainly it seems that One Medical will keep focusing on the relatively healthier FFS commercial population and Iora will focus on the relatively sicker Medicare population. Given the different needs of those populations, you could envision a scenario where a combined brand dilutes the tailored approach of each brand. Yet on the investor call, an analyst asked a question about whether Iora’s brand will continue to exist on a standalone basis and the answer wasn’t exactly clear - instead there was a response about creating “the most loved brand in healthcare”. This invites lots of questions around what the handoffs between One Medical and Iora will look like and how these brands will integrate over time.

Platform Integrations

  • One of the bigger questions in this deal to me is how Iora and One Medical will right-size the investments that each of them have been making in building out their operating models, and specifically their technology platforms. Iora has invested a ton of time and energy into Chirp, and One Medical has rolled out its own virtual visit platform - check out Slide 15 on each organizations’ tech platforms, where each org cites a number of digital touchpoints with members. How will Iora and One Medical migrate everyone to one tech platform? What about operations from a clinical practice perspective? Iora’s whole clinical model was built around a “worry-score” that they assign for each patient with a unique workflow that includes daily huddles with care teams. Are both organizations adopt one clinical model moving forward? You can’t imagine that they do so, but then that makes the tech platform integration significantly more challenging. So you’ve got an issue there. Given the purpose-built nature of these platforms, it seems like a headache to generalize across the two models. It’s understandable that One Medical / Iora haven’t delved into these issues too far publicly, but it seems that these answers will have significant long term impacts on the success of this deal.

FFS vs VBC Incentives

  • The conflicting incentives between the fee-for-service versus value-based models related to One Medical’s IDN partnership strategy will be something to watch moving forward. One Medical’s business model has relied on partnering with local IDNs and billing employers on a fee-for-service basis via the IDN contract for those visits. Keep in mind that One Medical has been working to be able to tell Wall Street that it has 100% of patients under clinically integrated partnerships with local IDNs, something it has now achieved with an IDN partner in each market they’re in. The IDNs of course benefit by charging for those primary care visits and capturing downstream referral volume. But this is where the incentive challenge comes in, as IDNs are usually a higher priced care delivery option in a local market. Iora, on the other hand, is incentivized to send downstream referral volume to a high quality / low cost provider given it is responsible for managing the cost of care. This probably isn’t the IDN in a local market, so which incentive wins out over time in this organization and how do those IDN partnerships evolve? An analyst asked a question similar to this on the investor call, and the answer wasn’t entirely fulfilling.

  • And beyond that, what happens when IDNs partner with different orgs across commercial and Medicare primary care markets? If you’re Advocate Aurora in Chicago, it doesn’t seem like you’re too thrilled with this move given you have my commercial business tied up with One Medical and my Medicare Advantage business tied up with Oak Street. One Medical notes that one of the synergy opportunities is to transition members from Commercial to Medicare, which raises some interesting questions as to where consumer loyalty lies with these orgs - is it the IDN or One Medical? Seems like the answer to that question is One Medical. But if One Medical is transitioning those patients away from Advocate’s Oak Street partnership and toward Iora, that is sure to create some tension over time with Advocate.

Iora vs Oak Street

  • There is of course a natural comparison to make here between Oak Street and Iora. Obviously Oak Street’s current valuation of just shy of $15 billion is markedly higher than Iora’s acquisition price of $2.1 billion. If we had to guess at the reasoning between Oak Street’s and Iora’s difference of valuation, a lot of it would come down to how they’ve been able to 1. grow membership and 2. manage risk. Oak Street is roughly double the size of Iora today - in terms of markets (20 vs 10) and number of clinics (86 vs 47), and over 4x the number of total at-risk members (75,500 vs 22,800). But this doesn’t explain the massive valuation difference between the two - Oak Street is currently trading at an Enterprise Value around $14.6 billion while Iora was acquired for $2.1 billion. This implies Oak Street is being valued at ~$193,642 per at-risk member while Iora is being valued at $92,105 per at-risk member.

