By KIM BELLARD
Not familiar with Schumpeter’s gale? You may be more familiar with the term “creative destruction.” Schumpeter’s “gale of creative destruction” is the inevitable “process of industrial mutation that continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”
We need a Schumpeter’s gale in healthcare.
Continue reading…By KIM BELLARD
I recently watched some of the recent Congressional hearings on cryptocurrency, and, boy, if there’s anything funnier than watching experts try to educate most members of Congress on anything crypto-related, it’s probably me trying to explain it. I don’t own any digital assets, still don’t see the point of NFTs, and am not going to buy any real estate in the metaverse.
All that being said, there’s something about Web3 that fascinates me. Knowledgeable people are talking about Web3 “reinventing the internet,” “democratizing” it, giving people more ownership of/control over what they do on it. It’s a counterbalance to how the internet – both the traffic and the infrastructure — has grown increasingly dominated by a few very large firms, such as Google, Facebook, or Amazon.
As the Web3 Foundation declares, Web3 is an internet where:
All that sounds very intriguing to me, especially as someone who has dim views of how healthcare likes to silo information, has placed too little value on patient ownership of their own data, and is rushing to centralize.
Continue reading…Each week I’ve been adding a brief tidbits section to the THCB Reader, our weekly newsletter that summarizes the best of THCB that week (Sign up here!). Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt
For my health care tidbits this week, it’s time to bring up the disconnect between the continual collapse of #DigitalHealth stock prices and the continued increase in private sector investment and valuation in the same sector.
All of nine months ago, way way back in March 2021 market leader Teladoc hit a stock price of $308. Last week it hit a low of just under $90. Meanwhile several companies have IPOed or SPACed this year and almost all of them have seen their stock fall dramatically. For example, pioneer online mental health company Talkspace is now at a market cap of under $300m. This week a different mental health company Cerebral which was only founded in January 2020 raised $300m at a private valuation of over $4 billion. Yes they could have bought out Talkspace for that amount! In October Medicare Advantage plan Devoted Health raised money at a $12 billion valuation which exceeded the market cap of rivals Clover, Bright Health and Oscar–each of which has more members.
So what’s going on? Part of this is the wash of money still going into venture funds. Interest rates are historically low, while inflation is picking up, so that money has to go somewhere. Additionally some of the companies that SPACed out were probably unable to get such a good valuation in a private round. But it can’t be that all the 50 or so public companies are lower quality than the private ones. That indicates that either the private valuations aren’t real (because there are so many protections built into the deal for investors), or that the private and public valuations are going to get closer together. There is of course one more possibility–some of the private companies may pursue M&A and buy out some of the public ones. But in any event, this current arbitrage cannot last forever.
It’s not unlikely the public stocks may pick up. But we’ve seen private and public market bubbles before and the aftermath isn’t usually pretty.
By MIKE MAGEE
Warner Vincent Slack, MD, a pioneer of medical informatics, was a Professor of Medicine at Harvard Medical School in the Division of Clinical Informatics. When he died in 2018 at age 85, his memoriam read:
“For over 50 years, Dr. Slack conducted pioneering research on the use of computers in the medical world and was one of the founders of medical informatics. His goal was to empower both doctors and patients by improving the communication between them.”
Followers of Dr. Slack have labored hard over the past half-century to design solutions that will strengthen rather than weaken the bonds of the patient-physician relationship. But as he suggested at multiple points throughout his career, this goal becomes exponentially more difficult if politicians are allowed to “play doctor” with citizens’ lives.
His awareness of the fallout of the Terri Schiavo “right to die” case, beginning a dozen years after his seminal publication of “Patient Power: A Patient Oriented Value System”, likely cast a long shadow on his optimistic vision. The case spanned 15 years, as it rode the poor health and disability of one unfortunate woman literally into her grave with devastating consequences for all concerned.
As the Supreme Court readies itself to serve up opinions in the Texas vigilante and Mississippi abortion cases, the Schiavo case remains a cautionary tale that deserves a careful review. Here’s a quick summary:
Today in Health in 2 Point 00, Jess and I talk about the plethora of notable deals in the Healthcare Space. Bright Health gets $750 million with notable investment from Cigna; Innovaccer gets $150 million, bringing their total up to $375 million; Cadence gets $100 million, bringing their total up to $141 million; Ophelia raises $50 million, bringing their total up to $64 million; and Apti Health raises $50 million, bringing their total up to $65 million.
-Matthew Holt
By KIM BELLARD
I’ve finally come to understand why the U.S. healthcare system continues to be such a mess, and I have President Dwight Eisenhower to thank.
I’ve been paying close attention to our healthcare system for, I hate to admit, over forty years now. It has been a source of constant frustration and amazement that – year after year, crisis after crisis – our healthcare system doesn’t get “fixed.” Yes, we make some improvements, like ACA, but mostly it continues to muddle along.
Then I learned about President Eisenhower’s approach to problems:
That’s it! All these smart people, all these years; they didn’t know how to solve the problem that is our healthcare system, so they all took the Eisenhower approach: enlarge the problem. Let our healthcare system get so bad that not addressing it no longer is possible.
If, indeed, there is such a point.
The actual Eisenhower quote is more nuanced than the above version. It was:
Whenever I run into a problem I can’t solve, I always make it bigger. I can never solve it by trying to make it smaller, but if I make it big enough, I can begin to see the outlines of a solution.
