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Want to get rich in health care? Ditch the startup and run a hospital

By MATTHEW HOLT

Given that I ran a health technology conference for many years, I tend to run in a circle of people who have some ambition to get rich in health care. After all, billions of dollars of VC money have been dropped in lots of startups over the last decade, and a few prime examples have done very well. For example Jeff Tangey of Doximity, Glen Tullman of Livongo,  Chaim Indig of Phressia and many others did fine when their companies IPOed in the late 2010s. But the truth is that many, many more have either started a health tech business that didn’t make it, or were foot soldiers in others that died along the way (Olive, Babylon, Pear, etc, etc). Which has been leading me lately to thinking about whether that’s the right approach to take if you want to make money in health care. Hint: it’s not.

There’s still tremendously little transparency about which health care organizations have what amount of money and what people earn. There is though one sector that by law has to publish information about revenue, profits, investments and executive compensation. That is the non-profit hospital/health system sector. Nonprofits are required to file Form 990 with the IRS that has that information and more on it. Having said that, most hospitals are frequently late in filing them, and file them in a very confusing way. The wonderful journalism organization ProPublica maintains a database of all 990 filings and it’s instructive to look around in it.

Some health systems make it relatively easy. UPMC, the huge western PA conglomerate files one 990 for the whole group. Others, not so much. I know that Providence, the huge west coast system, has overall revenue of $28bn but only because Fierce Healthcare told me. Had I tried to piece that together from its 990s, I’d have started with its Washington filing ($6bn), moved on to its Oregon filing (~$5bn) and then started getting confused..

Let’s say you wanted to easily figure out Advocate, the system that was the merger of the huge midwestern system with Atrium, the North Carolina-based one. Good luck. You can find Advocate but Atrium’s seems to be missing. Ditto for Carolinas Health, its previous name. There is a page calling itself Financial Information on the Atrium website, but it doesn’t have any, and tells you to go to a website set up for municipal bondholders. In fact I couldn’t find any evidence of the IRS auditing any large system, or fining them for non-compliance in filing.

The good news is that last year the North Carolina State Employees plan, i.e. a pissed off purchaser, dug into all the N. Carolina hospital systems and found out that Atrium’s CEO pay went up nearly five-fold over six years. But even the state had real trouble finding out the truth:

“It is important to understand that these figures are significant underestimates for three reasons. First, a legal loophole denies the public the right to see how much publicly owned hospitals reported paying their top executives on their tax filings. This failure of oversight hides the tax filings of more than three in 10 nonprofit hospitals in North Carolina, including Atrium and UNC Health. UNC Health did not answer a public records request for executive compensation data until February 13, 2023, two days before this report’s publication and almost three months after its receipt of the request. UNC Health’s system wide data is therefore not included in this report.” 

So the very top dogs are doing well. At UPMC it turns out that seven made more than $3m including the CEO Jeff Romoff –the same one who forgot on 60 Minutes whether he made $6m or $7m. Turns out he didn’t have to remember that number for long as by 2021 he was making $12m.

But the munificence is spreading down the executive ladder. To demonstrate, let me introduce you to Tracey Beiriger Esq. There’s almost no information about Tracey on Linkedin or anywhere else on Google other than it appears he or she is an IP lawyer at UPMC. So why do I bring them up?

Because in 2021–the last year for which UPMC filed a 990 –Tracey was the 118th highest paid executive at UPMC and had the misfortune to only make $499,446.

Which means that 117 executives working at UPMC made more than $500,000. It’s a little tricky figuring out the similar numbers at Providence because of the multiple 990s in 2021 but there are 38 in Washington (not including CEO Rod Hochman who made $9m in 2020 and then vanished from the 2021 990!), 18 in Oregon and another 21 in Southern California. So call it 80+.

I bring this up because $500,000 is a pretty decent individual income. When I asked ChatGPT it estimated about 1.2 million Americans earned that much or more. Given the workforce is 167m, that puts those several hundred hospital execs way into the top 1%.

Now I have no objection to people earning good money. I’m sure they have all worked very hard for it. But if you look at these organizations, they do not seem to be spreading the wealth very far. 