    It seems that Iora’s struggles with medical cost management is behind at least some of that valuation gap. In 2020, Iora was at a -16% Care Margin (revenue less medical claims paid less direct cost of care), while Oak Street generated a 9% Platform Contribution margin. While that’s not quite apples to apples comparison - it appears Iora includes its original Medicare FFS business in it - it seems directionally accurate. It appears Oak is performing better both in terms of managing medical claims paid (74% of revenue versus 86% of revenue), and in managing their direct costs of operating their primary care model (18% of revenue versus 31%). It’s problematic that Iora’s margins still look like this after years of operating this model - you’d hope its financials would look better by now. Iora / One Medical is setting a long term target of 17% EBITDA margin, which will require significant financial improvement over time.

The Takeaway

Whatever way you cut this, this is a big deal in the primary care innovation landscape. One Medical and Iora now have a joint primary care offering that spans the lifetime of its members - from pediatrics to adults to seniors.

The combined organization sets itself up to capitalize on a number of potential future growth opportunities and ensure its ongoing relevance in a rapidly evolving space. Between One Medical’s relationships with employers and IDNs and Iora’s relationships with health plans, the combined organization is entrenched with key players across the healthcare landscape. On top of that, One Medical gets to diversify away from its fee-for-service revenue stream, while Iora finds a partner for its next phase of growth. This makes strategic sense for both parties.

The differences in underlying strategy and culture related to the fee-for-service model and the value-based model seem destined to create some friction between the two orgs that will be worth watching over time - which set of incentives will win out when push comes to shove? Both organizations have invested heavily to create purpose-built platforms to support their specific care models, and integrating those two platforms (technologies, operations, clinical models, cultures) seems as though it will be a complicated journey. It’ll be interesting to see whether 5 years from now this organization looks more like Iora or more like One Medical - either way it’ll be a fun transformation to watch as an outsider.

Other Good Reviews of the One Medical / Iora deal:

  • Christina Farr’s interview of Malay Gandhi. Link.

  • Business Insider’s review of the transaction (Paywalled). Link.

  • HealthCareDive’s review of the transaction. Link.

  • Matthew Holt’s tweetstorm. Link.

Kevin's Weekly Health Tech Reads 6/6

Babylon Health's SPAC, VC market maps of the women's health and pediatrics startup landscapes, ant more!

The Babylon SPAC:

Some additional notes on Babylon:

  • Babylon got its start years ago as an AI-chat based primary care service wrapped around a primary care clinic in England. It was a bumpy ride at times in England, as Babylon encountered substantial resistance from other clinicians, but it has successfully grown to be one of the largest practices in England (this Wired article is a good summary of the journey). The two primary complaints about Babylon are interesting to explore: 1. the product is bad; and 2. it’s screwing up how they get paid (see Wired article). As a consumer of healthcare, I’m significantly more concerned about #1 than #2.

  • The main story of the SPAC is about how the AI chatbot is just an entree for Babylon to manage delegated risk through its virtual-first primary care model. Check out this slide depicting how it intends to make money in a value-based care environment. This is a pretty straightforward model for a value-based care primary care entity (i.e. see Oak Street’s Investor Presentation which contains basically the exact same chart).

    Steps 2 and 3 on this chart get to the whole crux of how many primary care models claim to manage overall spend and will ultimately determine if Babylon is successful or not. The traditional theory of the case is that you *increase* primary care spending in order to avoid downstream costs. Hire care teams, encourage people to come in for more visits, etc. But Babylon appears to be saying it both intends to reduce primary care costs via it’s more efficient model (#2) as well as decrease specialty costs at the same time (#3). While it seems plausible that this could be the case, the SPAC presentation is light on details supporting that Babylon has done this at scale.

