By ANDY MYCHKOVSKY
In order to celebrate the next decade (although the internet is confused whether its actually the end of the decade…), we’re taking a step back and listing our picks for the 9 most influential healthcare companies of the 2010s. If your company is left off, there’s always next decade… But honestly, we tried our best to compile a unique listing that spanned the gamut of redefining healthcare for a variety of good and bad reasons. Bon appétit!
1. Epic Systems Corporation
The center of the U.S. electronic medical record (EMR) universe resides in Verona, Wisconsin. Population of 13,166. The privately held company created by Judith “Judy” Faulkner in 1979 holds 28% of the 5,447 total hospital market in America. Drill down into hospitals with over 500-beds and Epic reigns supreme with 58% share. Thanks to the Office of the National Coordinator for Health Information Technology (ONC) and movement away from paper records (Meaningful Use), Epic has amassed annualized revenue of $2.7 billion. That was enough to hire the architects of Disneyland to design their Google-like Midwestern campus. The other amazing fact is that Epic has grown an average of 14% per year, despite never raising venture capital or using M&A to acquire smaller companies.
Over the years, Epic has been criticized for being expensive, non-interoperable with other EMR vendors, and the partial cause for physician burnout. Expensive is probably an understatement. For example, Partners HealthCare (to be renamed Mass General Brigham) alone spent $1.2 billion to install Epic, which included hiring 600 employees and consultants just to build and implement the system and onboard staff. With many across healthcare calling for medical record portability that actually works (unlike health information exchanges), you best believe America’s 3rd richest woman will have ideas how the country moves forward with digital medical records.
My very first interview out of undergrad was for a position at Epic. I chose a different path, but have always respected and followed the growth of the company over the past decade. In a world where medical data seems like tomorrow’s oil, a number of articles have speculated whether Apple or Alphabet would ever acquire Epic? I don’t buy it. I’m thinking it’s much more likely that 2020 is the first year they acquire a company. How you doing Athenahealth?
No one can argue Theranos didn’t change the game in healthcare forever… for the worse. I do my best to give all healthcare founders the benefit of a doubt, but Elizabeth Holmes and Ramesh Balwani make that nearly impossible. Turns out that an all-star cast of geopolitical juggernauts on your Board of Directors and the black turtleneck of Steve Jobs is not the recipe for success. Founded by 19-year Elizabeth Holmes, Theranos raised over $700 million at a peak valuation of $9 billion. In retrospect, they have become the poster-child for Silicon Valley’s over-promise and under-deliver mantra. The only problem is that instead of food delivery, their failures resulted in invalid blood testing that could’ve really hurt people.
Despite this failure, the mission and purpose would’ve been tremendously impressive. Cheaper blood tests that require only 1/100 to 1/1,000 the amount of blood that LabCorp or Quest Diagnostics needed. I think the craziest part of the whole saga was that seemingly sophisticated healthcare leaders thirsted for the new technology to beat competitors and improve patient convenience. Before the technology was proved defunct, Theranos convinced Safeway to invest $350 million to retrofit 800 locations with clinics that would offer in-store blood tests. Theranos convinced Walgreens to invest $140 million to develop a partnership that would help beat CVS. Theranos partnered with Cleveland Clinic to test its technology and was working with AmeriHealth Caritas and Capital BlueCross to become their preferred lab provider.
To be clear, they weren’t the first, and won’t be the last healthcare company to fail. I only hope that this extremely well documented (thanks Hollywood) experience has re-focused founders and investors towards building sustainable growth companies that actually help patients live higher quality lives, not just make people money as quickly as possible.
3. One Medical
Thanks to Tom Lee and the One Medical crew, primary care is now investable. Whether you’re talking about private equity or venture capitalists, many have dived head first into the space in search of value-based care treasure. One Medical is the most well-known tech-enabled primary care practice, with 72 clinic locations across seven states, and new locations opening in Portland, Orange County, and Atlanta. The Carlyle Group liked the company so much that it invested $350 million in August 2018, at a reported $1.5 billion valuation. This has led to a number of primary care focused companies (ChenMed, Iora Health, Forward) to amass significant valuations that historically would’ve seemed optimistic. However, the elevation of the primary care provider from the “punter” to the “quarterback” of a patient’s medical journey has lifted all boats.