Last year UPMC was accused by unions of suppressing staff wages. There is yet to be an outcome from that complaint to the DOJ, but last week there was one from a formal class action complaint about Providence shortchanging employees by rounding down their pay to the nearest half-hour, even though they were clocking on and off by the minute. Providence was fined $200m which probably isn’t much split between 33,000 employees but at least indicates that their senior management acts just like any other aggressive business in terms of cutting costs on the backs of their employees. And it’s not just their employees. They also just got fined $137m for aggressively suing patients.

Which leads me to two final points.

The first is, is it more likely you’ll make that $500K+ in a hospital system or in a tech startup? Blake Madden at Hospitology has been tracking systems that have more than $1bn in revenue. He’s found 113 so far. Second bottom of the list is Atlanticare in NJ, which has 16 execs making more than $500K.  Which by my wild guess means that the average system has about 50 employees making $500k+  which rounds up to something like 5,000 hospital execs making at least $500K and many of them are making a whole lot more. 

Compare that to a successful health tech startup that actually makes it. Take Phreesia, a VC-backed start-up that went public in 2019 having started way back in 2007. (I know the year because CEO Chaim Indig launched at Health 2.0 in 2008. He was nice enough to let me buy some stock at the IPO and I made a few bucks). Chaim made $300K the year it went public and as CEO of a public company that’s bounced around at being worth between $1Bn and $4Bn, he made $750K last year. No one else made more than $500K. Now yes, he owned 4% of the company at the IPO and got awarded more stock. He is doing very well, but the point is that there were dozens of companies launching at Health 2.0 in 2008 and the vast majority don’t get close to an IPO or making any money for the founders, let alone the staff. 

My conclusion is, it’s not a rational bet to go the health tech route if instead you can find a regional hospital chain and brown-nose your way up into the exec ranks!

The second point is more fundamental. Remember UPMC and its 117 execs making $500K+? What would a comparable government agency be paying out? I looked at the state of California salaries.There look to be about 50 state employees making more than $500k a year, almost all working for the state investment fund CALPERS. But the top paying one only makes $1.6m a year. I’m not saying that CALPERS should be paying out that much even if it is competing with Wall Street, after all members of the Senate only make $205,000 a year and the state could just put the whole pension into an S&P index fund. But what I am saying is that we should be thinking about paying our big non-profit systems similarly to government employees because they essentially are government employees.

Beckers posted UPMC’s payor mix last year. I highly suspect you’ll find something similar at almost every big system. 

  • Medicare 48%
  • Medicaid 17%
  • UPMC as Insurer 11%–(60% of whom are Medicaid/Medicare patients)
  • Commercial, Self Pay, Other 24%

More than 70% of the money comes from the government, and the rest from the suckers who have to buy their insurance on the “open market”–which includes those buying via the ACA exchange, receiving government subsidies, and government employees.

So while these huge systems act like Fortune 100 companies and reward their executives accordingly, almost all the money comes from the taxpayer.

I wish I could say we are getting good value for it.

And yes, I didn’t even mention the for-profits and the big insurers, but that will have to wait for another day….

Matthew Holt is the founder & publisher of THCB

What’s behind all these assessments of digital health?

By MATTHEW HOLT

A decent amount of time in recent weeks has been spent hashing out the conflict over data. Who can access it? Who can use it for what? What do the new AI tools and analytics capabilities allow us to do? Of course the idea is that this is all about using data to improve patient care. Anyone who is anybody, from John Halamka at the Mayo Clinic down to the two guys with a dog in a garage building clinical workflows on ChatGPT, thinks they can improve the patient experience and improve outcomes at lower cost using AI.

But if we look at the recent changes to patient care, especially those brought on by digital health companies founded over the past decade and a half, the answer isn’t so clear. Several of those companies, whether they are trying to reinvent primary care (Oak, Iora, One Medical) or change the nature of diabetes care (Livongo, Vida, Virta et al) have now had decent numbers of users, and their impact is starting to be assessed. 

There’s becoming a cottage industry of organizations looking at these interventions. Of course the companies concerned have their own studies, In some cases, several years worth. Their  logic always goes something like “XY% of patients used our solution, most of them like it, and after they use it hospital admissions and ER visits go down, and clinical metrics get better”. But organizations like the Validation Institute, ICER, RAND and more recently the Peterson Health Technology Institute, have declared themselves neutral arbiters, and started conducting studies or meta-analyses of their own. (FD: I was for a brief period on the advisory board of the Validation Institute). In general the answers are that digital health solutions ain’t all they’re cracked up to be.

