The Signals Shaping Health Care Right Now

With Annalisa Merelli and Meredith Nolan

For the first year in many years, I did not attend JPM Health. I will admit there was plenty of “FOMO” (meaning fear of missing out), but I kept my eye on all the major announcements and feedback about the vibe this year. I am writing to you from Sydney, Australia, where I’m traveling for business, and I’ll share more with you in the days to come! 

Overall, I kept hearing about the lack of market-moving deals inclusive of IPOs and M&A. Lots of startups were in town though, in pursuit of venture capital, and investors swarmed the event to find companies to bet on - particularly at the intersection of health and AI. 

The topics of interest for most attendees seemed to focus on AI and care delivery, particularly given all the recent news, as well as recent policy updates from the federal government. Politico also had a big scoop about a lawsuit that raised an extremely important question around the definition of a “provider” when it comes to data access. And Endpoints reported that Genentech, a jumbo employer, has now moved away from a Big Three pharmacy benefits manager, a decision that could have a major impact on the employer market. 

We recapped all the big news from the conference, plus a Q&A with one of my favorite health insurance industry truthtellers, Ari Gottlieb. Ari and I have known each other for years, and I’ve always respected his lack of fear about standing up for what’s right and his deep understanding of the market. We might not agree on everything, but I appreciate people with a strong POV, as you all know! I pulled him aside to talk about the latest and greatest with the subsidies, companies he’s bullish on, and the impact of rising healthcare costs. 

The news: Epic, the country’s largest electronic health record provider, has filed a lawsuit against several telehealth companies, including Health Gorilla, accused of illegally accessing nearly 300,000 patients’ data from its system.  

What business model: According to the lawsuit, these companies operate “like a Hydra,” allowing their clients to access the data even though they weren’t healthcare providers, and use the information for financial profit rather than to provide treatment.

The big deal: If Epic is right, then these companies are messing with one of the most important aspects of electronic health data’s future: interoperability. 

POV: Epic is fighting back, both with Particle and now with Health Gorilla. At the root of the issue: Providers can access this health information. But what counts as a provider? How about a “payvider,” a payer and provider, as an example? These lawsuits are going to lead to a much stronger set of definitions amongst policymakers around what types of entities qualify as providers, and what types do not. 

The news: Just after OpenAI announced its new health initiatives (both consumer and industry facing), Anthropic is expanding Claude for Life Sciences into Claude for Healthcare.

What does it do: Among the applications promoted by the company are speeding up the prior authorization requests, supporting claim appeals, and triaging patients. 

Testimonials: The company has ongoing partnerships with Novo Nordisk and Banner Health, and is working with a number of other partners (think: Accenture, Microsoft) to have access to cloud capacity and get support in integrating its model with adopting organizations. 

The news: Genentech CEO Ashley Magargee told Endpoints News the Roche subsidiary is moving to Rightway, a privately-held health drug benefit plan, which she said would save the company about $150 million.

Who was dumped? She didn’t say, though it’s one of the big three: Optum Rx, CVS Caremark or Express Scripts. (Though CVS says they’re not the one). 

The new guy: Rightway is a startup founded in 2017, and it got Eli Lilly’s business last year. It has reportedly doubled its PBM business every year since 2022, offering members more insight into drug pricing and benefits. 

POV: This might be the biggest news of the JPM conference. Not only is it incredibly important that a jumbo employer is moving to a transparent PBM that isn’t one of the top three, but it’s also extremely notable that the company chose to announce it. Jumbo employers rarely talk about their benefits decision-making publicly. This could represent the start of something big. 

The news: Neko Health, a Swedish startup providing full-body scans in Sweden and the UK, is planning to open a New York City location. The company is run by Spotify founder Daniel Ek with Hjalmar Nilsonne. 

What’s interesting: Much like — say — modular furniture, meatballs, or pop bangers, Swedish full-body scans add their own touch to otherwise established items. Unlike competitors such as Prenuvo, they don’t use MRIs or X-rays, and instead rely on “scores of sensors and cameras and a mix of proprietary and off-the-shelf technologies to measure heart function and circulation, and to photograph and map every inch of a patient’s body looking for cancerous lesions,” the New York Times reports. 

The price point: A comprehensive scan at Ezra or Prenuvo can cost nearly $4,000. With Neko? $300. But notably, Neko does not offer whole body MRI. 

POV: Our own Chrissy Farr got a Neko scan in Sweden and wrote about it for this newsletter. While many folks in the industry compare Neko to whole-body MRI companies, it’s more of a competitor to companies like One Medical. Dermatology and primary care represent the majority of the visits, and the scan is primarily for tracking suspicious changes to the skin. 

The news: Hinge Health, a virtual physical therapy app, released a report on the state of MSK in the US. It’s bleak. For instance: 80% of people report that MSK pain sometimes stops them from doing what they want, but 70% of patients wait over a month to seek care. 