Interestingly, One Medical has unique differentiators over the traditional primary care competitors. For example, One Medical limits doctors to seeing 16 patients a day, versus the average physician seeing 20-30 patients a day. One Medical also built its own medical records in hopes of a more user friendly experience, instead of outsourcing to practice-based EMRs. One Medical charges $199 annually to each patient to help make up for lower volume, and in return provides same-day appointments, onsite lab draws, and a slick app that allows online appointment scheduling and telehealth consults with providers 24/7. They are also adding capabilities and services to cover mental health and pediatric services to increase revenue.
This change is remarkable. Historically, primary care has been a low-margin business with high administrative and staffing costs, along with physician burnout and regulatory burden. One Medical pioneered the concept of a more modern primary care experience, and I am looking forward to their initial public offering (IPO) targeted for early 2020 and whatever Tom Lee is cooking up at Galileo.
Centene is my favorite health plan to study over the past decade. You would never know that the second largest publicly-traded company headquartered in Missouri was originally started by Elizabeth “Betty” Brinn in Milwaukee, Wisconsin. Under-hyped, which is rare in healthcare nowadays, Centene has quietly grown to become the largest player in both the Medicaid managed care and Affordable Care Act (ACA) exchanges. Under Michael Neidorff’s leadership, Centene now serves 32 states with over 15 million lives and 53,600 employees. They were most recently ranked #51 on the Fortune 500 list. In addition, they are about to grow with the $17.3 billion acquisition of WellCare. Here’s a brief rundown of some major events that demonstrate why I’m so bullish on Centene dominating another decade:
- April 2018: WellCare and Centene awarded Medicaid managed care contracts in Florida.
- July 2018: Centene acquires Fidelis Care and their 1.6 million New Yorkers for $3.75 billion. This single-handedly gives Centene the leading Medicaid share in the state.
- September 2018: WellCare acquires Meridian Health Plan and their 1.1 million lives in Michigan, Illinois, Indiana, and Ohio, for $2.5 billion.
- February 2019: Centene and WellCare awarded Medicaid managed care contracts in North Carolina.
- December 2019: WellCare awarded Medicaid managed care contract in WellCare (re-procurement underway)
In addition, Texas Medicaid is set to award their STAR contracts for 3.4 million lives between Medicaid and CHIP, of which Centene already won a contract to serve the STAR+PLUS (aged, blind, and disabled population). Seems like a pretty solid guess that Centene will fair pretty well in the STAR RFP rankings. Next decade, I look for Centene to significantly increase their efforts to recruit Medicare Advantage (MA) lives, and I wouldn’t bet against them.
One word. EpiPen. Mylan, the $10 billion market cap pharmaceutical manufacturer and producer of the epinephrine auto-injector product, EpiPen, became the lightning rod in a consumer and political drug pricing debate in 2016. For those who were living under a rock, here’s the quick recap. Epinephrine auto-injectors are used to treat anaphylaxis (severe allergic reaction). Prior to 2016, Mylan held absolute dominant share of the auto-injector market, hovering around 90% for the first half of the 2010s. The only real competitor was Adrenaclick, produced by Lineage Therapeutics, but they were barely considered a competitor despite having cheaper prices. In 2016, news outlets caught wind of Mylan’s 500% list price increase over a decade ($100 to $600) and a nationwide discussion about drug prices began.
If you asked the Mylan CEO, Heather Bresch, she would tell you that the reason brand EpiPen’s list price increased 500 percent over 7 years is because they invested billions of dollars to significantly increase access in schools and employers across America. These efforts increased the number of EpiPen prescriptions in the U.S. from 2.5 million to more than 3.5 million between 2011 and 2015. She would also tell you that there is a big difference between wholesale acquisition cost price (list price) and net price. This part is often misunderstood by media. The net price takes into account discounts, prescription savings cards, and rebates that Mylan provides to purchasers (PBMs, Employers, Plans). The exact negotiated rebate or discount is different by line of business and organization. However, safe to say that Mylan made a good amount of profit with increasing volume.
