Employers, Payers, and Pharma Face a Post–Labor Day Reckoning

We are living in unprecedented times. One of the LinkedIn posts that struck me most this week was shared via Chris Ellis, CEO of Thatch, a company in the ICHRA space, which described three “tectonic shifts” in the healthcare industry that are occurring all at once. Ellis kicked off the piece by describing how he had taken a call with an executive from a large health plan who described this period as “the most destabilizing he’d seen in his career.” The post is worth reading in full, as it describes the impacts of inflation, massive pullbacks in government spending, and challenges that small business owners face across the country. 

All of that mirrors much of the talk from a webinar I moderated this week, hosted by Personify Health, where we convened a group of experts to discuss rising costs of care and how employers are mitigating that. What stood out in the conversation is that larger employers are still committed to providing healthcare, even amid CFO pressure to cut costs, and that there’s sustained interest in benefits that employees most favor (fertility benefits, obesity management, and more). One of the biggest challenges, however, is motivating employees to engage in preventive care - whether it be lifestyle modifications, vaccinations, screenings, and more. I shared a clip below from the discussion, featuring the Geisinger executive and my fellow Scrub Capital GP Dr. Jon Slotkin, Manatt managing director Dr. Vin Gupta, Business Group on Healthcare’s Ellen Kelsay, and Personify Health Executive Chairman Chris Michalak. Ultimately, the group concluded that this is the right moment for new and creative ideas, including in areas like innovations in stop loss insurance, Centers of Excellence programs for cell and gene therapies, new point solutions that tackle underserved conditions, like autoimmune diseases, and more. 

To watch the full webinar, click here.

A quick note from our sponsor of this week’s Roundup, the team at Parsley Health:

After a short end-of-summer hiatus, the roundup is back with an overview of the past two weeks in news, and many deals and funding announcements. Now that we’re past Labor Day, everything in healthcare is heating up, whether it be the pharma industry’s drug pricing battles and the obesity drug wars; startups starting to pull in some serious capital after the summer lull; or growing regulatory pressures on the healthcare industry’s middlemen. Whether payers, providers, or pharma, every player in healthcare today is looking for ways to more directly reach the patient – versus losing margin to an ever-expanding universe of players that broker relationships and take a cut in the process. 

With Annalisa Merelli

A lawsuit claims CVS must cover Zepbound 

CVS Caremark stopped covering Zepbound to treat obesity, saying that it would cover Wegovy as an alternative. Now, the pharmacy benefit manager (PBM) has been hit by a class action lawsuit, claiming the treatments are not medically interchangeable. Doctors have also spoken out on their patients’ behalf, noting that the two drugs are both used for treating obesity, but do have some differences. Studies have also found that patients who take a tirzepatide, like Zepbound, were more likely to stick to specific weight loss targets versus those taking semaglutide medications like Wegovy. Zepbound is also known to be effective for a broader set of indications, including in treating sleep apnea in obese patients. There are also variations in side effects.

Google made a personal coach for Fitbit

Gemini developed an AI personal coach that learns from your personal wellness data and adapts goals and training accordingly. At a first look, it seems just like an Apple Watch, but for Google, though the product may benefit from Fitibit’s more specific wellness focus, smaller size, and lower price point. With wearables now proliferating and being used by millions of people worldwide, the next key development for the market will be to make sense of the data. Coaching has long been key to that, but the pricing associated with a human in the loop may have been out of reach for most consumers. AI now offers a new path, but there will be work to do to determine how to escalate patients who might be showing signs of more serious disease.

Eleos launches Medicaid eligibility scanner

As Trump’s Medicaid cuts loom closer, a new AI product from Eleos aims to flag to providers what patients risk losing Medicaid coverage. The tool also allows users to navigate other benefits patients may be receiving or risk of losing, and hopes to minimize unjustified disenrollment and eligibility loss, and help providers support their patients. It’s an interesting move from Eleos, which got its start in the behavioral health space by using AI to relieve documentation burden.

Lila Biologics launches new therapy discovery platforms

Lila Biologics launched a partnership with Eli Lilly as well as two of its own platforms to discover new drugs using AI and machine learning to develop precision protein-based treatments for cancer as well as non-oncology diseases. Biotech is one of the areas where AI is most applicable, particularly in unearthing new potential targets, as well as in speeding up drug development through clinical trial optimization.

AI continues to dominate when it comes to deals, across care delivery, life sciences, and clinical trials. What remains unclear is how many of these companies are truly AI native, versus now using AI in marketing and messaging because it seems to be a requirement to survive in the market.

$7 million for NewDays: Madrona and General Catalyst invested in the company, which uses AI in the treatment of people living with mild cognitive impairment and dementia. The funding is to go toward expanding service availability to Texas after a pilot in California, Washington, and Florida.

$250 Million for EliseAI: The AI company automating complex healthcare and housing systems closed the Series E funding round, which was led by Andreessen Horowitz (a16z).

Terumo acquired OrganOx for $1.5 billion: The tech developer had raised more than $142 million in venture capital earlier this year for its liver transplant technology. Japanese devicemaker Terumo’s acquisition is its first foray into transplant tech. 

