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The big guys can’t do HLTH right

By MATTHEW HOLT

This is the week where the digital health landscape debunks to the HLTH Conference in Vegas to meet, do deals, listen to superannuated rappers and generally have a great time. Speaking as the guy who ran the digital health conference before HLTH emerged, I remain extremely jealous of how Jonathan Weiner, Rich Scarfo, Jody Tropeano and team have managed to pull 10,000 people together when Health 2.0 never got past 25% of that size! (And I won’t even mention the premium price they charge!).

I have written pretty extensively about how digital health has failed to develop an alternate to the incumbent hospital, specialty & procedure-based system. 90%+ of digital health companies are now desperately trying to get the incumbents to buy their stuff. It’s as if Jeff Bezos in 1998 was going cap in hand to Barnes & Noble asking them to put in his new online ordering system.

But there is something else that HLTH has not been shy in doing, and that is giving a place on the stage for big companies to explain what they intend to do to change the health system. Amazon, Walmart. Walgreens, CVS, Optum and many more have used that premium real estate to explain what they are going to do. And much like the digital health upstarts, the reality has been very different.

Almost all of those companies’ new strategies are in deep trouble.

Amazon was going to build a hybrid telehealth/home based delivery platform. It got up and running and had some sizable employer clients. It also had a strong relationship with Crossover Health which had great worksite clinics. Not hard at all to imagine that becoming a nationwide primary care platform that could take risk and really cut into the business of the incumbent non-profit systems. After all Dave Chase at Rosetta Stone has been preaching this forever. But at the first hint of trouble, Amazon cut & run and bought One Medical. It’s as if their play in grocery was to go mass market but then they decided that they could make more money from the high end Lululemon crowd that shops at Whole Foods. Oh yeah, that was their play in grocery too.

Walmart, Walgreens and CVS were all going to create mass-market primary care, and move to accepting risk primarily from Medicare Advantage. I interviewed Walmart’s then head honcho of health care, Cheryl Pegus, on stage at HLTH two years ago when she waxed lyrical about how Walmart was the answer to the lack of primary care all over the deep South and rural America. The joke was that by the time of that panel she had already quit and was moving to fresher pastures at JP Morgan! Around a year later Walmart declared that it couldn’t staff its clinics, was losing a fortune on each one, and it tossed the whole business.

Walgreens paid a fortune for VillageMD, then even more for Summit Medical (which included CityMD in NYC). At one point in late 2021, VillageMD CEO Tim Barry told me that their main issue was the execution risk of having to open more clinics per week then Starbucks did at the height of its expansion. Walgreens made a minority investment then kept doubling down on its bet. But three years later it has written off the whole amount ($8bn or so) and its stock price is in the toilet. It’s worth less now than doctor network Doximity!

Both of these companies and CVS have shown that it’s really hard just to get the basics right opening clinics in retail stores. That’s despite the fact that most Americans have no primary care doc and can’t get an appointment with a regular one, and that there’s a captive audience walking into their stores every day picking up their meds.

CVS has the added issue of trying to integrate a decent sized insurer into its operations just at the time when the Medicare Advantage gravy train looks like it is running out of steam. CVS’ CEO Karen Lynch took over Aetna recently and then this past week was dispatched to the cheap seats herself. (Don’t feel too bad for her, she’s getting $4m a year to “consult” with the board). Two things have hit Medicare Advantage. First the government is starting to look into risk adjustment upcoding. CVS, you may recall, bought Signify Health, a company specializing in sending nurses into seniors’ homes to perform said upcoding. Secondly, Medicare Advantage plans had surprisingly little information about and control over their members who were being cared for by their non-risk bearing delivery system (which is to say, most of it). They appeared to be totally surprised that post pandemic procedure numbers ratcheted up and were powerless to stop it. Well, Wall Street noticed.

Similar problems have hit Optum, the engine behind United HealthGroup’s profitable growth for the past decade or so. It’s not just the biggest health tech company in America, it’s also the biggest medical group owner—even if CEO and bumbling Englishman Andrew Witty doesn’t seem to know how many doctors it controls. They are being exposed in Stat on a weekly basis for basically semi-frequently causing their doctors to lie about their patients’ health status, just as the Wall Street Journal accuses their associated health plan of inventing diseases and procedures—all to bill the government more. You can argue back and forth but it does appear that the strategy of buying every medical group it can see and provider fracking appears to have hit a bumpy road.