At the end of the day, Mylan settled with the U.S. Justice Department for $465 million over claims it overcharged the government. Mylan kept their $600 list price brand EpiPen product with rebates, and added a generic version of EpiPen for $300 list price without rebates and requiring commercial insurance. According to a GoodRx analysis in 2018, the epinephrine auto-injector market now looks much different, with 60% of the market moving to the generic version of EpiPen, 10% of the market remaining with brand EpiPen, and 30% of the market switching to the generic version of Adrenaclick. However, whether generic or brand EpiPen, Mylan makes strong profits and American will continue to discuss the best strategy forward to control drug spend.
6. Evolent Health
First let me caveat. I’ve worked for Evolent Health for the past 5 years and seen it grow from a Series B startup to a publicly-traded company (NSYE: EVH). However, the reason they’re on this list is because Evolent Health has forever changed the game for future value-based care startups. When Frank Williams, Seth Blackley, and Tom Peterson founded the company in 2011 with the help of UPMC Health Plan and The Advisory Board Company, concepts like the Medicare Shared Savings Program (MSSP) did not even exist. Fast forward a decade later, and Evolent Health now serves approximately 3.7 million lives across 35 different U.S. healthcare markets. The mission of Evolent Health is to, “Change the health of a nation, by changing the way healthcare is delivered.” To do this, you need both the technology, clinical, financial, and operational capacity to empower providers to confidently move away from fee-for-service towards fee-for-value.
With the implementation of MACRA and the continued perseverance of CMS under this new administration, value-based care is still full steam ahead (good luck incoming CMMI Director, Brad Smith). Despite the naysayers of value-based care, find me a better way to control medical inflation that is accepted by nearly all healthcare institutions and doesn’t negatively impact patient outcomes, and we can talk. I will mention the importance of “significant” downside risk to actually change provider culture, strategy, and operations. I don’t want the primary purpose of setting up a clinically integrated network (CIN) to be negotiating higher fee-for-service commercial rates for independent physicians aligned to tertiatiary academic medical centers.
I wholeheartedly believe that providers will continue to seek partner options (not vendors with high fees independent of performance) who are not wholly-owned by the large for-profit health plans (Optum…). Of all the available options, Evolent Health is the market leader across a variety of areas. In 2020, I look forward to watching how the 3,000+ Evolenteers push the boundaries of downside risk value-based care with both payers and providers.
To me, Livongo represents Daenerys Targaryen in Game of Thrones. Not the blood-thirsty character towards the end, but the only person to bring back dragons to the world of Westeros. Except in this example, the dragon is a successful digital health IPO. This was a big deal. Going public rewarded early investors who believed in the nascent digital health and chronic condition space. It allowed public investors an opportunity to peak under the hood of the financials and get comfortable with future economics of the industry. And it provided a legitimacy and a peer valuation to other leading digital health companies like Omada Health. All-in-all, 207,000 members use Livongo for Diabetes management solutions, including a connected glucose monitor, unlimited test strips, and personalized health coaching. This number is expected to grow significantly, with the announcement of a new, two-year diabetes contract with the BlueCross BlueShield Federal Employee Program (FEP). They anticipate the partnership will add an additional $50-60 million in revenue across 2020 and 2021
Livongo has done a brilliant job marketing itself as building a full-stop solution for the 147 million Americans with a chronic condition. According to their estimates, their immediately addressable markets for managing diabetes and hypertension represents a $46.7 billion opportunity. Digging into the unit economics, Livongo estimates that diabetes is worth $900 per patient per year and $468 per patient per year. Since they’re focused on chronic conditions, the business model is subscription-based. In the Q3 quarterly report, Livongo provided full year guidance of $168.5 million on the low end and $169 million on the high end. In either scenario, FY2019 Adjusted EBITDA is projected to lose around $26 million for the year.
Livongo has smartly started with addressing diabetes, given the downstream health impacts of mismanagement of blood sugar and the ability to impact spend with regular insulin, diet, and exercise. They also are very smart to efficiently sell into self-funded large employers using existing channel partners like Express Scripts, CVS, Health Care Services Corporation (HCSC), Anthem, and Highmark BCBS. I know that the stock is down 35% since IPO, but I fundamentally believe chronic conditions are not going away and over time, Livongo will add supplementary clinical programs to expand revenue growth.