There is of course a longer history here. Since the 1970s policy wonks have been trying to figure out if new technologies in health care were cost effective. The discipline is called health technology assessment and even has its own journal and society, at a meeting of which in 1996 I gave a keynote about the impact of the internet on health care. I finished my talk by telling them that the internet would have little impact on health care and was mostly used for downloading clips of color videos and that I was going to show them one. I think the audience was relieved when I pulled up a video of Alan Shearer scoring for England against the Netherlands in Euro 96 rather than certain other videos the Internet was used for then (and now)!

But the point is that, particularly in the US, assessment of the cost effectiveness of new tech in health care has been a sideline. So much so that when the Congressional Office of Technology Assessment was closed by Gingrich’s Republicans in 1995, barely anyone noticed. In general, we’ve done clinical trials that were supposed to show if drugs worked, but we have never really  bothered figuring out if they worked any better than drugs we already had, or if they were worth the vast increase in costs that tended to come with them. That doesn’t seem to be stopping Ozempic making Denmark rich.

Likewise, new surgical procedures get introduced and trialed long before anyone figures out if systematically we should be doing them or not. My favorite tale here is of general surgeon Eddie Jo Riddick who discovered some French surgeons doing laparoscopic gallbladder removal in the 1980s, and imported it to the US. He traveled around the country charging a pretty penny to  teach other surgeons how to do it (and how to bill more for it than the standard open surgery technique). It’s not like there was some big NIH funded study behind this. Instead an entrepreneurial surgeon changed an entire very common procedure in under five years. The end of the story was that Riddick made so much money teaching surgeons how to do the “lap chole” that he retired and became a country & western singer.

Similarly in his very entertaining video, Eric Bricker points out that we do more than double the amount of imaging than is common in European countries. Back in 2008 Shannon Brownlee spent a good bit of her great book Overtreated explaining how the rate of imaging skyrocketed while there was no improvement in our diagnosis or outcomes rates. Shannon by the way declared defeat and also got out of health care, although she’s a potter not a country singer.

You can look at virtually any aspect of health care and find ineffective uses of technology that don’t appear to be cost effective, and yet they are widespread and paid for.

So why are the knives out for digital health specifically?

And they are out. ICER helped kill the digital therapeutics movement by declaring several solutions for opiod use disorder ineffective, and letting several health plans use that as an excuse to not pay for them. Now Peterson, which is using a framework from ICER, has basically said the same thing about diabetes solutions and is moving on to MSK, with presumably more categories to be debunked on deck.

Continue reading…

HLTH 2022: “Build-Mode” Glen Tullman Talks Transcarent Clients, Charts Comparison With Livongo

By JESSICA DAMASSA, WTF HEALTH

Lesson learned: Don’t bet against Glen Tullman. Transcarent’s CEO brings his legendary “paper schedule packet” to our interview to prove the point that he carries Livongo’s first growth chart around with him everyday as a reminder of the number of overnights it takes to build a “overnight success” of a business. As Glen puts it, “When you’re building these companies, everybody remembers where you ended…they don’t remember where you started.”

So, how in the world did we get to this public prove-you-wrong? Catch the conversation that led us there as we talk about Transcarent’s growth two-years in and address the elephant in the room about why there have been so few customer announcements from the employer-focused health and care company. We get a few name-drops here, and also assurance that publicity around some new Fortune 50 and Fortune 100 clients is imminent. Lots of other interesting “build-mode” talk about what else is starting to come together at Transcarent including the “first independent provider network in the country” and more details on the recent Prescryptive partnership which is aiming to rewrite the script on how employers source pharmacy benefits.

Matthew’s health care tidbits: Digital Health is dead (well, not quite)

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 today’s health care tidbits, the elephant in the room has truely come home to roost, and now it’s landed on the phone wire, it’s close to breaking it. OK, I have stretched that metaphor to death but you’ll get my point. Writing on THCB earlier this month Jeff Goldsmith and Eric Larsen picked up on something I’ve been saying for a while –the fall in valuation of publicly traded digital health companies will have a knock effect on private companies

It took a while–those public companies stock prices started falling from their heights 14 months ago–but in the last month the venture capital scene has gone quiet. The days of sub $20m ARR companies getting mutli-hundred million dollar valuations are over for now. They will be back at some point in the future, as that’s how Silicon Valley has always worked, but it’ll be a while and in the meantime everyone is going to have to figure out what to do in the new world.