So if the venture-funded digital health upstarts are no longer changing the world, and the big retailers and Optum aren’t setting the world alight, who is taking the upper hand? Well, I expect that intermingled with the ex-pop stars and amazingly beautiful actresses on stage this week (sorry, but I love Halle Berry!), we’ll see a rash of big incumbent non- & for-profit systems. Look at their numbers. Procedures are heading up. ERs are filling up. Operations are profitable or in some cases, very profitable, corporate jets are being bought, and “reserves” –AKA hedge funds–are growing well due to being stuffed full of Nvidia stock.

All of which leads me to believe that sadly HLTH isn’t about the future of health as much as it’s a retread of its past. Still, I’ll catch you at the parties if you’re there….

Matthew Holt is the founder and publisher of THCB

Optum: Testing Time for an Invisible Empire

By JEFF GOLDSMITH

Years ago, the largest living thing in the world was thought to be the blue whale. Then someone discovered that the largest living thing in the world was actually the 106 acre, 47 thousand tree Pando aspen grove in central Utah, which genetic testing revealed to be a single organism. With its enormous network of underground roots and symbiotic relationship with a vast ecosystem of fungi, that aspen grove is a great metaphor for UnitedHealth Group. United, whose revenues amount to more than 8% of the US health system, is the largest healthcare enterprise in the world. The root system of UHG is a vast and poorly understood subsidiary called Optum.

At $226 billion annual revenues, Optum is the largest healthcare business in the US that no-one knows anything about. Optum by itself has revenues that are a little less than 5% of total US healthcare spending. An ill-starred Optum subsidiary, Change Healthcare, which suffered a catastrophic $100 billion cyberattack on February 21, 2024 that put most of the US health system on life support, put its parent company Optum in the headlines.

But Change Healthcare is a tiny (less than 2%) piece of this vast new (less than twenty years old) healthcare enterprise. If it were freestanding, Optum would be the 12th largest company in the US: identical in size to Costco and slightly larger than Microsoft. Optum’s topline revenues are almost four times larger than HCA, the nation’s largest hospital company, one third larger than the entirety of Elevance, United’s most significant health plan competitor, and more than double the size of Kaiser Permanente.

If there really were economies of scale in healthcare, they would mean that care was of demonstrably better value provided by vast enterprises like Optum/United than in more fragmented, smaller, or less integrated alternatives. It is not clear that it is. If value does not reach patients and physicians in ways that matter to them—in better, less expensive, and more responsive care, in improved health or in a less hassled and more fulfilling practice—ultimately the care system as well as United will suffer.

What is Optum?

Optum is a diversified health services, financing and business intelligence subsidiary of aptly named UnitedHealth Group. It provides health services, purchases drugs on behalf of United’s health plan, and provides consulting, logistical support (e.g. claims management and IT enablement) and business intelligence services to United’s health plan business, as well as to United’s competitors.

Of Optum’s $226 billion topline, $136.4 billion (or 60% of its total revenues) represent clinical and business services provided to United’s Health Insurance business. Corporate UnitedHealth Group, Optum included, generated $29 billion in cashflow in 23, and $118.3 billion since 2019. United channeled almost $52 billion of that cash into buying health-related businesses, nearly all of which end up housed inside Optum.

Source: 2023 UNH 10K

For most of the past decade, Optum has been driving force of incremental profit growth for United. Optum’s operating profits grew from $6.7 billion in 2017 (34% of UHG total) to $15.9 billion in 2023 (55% of total). However, the two most profitable pieces of Optum by operating margin—Optum Health and Optum Insight—have seen their operating margins fall by one third in just four years. The slowing of Optum’s profitability is a huge challenge for United.

Gaul Had Three Parts, So Does Optum

The largest and least profitable (by percent margin) piece of Optum is its giant Pharmacy Benefit Manager, Optum Rx, the third largest PBM in the US.

Continue reading…

Interview with Infermedica CEO, Piotr Orzechowski

At the HLTH conference I talked with CEO of Infermedica, Piotr Orzechowski, and also had a quick word with VP of Marketing Marcus Gordon. Infermedica has been around over a decade, and has been a slow burner in the symptom checker and patient digital front door market. But now it has a lot of clients and deals and its API is hiding behind several big names including Optum & Microsoft. Piotr graciously let me butcher his name, and still told me about how their model works and how LLMs will change it.–Matthew Holt

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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