UnitedHealth Group is the single largest healthcare company in the world with a $280 billion market cap. It owns UnitedHealthcare, the country’s largest private insurer serving Medicare Advantage, managed Medicaid, employer-sponsored insurance, and ACA exchanges. And yet in 2020, more than 50% of the company’s earning and $112 billion in revenue will come from the lesser known side of the business, Optum. It is difficult to describe Optum because they do so much, but they technically split their business into three units: OptumHealth, OptumInsight and Optum Rx. OptumHealth provides care delivery (primary, specialty, urgent care) and care management to address chronic, complex, and behavioral health needs. OptumInsight utilizes data, analytics, and clinical information to support software, consulting, and managed services programs. OptumRx is a pharmacy benefit management (PBM) to create a more streamlined pharmacy system. In total Optum estimates the U.S. addressable market for its services to exceed $850 billion. If that wasn’t enough, here’s some fun facts why they made the list:
- Works with 9 out of 10 U.S. hospitals, more than 67,000 pharmacies, and more than 100,000 physicians, practices, and other providers.
- Added 10,000 physicians in the past year, growing its network to 46,000 physicians.
- Includes 180,000 team members and serves 120 million customers.
- Serves 80% of health plans to reduce total cost of care.
- Works with 9 out of 10 Fortune 100 companies.
Pretty remarkable for a business unit that was only technically created in 2011, by merging existing pharmacy and care deliver services into one brand. As chronic disease increases and value-based care is here to stay, Optum is focused on comprehensively treating patients and coordinating their care to improve quality and lower costs. With UnitedHealthcare under the corporate umbrella, Optum has the adequate scale to test any new clinical initiatives before rolling out to other health plans.
9. Purdue Pharma
Purdue Pharma is a privately owned drug company owned by the Sackler Family and most well known for creating OxyContin in 1996. OxyContin represents 90% of Purdue Pharma’s revenue and was aggressively marketed to doctors for use in patients with chronic pain. According to court records, Purdue Pharma has grossed an estimated $35 billion. This is the same prescription painkiller that many experts say fueled the U.S. opioid crisis that has resulted in more than 130 deaths each day after overdosing on opioids. To be clear, the deaths are caused by prescription pain relievers, heroin, and synthetic opioids (fentanyl), however, the initial addiction to opioids is often caused by OxyContin and other prescription drugs. All but two U.S. states and 2,000 local governments have taken legal action against Purdue, other drug makers and distributors.
The Sackler family is the 19th richest family and is well known for supporting the fine arts, including the Sackler Wing at the Metropolitan Museum of Art in New York City where the Ancient Egyptian Temple of Dendur sits. I’ve seen a number of articles persecuting the entire Sackler family, but I want to be a little more nuanced. In 1952, three Sackler brothers (Arthur, Raymond, and Mortimer) bought a drug company called Purdue Frederick. Arthur’s branch of the family got out of the company after his death in 1987. The Raymond and Mortimer branches of Sacklers, who own it, founded affiliate Purdue Pharma in the early 1990s. According to a 2017 article from The New Yorker, there are 15 Sackler children in the generation following the founders of Purdue. Some family members have served on the Board of Directors, while others (most notably descendants from Arthur Sackler who died before OxyContin was invented), have distanced themselves from the company and condemned the OxyContin-based wealth.
Purdue Pharma filed for bankruptcy in September 2019 as part of a tentative settlement related to misleading marketing of the controversial painkiller. The settlement requires the owners of Purdue Pharma and the Sackler family to pay out $3 billion of their own fortune in cash over the next seven years. The only problem is that some family members have reportedly moved $10.7 billion from Purdue Pharma to trusts and holding companies across the world between 2008 and 2017. And all we’re left with is a complicated web of holding companies and offshore bank accounts, ravaged communities, and the leading cause of injury-related death in the U.S.
Andy Mychkovsky is a Director at Evolent Health and the Founder of a healthcare startup and innovation blog, Healthcare Pizza. This post originally appeared on Healthcare Pizza here.