I guess we’re not yet at the point when the outlines of a solution are clear (Bernie Sanders notwithstanding).
Instead, we’ve been chipping away at the problem, trying to make it smaller. For example:
BY SARAH BETH
I remember the first time I told a doctor that I was being trafficked. That experience was also the last time I told a healthcare professional. My psychiatrist in an acute inpatient psychiatric hospital heard my story and told me that trafficking only happens in third-world countries and in movies. While this professional was the most ill-informed I ever encountered, they were not the only healthcare workers that did not have the training they needed to identify me.
I remember tucking my hospital gown between my legs to hide the bruising on my thighs. I remember explaining away cuts and burns. I remember being encouraged by doctors and nurses to report sexual assaults. I remember a psychiatrist telling me I would never get better, so I should stop seeking help. I remember the look in a nurse’s eyes when she knew something was off but did not know how to intervene.
It was that nurse, the one whose instinct told her that something was wrong, that gave me hope. She saw me. When you’ve been through what I’ve been through, you never forget the first person to really see you. She gave me hope that someone could help me, that someone saw me as a person. She gave me hope that someday my life would be different.
For 20 years I was trafficked for sex by a member of my family, and for 20 years I was discharged into the hands of my trafficker, a seemingly good man who was charismatic and kind to everyone in the office. All the while, I remembered the nurse who saw me, and I held onto hope that there were others like her.
I have heard story after story that mirrors my own: men, women, and children being trafficked, desperately hoping a healthcare worker would spot the signs but being placed back into the hands of their traffickers. The statistics back our experiences.
Continue reading…How much longer do we have to wait for Glen Tullman to be on the NASDAQ with Transcarent? In this episode of Health in 2 Point 00, Jess and I discuss several new deals in the healthcare space. Suki raises $55 million, bringing their total up to 95 million; Robin raises $50 million , bringing their total up to $65 million; Cerebral raises $300 million, bringing their total up to $420 million; Nomi raises $110 million ; and Apti Health raises $50 million, bringing their total up to $65 million.
–Matthew Holt
I cough my way through this episode of Health in 2 Point 00 in his original interview sweater. There’s $60m for Quartet (mental health), Ribbon Health gets $43.5m to fix provider lists, Lyn Health reinvents the medical group with $10m (sort of), Medallion gets $30m to fix cross-state line provider credentialing & Safely You gets $30m to use AI to prevent falls in nursing homes. -Matthew Holt
Each week I’ve been adding a brief tidbits section to the THCB Reader, our weekly newsletter that summarizes the best of THCB that week (Sign up here!). Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt
For my health care tidbits this week, it’s time to delve into the private equity firms’ buying and selling of Athenahealth. That’s of course the practice management/EMR firm bought by private equity companies led by Elliot Capital Management–they of the Israeli spy agency dirty tricks division–for roughly $6.5bn in 2018. Many (including me) have wondered how, given it was already doing about $1bn a year in revenue then, Athenahealth could be sold for $17bn three years later. After all it’s hardly likely to have tripled its revenue in a mature market! This comment by “Debtor 23” on @histalk is very instructive:
“Elliott did quite a bit better than 3x on its investment. The original deal was funded with about $4.8B of debt and $1B of equity from the hedge fund sponsors. Add in the acquisition cost of Centricity (call it $500M of equity, $500M of debt) and the equity investors are all-in with $1.5B of equity and $5.3B of debt. They sold off some assets for a total of ~$600M in cash, so net equity in play is $900M. They turned that equity into $11.7B (assuming no interim debt pay down), which is a 13x return. 13x feels ridiculous….but….if you’d invested that same levered-up $6.8B in the Nasdaq (QQQ) on the same timeline (Elliott began buying ATHN in spring 2017)…you could sell today for $18.1B. Absurd as this whole deal sounds, it has actually underperformed the market. This story is more about tech multiple expansion/bubble broadly than it is about improving management or running the business.”
So much like Renaissance and other hedge funds that rely on leverage, essentially Elliott leveraged Athenahealth up with debt to the tune of 80% of its value. So after slashing and burning R&D, selling assets (like the HQ which they apparently got $500m for) they probably got costs down & profits way up. When it was public under CEO Jonathan Bush, Athenahealth never tried to be that profitable. It was always fixated on the next big thing (the last one was building the future state inpatient EMR with Toledo & using the BIDMC tech it bought from John Halamka). That’s one reason its PE ratio was 100+.
So if Elliott can get some sucker to pay up and manages to turn $1bn into $13bn, how do the next greater fools–H&F and Bain Capital–do it? Well they need to layer Athenahealth up with even more debt (as money is currently so cheap) and keep generating enough cash to pay the debt. Of course at that price and with this mature a market it’s going to be super hard to grow the company enough to justify another leap in sales price, but it might be doable to service or even pay down some of the debt and take it for an IPO for a couple of billion more if the market stays nutso. So if H&F and Bain Capital basically shrink their equity portion down to $1-2 billion, and get it to IPO in a year or so for say $20Bn, they will at least double or triple their money. Not quite 13 x but not terrible.
And if it all goes wrong and Athenahealth can’t service the debt? Well the beauty of leverage and debt is that it attaches to the company – not to the PE fund that put it in that position. So all the new owners will have at stake is a reasonably small amount of equity. Of course if the shit hits the fan and Athenahealth goes bankrupt the employees and customers may not be so happy, but who cares about them? (Apart from that hasbeen CEO who got kicked out!)
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