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Breaking down Optum’s $6.4 Billion Acquisition of LHC Group

I’m delighted to have a new contributor on THCB today. Blake Madden writes an excellent health care business newsletter called The Healthy Muse, which I highly suggest you subscribe to. Recently he gave his take on Optum’s latest big acquisition and it’s the first of I hope many pieces of his we’ll run on THCB–Matthew Holt

by BLAKE MADDEN

On March 29, UnitedHealthcare’s Optum announced its acquisition of LHC Group for $170/share. The transaction values LHC at about $6.4 billion including debt.

I know we all joke about working for UnitedHealthcare one day, but it’s terrifying when you think about their sheer scale. Even scarier when you look at Optum’s growth:

  • Optum Revenue in 2012: $29.4 billion
  • Optum Revenue in 2021: $155.6 billion. Like. What.

LHC Group is an important acquisition for Optum. Payors are continuing to morph into ‘payviders’ and UHG / Optum has a huge competitive advantage given its 60k aligned physician base. Acquiring LHC Group accelerates this payvider trend but also allows UHG to catch up to Humana, who now owns all of Kindred, in the post-acute sphere.

Meanwhile, Optum is deploying its grand vision of integrated care delivery right before our eyes. It’s happening whether you like it or not.

Even though I provided a first-impressions breakdown on Twitter related to the deal, I had to break this deal down into more detail and give you guys my thoughts on why the LHC acquisition is so significant.

Let’s dive in.


Investment and Deal Thesis.

LHC Group is well-positioned on a few fronts in the fast-growing home health sector:

  • They’re partnered with 435 health systems, giving Optum access to hundreds of hospital joint ventures.
  • Home health and at-home care is a MUCH more desirable care setting for Medicare beneficiaries. Comfort and patient experience is a huge factor.
  • Of all post-acute care settings, home health is the most cost-effective. Home health costs way less than skilled nursing. Lower costs = lower medical loss ratio for United. By keeping patients out of SNFs and hospitals, these programs could disrupt facility-based care delivery in the coming years.
  • From a demographics standpoint, home health benefits from an aging baby boomer population. Medicare will cover 79 million people by 2030 a major secular trend for healthcare. I’m sure you’re all WELL aware of that!
  • PDGM and other headwinds for smaller agencies will run out of relief funding, resulting in consolidation. This consolidation will benefit larger home health platforms.

In summary, LHC Group is a great operator in a high-growth industry: Home Health.

Continue reading…

Breaking Up is Good to Do

By KIM BELLARD

Last week General Electric announced it was breaking itself up. GE is an American icon, part of America’s industrial landscape for the last 129 years, but the 21st century has not been kind to it. The breakup didn’t come as a complete surprise. Then later in the week Johnson and Johnson, another longtime American icon, also announced it would split itself up, and I thought, well, that’s interesting. When on the same day Toshiba said it was splitting itself up, I thought, hmm, I may have to write about this.

Healthcare is still in the consolidation phase, but there may be some lessons here for it.

For most of its existence, GE was an acquirer, gobbling up companies with the belief that its vaunted management structure could provide value no matter what the industry. This was most famously true in the Jack Welch days, but since those days it has been gradually shrinking itself, spinning off some of its more problematic divisions, like appliances, locomotives, and much of its once-huge financial services business. It will spin off its healthcare business in early 2023 and its renewable energy and power business in early 2024; its aviation business will keep the GE name. 

“A healthcare investor wants to invest in healthcare,” CEO Larry Culp explained. “We know we are under-owned in each of those three sectors, in part because of our structure.”

Continue reading…

Trendspotting with Optum’s Direct-to-Consumer VP: Behavior Change Science in Healthcare

By JESSICA DaMASSA, WTF HEALTH

It’s interesting enough that Optum’s Vice President for Direct-to-Consumer is not only a serial digital health entrepreneur, but she’s also a behavior change scientist. Dr. Kate Wolin stops by to share some background on behavior change science, and how healthcare companies large and small are looking to drive health and wellness outcomes by integrating its principles and techniques into product design strategy.

Behavior change science appears to be having a “moment” here in healthcare, peppering conversations about everything from business models and consumer engagement strategies to product design, particularly in the chronic care and mental health spaces. Optum obviously has an interest in the discipline, with Kate in such a critical leadership role. And, our friends at life sciences giant, Bayer, also seem keen on exploring the approach, as it’s both the focus of one of the sessions of Bayer G4A’s free digital health forum, Health for All, on September 9, AND the reason Kate’s here to provide a deep-dive into the subject as a special prequel to the event.

So, what are the key takeaways? Well, it turns out there are a lot of misconceptions about behavior change science. Kate sets us straight, explains why she’s NOT a fan of the term “nudges,” and talks about what digital health companies usually get wrong (and right) about incorporating behavior change techniques into their products and services. Does behavior change require human intervention in order to make it sticky? Or, can technology be just as effective in achieving the right levels of personalization needed to make an ongoing impact on a person’s behavior? We get smart on this trending approach, and Kate gives us her prediction for how healthcare will be looking to increasingly incorporate this science into its future.

Special Note: To hear more from Kate and a host of other healthcare experts during Bayer G4A’s special global event “Health for All – A Digital Health Forum” on September 9, 2021, register at www.g4a.health.

Health in 2 Point 00, Episode 120 | Particle Health, AliveCor & OMRON, Compass Pathways and Optum

On Episode 120 of Health in 2 Point 00, Jess asks me about health data sharing company Particle Health raising $12 million in an A round, AliveCor and OMRON partnering in a remote monitoring play for combined EKG and blood pressure monitoring, and Compass Pathways scoring $80 million in a B round for psilocybin therapy for treatment-resistant depression. Also, Optum is reportedly acquiring AbleTo for $470 million which provides behavioral telehealth — looks like they’re slowly putting all the pieces together to become a big virtual Kaiser. —Matthew Holt

American Well gets busy with guidelines, Optum

Our friends over at American Well have two announcements today. First, they’re releasing what they call Online Care Insight, which is essentially the integration of care guidelines into their online care system. We saw a glimpse into this at the Health 2.0 Hawaii chapter meeting last March (sorry if you weren’t there!). Essentially this is a decision support service that helps physicians figure out if the online visit in front of them is appropriate for online care, and then offers clinical decision support during the visit (such as medication reminders, gaps in care, and other alerts)

The second piece of news is that American Well and Optum Health will be combining the American Well online visit service with Optum’s eSync care management platform. eSync basically integrates the data analytics portion with care management, so that a plan or employer can figure out who’s got what dread disease and reach out to them using a series of different contacts. Usually this means email, or nurse or health coach call. Now an online physician visit is part of that continuum.

(Optum Health is a subsidiary of United HealthGroup, and eSync was introduced at a sponsored Deep Dive at the recent Health 2.0 Meets Ix conference. FD Both American Well and Optum have sponsored the Health 2.0 Conference).

Obviously given United’s scale & Optum’s reach into the self-funded employer market this is big news for American Well and online care. The press release also says that the service will be available to individual consumers. I assume that this means that some part of United’s multi-state physician network will be on the system, and that there’ll be an option for consumers who are not in a United plan to access it. If it does mean that, then when this is launched the American Well service will essentially be available nationwide. But that’s my early morning speculation. I’ll try to track down someone from American Well to get more accurate details.

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