The “What to do?” question is getting harder as the data starts to come in, and it’s getting ugly. On the one hand the two fastest growing digital health companies ever have both had their comeuppance. Livongo was a tremendous exit for its investors and ended up trading at 20 times future revenue before it got acquired by Teladoc for $18bn mostly in stock. This quarter Teladoc wrote off much of its investment in Livongo and the whole company is now only worth $5bn. Clearly those “synergies” between telehealth and chronic care management didn’t work. The other rocket ship was Cerebral, which went from nothing in Jan 2020 to by Jan 2022 having over 100,000 patients and thousands of providers on its system as it raised over $300m from Softbank et al. Its aggressive & expensive customer acquisition costs, with its controversial controlled medication prescribing patterns, brought it way too much controversy. Its young CEO is gone, and it’ll be a slow climb back with bankruptcy and collapse the likeliest of outcomes.

But the part of digital health that’s trying to replace the incumbents is not the only place showing ugliness. The technologies and services being rolled out are often not working. Exhibit A is a randomized controlled trial conducted a Univ of Pennsylvania. One set of heart patients was set up with connected blood pressure cuffs, a pillbox that tracked their Rx adherence and lots of coaching help. The others were sent home with the proverbial leaflet and told to call if they had problems. You’d assume many more deaths and hospital readmissions in the second group. You’d be wrong. There were no differences.

So digital health needs to see if it can produce services companies that move the needle on costs and outcomes. The advantage is that they are eventually competing with hospital systems whose DNA doesn’t allow them the ability to let them cross the chasm to the new world. The bad news is that those systems have huge reserves which they can use to subsidize their old world activities.

I’m hoping digital health’s impact in the next 2 years will be as big as it was in the past 2, It’s by no means dead or over, but I am pessimistic.

Walmart Picks Transcarent: Tullman on First ‘Everyday Low Prices’ Offer for Self-Insured Employers

By JESSICA DaMASSA, WTF HEALTH

Walmart is looking to scale its healthcare business in a brand-new way: setting its sights on self-insured employers. Today the retail giant announced a go-to-market partnership with Transcarent that will make its “everyday low price” prescription drugs and healthcare services available to self-insured employers for the very first time. Transcarent’s Executive Chairman & CEO Glen Tullman drops in to give us the inside story on the deal with Walmart, what it means for the industry, and how it could once-and-for-all ignite the ‘disruption of the payer’ that we’ve been waiting for since JP Morgan, Berkshire Hathaway, and Amazon came together to found Haven.

Transcarent and Glen are hell-bent on re-making the healthcare payment model by eliminating as many middlemen as possible, reshaping the health and care experience along the way. So, what does this partnership with Walmart mean for that mission and for Transcarent? Is this “THE Deal” we’ll look back on as the one that catapulted Transcarent into a new phase of growth? Remember when Glen’s last company, Livongo, shot into the stratosphere after its deal with CVS Health? I ask Glen if he’s running the same play in a much bigger game and finally concede: Transcarent is NOT a healthcare navigator!

Teladoc Health’s Mental Health Move: Unite Best of Livongo, Virtual Care in myStrength Complete

By JESSICA DaMASSA, WTF HEALTH

The Teladoc Health-Livongo merger continues to expand Teladoc Health’s virtual care capabilities — this time in mental health. Dr. Julia Hoffman, Head of Mental Health Strategy for Teladoc Health, gives us the inside story on the launch of myStrength Complete, the souped-up, next-gen version of the digital mental health app that Livongo acquired in 2019 and integrated into its “AI-plus-AI whole person health” platform. So, what’s new now that all this is part of Teladoc? Think full-service mental health care, akin to what you might find in a digital mental health point solution, but with more providers… sitting on top of a gold-standard telehealth and remote monitoring infrastructure… and ready-to-move on an outsized opportunity for integration into Teladoc’s virtual primary care offering, Livongo for Diabetes, Livongo for Hypertension, and so on.