  • This growth in value based care seems to be driving a significant improvement in financials for Babylon, which is core to the story here. There’s little discussion of the historical financials, but this chart below shows that Babylon’s EBITDA was negative $152 million and $142 million in 2019 and 2020. It expects to lose another $140 million in 2021, before hitting breakeven in 2023. Note this is expected to happen during a period of hyper-growth for the company, as it expects to grow revenue from $79 million in 2020 to $1,484 billion in 2023.

  • The growth in both revenue and EBITDA appears to be largely driven by value-based care contracts, as it depicts below in slide 26. This is an interesting slide demonstrating why Babylon is migrating to VBC contracts - it can generate thousands of dollars per member per year at margins above 30% in year 3. Reading the footnotes on this slide, it appears that estimate is based off competitors results, rather than Babylon’s experience in the space, again highlighting how much of this model is theoretical at this point. But, the slide certainly depicts the lure of value-based care models quite well for any digital care organization. You can capture significantly more revenue per life covered, and potentially generate really nice margins if you can manage the total cost of care well. Will be worth watching whether Babylon can turn this into reality.

  • As mentioned earlier, the SPAC deck doesn’t give a lot of detail supporting the notion that Babylon can actually manage medical spend. It glosses over the fact that a key driver of Babylon’s value-based care growth in the US has come from two provider acquisitions in California (First Choice Medical Group and Meritage Medical Network). The strategy of acquiring existing providers only gets a vague mention in Slide 36 that Babylon has an “opportunity to consolidate brick & mortar, integrated care providers in the US”. Note that Babylon currently has 90k capitated lives in the US, roughly 52k of those coming from California, which appears to be from those provider group acquisitions. It will be interesting to see how Babylon performs in these contracts over time - it acquired First Choice Medical Group from agilon health, which was forced to jettison its California business pre-IPO because it was performing so poorly financially. First Choice has 50k lives in Medicare Advantage and Medi-Cal plans. While Bright seems to have provided a proof point that companies can go down this path and successfully manage medical spend, it’s not clear from this deck why Babylon will have any better luck than agilon health did in managing costs. Seems like there is some significant risk in that for Babylon.

  • I’m not really sure what to do with Babylon’s key metrics slide. It seems to inadvertently highlight the hodgepodge approach - note the different metrics chosen across different geographies. For example, in the US, Babylon highlights that 90% of consults are within 30 minutes, but that data is not shared for either of the geographies. If that’s a KPI for accessibility, why not share across all geographies? The way they’re calculating savings on the affordability section based on the footnotes also seems a bit… generous? I’m also confused by the US affordability number - are they just stating the same thing two different ways? It’s understandable for where Babylon is at given its recent growth, but you’d hope to see some more consistent KPIs here.

  • Babylon tucked into this news that it has exercised its option to acquire the remainder of health kiosk startup Higi, which it presumably received when it led Higi’s most recent $30 million funding round.

Some Concluding Thoughts:

  • Babylon is going to be a very interesting experiment to watch on the public markets over the coming years. I’d love to see it more credibly talk about how it plans to manage risk successfully - I’m not convinced from the SPAC presentation that they know how to do this yet. The approach Babylon is taking is certainly unique in terms of leveraging a digital platform (+ acquired practices) to manage risk, and if they’re able to do this successfully there is a lot of opportunity for Babylon moving forward. Again, that seems like the crux of the case here - if you believe they can do that successfully, this should be a home run.

    I’ll be keeping an eye on what their first few quarters as a public company look like, as it seems like there is a lot more to unpack in this one beyond the SPAC presentation. Like many SPAC presentations, it leaves a lot to be desired for folks who want to understand what Babylon has proven out over the last few years versus the shiny growth story. I’m quite skeptical of how they’re going to get to profitability in 2023 - it would be nice to see more details on the financials behind that (as well as historical financials).

    Right now, Babylon seems like a nice story with a lot of promise that hasn’t been proven out yet and has some major question marks yet to be answered on the operational side of things.