Eversana and Waltz Health merge: The two companies are joining forces to create a new healthcare platform combining Waltz Health’s software for drug price marketplace and Eversana’s commercialization reach. 

$3 million to Diag-Nose.io: The Australian government is funding the startup, a spin-out of the Stanford Biodesign ENT Innovation program, to develop RhinoMAP, an AI-powered biomarker platform for respiratory disease.

$39 million for Ketryx: The AI compliance platform helping life science companies accelerate product innovation closed a series B funding round led by Transformation Capital, bringing the company’s total funding to $55 million. 

$5 million for Trially: An AI trial recruitment platform, Trially aims to solve the issue of trials being delayed because of recruiting failures. 

$22.5M for Hello Patient: The patient communication company using AI to book appointments and answer patient questions closed its Series A round, led by Scale Venture Partners.

Predoc gets $30 million: The startup, focusing on health information management, closed a seed and series A funding led by Base10 Partners. 

Meroka launches with $6 million: The startup provides technological support to handle logistics and admin for independent healthcare teams. The seed round was led by Better Tomorrow Ventures & Slow Ventures. 

Swing Therapeutics raises $11 million: The developer of an FDA-cleared app to treat fibromyalgia also acquired a new board member, former Pear Therapeutics CEO Corey McCann. 

Our latest “four questions with” features operator Stuart Blitz, who’s known for both his GIF game on X, and for jumping into the consumer health fray early and with conviction. We pulled him a side this week to ask him about the future of consumer health, the companies he admires most, and any predictions for the future. We hope you enjoy this segment! Please reach out if you have an operator to recommend for our next edition.

One of the big questions I have as someone who also wears an investing hat is how big can cash-pay healthcare get? What’s your answer to that as you look at publicly traded businesses like Hims & Hers?

SB: Cash-pay is not going away and will continue to grow a ton. Every year our insurance premiums go up, health insurance companies pay for less of your care, they make it harder for us to get basic care paid for, so patients are just tired of all this. They are looking for affordable solutions that are just easy and don’t make them jump through hoops.

I personally don’t get why VCs are always so skittish on how big can cash pay healthcare get - it seems obvious that Americans are paying more each year for healthcare, so why shouldn’t I be able to spend those dollars where I am getting the best care experience and value? We as a society literally spend the most every year on healthcare. 

I also think you’re going to see more payer scrutiny of virtual care insurance billing as the volume has massively increased since COVID. Payers fundamentally don’t want to pay for things and will continue to look for ways they don’t have to. Recently I saw Cigna has a new policy that allows them to downgrade E/M codes if your documentation isn’t sufficient - I’m sure others will follow. I also think we’ll just see an increase in auditing. 

D2C healthcare has historically been tied to stigmatized conditions. Makes sense, given people want care for things but are sometimes embarrassed to talk to a family practitioner. Can you share any other obvious patient personas where it makes sense for a D2C business to target them?

SB: I think for sure we’ve historically seen stigmatized conditions and point solutions, but I think as we see more companies offer broader care, we’ll see them expand to treat other areas like cardiovascular, endocrinology, gastroenterology and others and they can now do it in a way where it’s more natural to treat patients than it was even 5 years ago when they just used a D2C platform for ED meds or hair loss.  

I also think you’re seeing new models that are not necessarily stigmatized conditions - look at General Medicine, launched by the PillPack founders. Clearly it’s a superior consumer experience that combines transparent pricing across medical care, diagnostics, and medication. It’s not hard to see this becoming a go-to service for patients needing everyday medical care. 

What is the D2C health care company you most admire that isn’t your own and why?

SB: Honestly, I think Ro and Hims & Hers have both been the OGs in the broader D2C space and paved the way for many of us who saw opportunities to deliver access to care in a much bigger and more convenient way than ever before. I think because of them, many of the larger D2C companies today were able to launch and flourish more quickly. 

Both companies pushed the industry to rethink how we could deliver medically appropriate care coupled with the ease of doing it via an app on your phone, like we’re already doing for taxis and food delivery. They advertised on TV! They made it more normal to talk about these conditions. They also advocated for many states to transform their laws to allow for appropriate care to be done asynchronously. Because of them, millions of patients finally experienced getting quality care in an ultra-convenient way and now are demanding this from other care providers.

Any predictions for the future of cash pay healthcare, especially in the context of the current administration?

SB: I think it’s pretty clear this administration wants physicians and patients to have access to more types of care and alternative medicine that have previously been prohibited by the FDA, so I am bullish we’ll see current companies thrive and expand their offerings and new ones will launch to meet the needs of patients. It’s clear patients want these options and are willing and able to pay cash. 

Of course, there are very complicated issues that have merit on both sides, like GLP-1 compounding, but with some of the recent news in several court cases it seems like judges are pushing the issue to the FDA and I suspect this particular FDA is much more supportive of it than in previous administrations. So I don’t see this ending anytime soon. 

Also the administration published that executive order to try and lower drug pricing - I’m skeptical it will actually work, but their intent is to try and lower drug pricing for Americans. Which I think everyone would like.