myStength Complete is now more than just a smart, cognitive behavioral therapy app; it’s the entry point into an entire mental health care continuum of services. Teladoc Health’s physicians stand ready for telehealth consults alongside a robust portfolio of coaching and self-service mental health care programs that are bolstered by the data-driven “health nudges” made famous by Livongo’s ever-improving AI-AI engine. Looking forward, the data integration strategy has a lot of potential to do a lot of good. Julia talks about how her team is already leveraging learnings from the Livongo products into a better intake process for members, helping them more quickly, easily, and accurately find the type of care they need. This is no small feat, especially when we find out that Teladoc Health consumer survey data shows that about 60% of people seeking mental health care say they have no idea where to start, or what their diagnosis would be. We get into all those survey findings (a little gold mine for those interested in consumer sentiment and digital mental health) and a full “under-the-hood” poking around of myStrength Complete in advance of its July roll-out to employers. This interview is one to watch now for the full details on how Teladoc Health is pushing further into virtual mental health care.

#Healthin2Point00, Episode 161 | Partnerships galore & a new SPAC

Today on Health in 2 Point 00, we have some hot gossip re: Glen Tullman starting his own SPAC. On Episode 161, Jess and I discuss Bind Benefits raising $105 million, BridgeHealth merging with Transcarent and raising $40 million in a Series A, and Loyal raising $12.5 million in a Series A. Jess also asks for my take on a slew of new partnerships between Lyra and Calm, Cigna and MDLive, and Doctor on Demand and CareLinx. —Matthew Holt

Health in 2 Point 00, Episode 144 | Magical Forests, PsychCentral’s History, & More Funding Rounds

On Episode 144 of Health in 2 Point 00, Matthew has gingerly emerged from his office and gone into a Magical Forest! Jess asks me about Healthline media acquiring PsychCentral, the first-ever online psychiatry support group and I explain the history of how it has been passed around from Corporates to PE firms, Bridge Connector getting 25.5M for its interoperability platform, Cecelia Health raising $13M for its chronic condition management service, and Reify closing $30M to help pharma companies run clinical trials from home. Also, we had our first book club discussion with authors Hemant Teneja (VC at General Catalyst) & Stephen Klasko (CEO at Jefferson Health System) on their book “UnHealthcare: A Manifesto for Health Assurance”. Glen Tullman also made a special guest appearance during the discussion. The episode will be released soon!Matthew Holt

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Health in 2 Point 00, Episode 143 | Lumeon, Nurx, Thirty Madison, & More

On Episode 143 of Health in 2 Point 00, we have all the alphabets in the raising series represented ;)! Jess asks me about Lumeon raising a $30M Series D for their care orchestration centers, Nurx raising a $22M Series C to develop out its online pharmacy presence, Thirty Madison getting $47M and Johnson & Johnson is an investor this round, Bodyport closing an $11.2 M Series A for their weighing scale platform that can detect early cardiovascular disease, and Kumanu raising a $3M Series A to grow out its platform that helps people figure out their lives’ purpose.

Be sure to check out our talk from the 7 competitor CEOs to Teledoc & Livongo who weigh in about the $19B merger. If you want to join our book club, we are reading UnHealthcare: A Manifesto for Health Assurance, which is a how-to for creating a platform for a revolutionary future for healthcare, by Hemant Teneja (VC at General Catalyst) and Stephen Klasko (CEO at Jefferson Health System). We will have a video on our discussion with the authors which will be published on the 3rd Wednesday of every month! —Matthew Holt

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Teladoc & Livongo — The Health Techerati Weigh-In

Six competitor CEOs and one ex-CMO discuss the biggest-ever digital health merger

By JESS DAMASSA & MATTHEW HOLT

It was the news that stunned the world of health tech. And us! So we had seven of Teladoc and Livongo’s biggest competitors weigh-in on what the merger means for telehealth, digital health, the future of health care delivery–and their businesses! You’ll hear from the CEOs of Omada, Ginger, One Drop, Vida, Lark & Cloudbreak, with some spicy commentary from Lyle Berkowitz who was, until recently, CMO at MD Live. From reaction to the merger to speculation about how this will impact the future of digital health funding, fasten your seat belts for some impactful and fun infotainment about all the implications of the deal.