How do you feel about Babylon? What do you agree / disagree with above? Let us know if you’re bullish or bearish on Babylon’s approach and why you feel that way via this survey. We’ll again post results / interesting comments we hear back from folks.


News:

  • Blackstone, Carlyle, and Hellman & Friedman are acquiring a majority interest in Medline, a family-owned manufacturer and distributor of medical supplies that did $17.5 billion in revenue in 2020. Link.

  • Cerner is rumored to be the target of an acquisition. Who knows if this materializes into anything real, but it is fun to think about as the four players mentioned would each be quite interesting: Microsoft, Google, Oracle, and Salesforce. Link.

  • Children’s Hospital Colorado last week declared a mental health state of emergency as suicide attempts / ER visits related to mental health crises were up 90% last month. This is a heartbreaking article to read about how our health system is failing kids. Link.

  • North Carolina health systems Sentara and Cone decide not to join forces. Link.


Funding:

  • D2C telemedicine startup Thirty Madison raised $100 million in part to take its D2C approach to health plans. Thirty Madison, which got its start similar to Ro and Hims targeting hair loss, among other things, is now aiming to expand in chronic care spaces such as diabetes and heart disease. The pitch to payors and employers is presumably as a hybrid that offers a consumer-oriented brand to treat basic conditions while while also managing higher cost conditions competing with the likes of Livongo, Virta, and others. It’s a lot to tackle but will be a cool test. It will be interesting to watch players in the D2C space like Thirty Madison start to attempt to capture value via B2B2C sales, which is an entirely differently animal. Does the consumer-first lens provide a leg up in the race to build digital health platforms? We’ll see. Link.

  • Nayya raised $37 million for its employee benefits platform. Link.

  • Aunt Bertha, a network of social determinants of health resources, raised $27 million. Link.

  • Plum, a startup building an employer insurance offering in India, raised $15.6 million from Tiger Global. Link.

  • Axle Health, an API layer connecting virtual care delivery startups with clinicians to do in-person home health visits, raised seed funding. Link.


Opinions:

  • The Substack Health Tech Writers Guild put out some good content this week:

    • Christina Farr and crew did a deep dive on the women’s health market - I particularly like the market map they put together as a framework for thinking about how broad this space is. The post offers up some good thinking around the women’s health landscape, why it is so relatively underfunded compared to the rest of healthcare, and opportunities moving forward. Link.

    • Olivia Webb follows up her piece on Direct Contracting and takes a look at capitated models in primary care more broadly. Link.

    • Kevin Wang dives deep into patient reported outcome performance measures (PRO-PMs). If you’re interested in what PROs are, how they can be used as performance measures, and how they’re collected its worth checking out. Link.

  • 7wireVentures shared a report on pediatric health with a nice market map on the current state of pediatric health startups and some of their predictions for the space. Link.

  • This is a excellent read in the New Yorker on how Hahnemann Hospital in Philadelphia shut down after a PE firm purchased it from Tenet. As more and more healthcare delivery in this country becomes backed by PE / VC money, it is going to be worth keeping an eye on the side effects of this trend. Link.

  • Here’s an interesting piece from STAT on why machine learning is struggling in healthcare, looking at how AI models are challenged because the underlying data in healthcare is awful. Link.

  • Speaking of sketchy AI algorithms, this FastCo article looks at how Epic deployed an AI algorithm for patient triage in hospitals during the COVID-19 pandemic. Link.


Jobs:

  • Allara Health, a startup building a chronic care platform for women's health, is hiring a Senior Software Engineer. Link.

  • Cityblock Health, a primary care startup for Duals populations, is hiring a Senior Business Intelligence Analyst and an Analytics Engineer. Link 1. Link 2.

  • Ginger, an on-demand mental health startup, is hiring a Product Manager. Link.

  • Ribbon Health, a healthcare data platform startup, is hiring a Provider Performance Product Manager. Link.

  • Thirty Madison, a D2C telemedicine company, is hiring a VP of Payor Strategy & Business Development. Link.

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