The problems: People don’t know where to start getting treatment, what their options are, or how to navigate providers. Only 5% of patients go straight to the physical therapist. All of this leads to delays in treatment.

What Hinge Health said: “I’m encouraged by the opportunities” revealed by the report, said Jeff Krauss, the company’s chief medical officer, who promised the company’s model (integrating physical and online treatment) can ”uplevel all of healthcare.”

It was a complicated year for healthcare, during which “digital health started to feel less like a tremor of innovation and more like bedrock infrastructure,” says Rockhealth’s year-end recap. 

There were $14.2 billion in venture funding digital health startups, though bigger companies attracted more funding compared to previous years. There were 26 mega deals ($100 million or more), 15 new unicorns, and AI everywhere. Here is the full recap. 

No Megadeals at JPM: There were a lot of meetings and a lot of talking, and no $1 billion deals announcement this year. “[C]ompanies don't hold the news for J.P. Morgan anymore,” reports Fierce Biotech.

$25 million for Converge Bio: The AI drug discovery startup (one of about 200 competing in the space) has closed a Series A round led by Bessemer, with the participation of (undisclosed) executives from Meta, OpenAI, and Wiz. 

$11.1 million for Risa Labs: The Palo Alto startup developing an AI operating system for oncology workflow closed a Series A round co-led by Cencora Ventures and Optum Ventures.

$43 million for VieCure: The company makes software for oncology care and will invest in the expansion of its Halo Intelligence AI-enabled platform. 

A $1 billion NVIDIA - Eli Lilly partnership: The companies announced the joint investment over five years to build an AI drug discovery lab. 

AstraZeneca is acquiring Modella AI: The acquisition will allow the pharma giant to expand its use of AI for oncology R&D and care.

OpenAI acquires Torch for $100 million: The AI giant acquired the startup, which is focused on unifying fragmented health data, as it pushes its effort into healthcare, both with ChatGPT Health and ChatGPT Healthcare (for providers). 

Findhelp partners with SimplePractice: The leading provider of social and behavioral care is joining forces with the largest practice management platform for behavioral care, with the goal of expanding access. 

1) I have whiplash trying to follow what’s going on with the subsidies and healthcare reform. Can you break it down in layman’s terms?

In 2021, Congress passed temporary enhanced subsidies for individual coverage that have now expired. As a result, subsidies to buy individual health insurance have been restricted to the original definition under the Affordable Care Act and reduced. We've seen a lot of talk and posturing about extending and/or modifying them, but that seems less likely today. For individuals, many are seeing significant increases in the monthly premiums they have to pay to maintain coverage, especially for higher-income, older Americans who may have lost subsidies entirely. For plans, the impact is on the size of the market and the overall risk pool. I don't think we will have a good sense for that until April. While CMS has reported modest overall enrollment declines, my guess is that it includes a lot of people who were auto-enrolled and are getting a bill for a lot more than they paid last year. Subsidized members have a 90-day grace period before they are termed, so the full impact likely won't be felt until April. Ultimately, the fear is that the healthiest members are the most marginal and the first to drop coverage, which causes prices to increase until the market is just the nearly fully subsidized and very sick. 

We have also seen a number of reforms implemented or introduced. Some deal with addressing some of the fraud that has existed in Federally-operated Marketplaces or creating friction that reduces both improper and legitimate enrollment (like a minimum monthly premium), while others focus more on consumerism through things like enhanced HSA contributions. We'll have to wait and see the impact, but for the industry, again, ultimately it will come down to how it affects the market size and composition of the risk pool.

 2) You’ve long been unafraid to call out venture-backed health plan businesses that aren’t working. What do you think is working? And why?

This may be oversimplifying, but the biggest difference between the plans that failed, like NEA's slow-mo disaster (Bright), and those that have shown remarkable turn-arounds or always done well is a focus on executing against the core drivers of the business. Clover is a great example here - in recent years, they have really focused on local scale in New Jersey, outsourced health plan admin to HealthEdge for administrative scale, looked to appropriately capture clinical conditions for risk adjustment (revenue), and generally improved Star ratings (also helps revenue) - none of which were present in the initial business. The results have been an impressive financial turnaround, even if it came at the expense of their award-winning print magazine. Alignment has always done a good job focusing on the fundamentals, aided by their California-focus. 

That isn't to say plans can't do something different - Curative is one to watch in the employer group space that is experimenting with a host of novel concepts - but focusing on hyper growth without any regard for how the market or business operates can create spectacular blow-ups in health insurance, as we've seen.   

3) In ten years, what does health insurance look like?

I'm an incrementalist, not a big believer in the wholesale disruption theory, so I think it will look and feel largely similar to today, absent massive policy-driven reforms. Go back a decade to the implementation of the ACA, which was potentially the most transformative catalyst for health insurance change in a decade. What's different? More people are covered by Medicaid and in the individual market (although we'll see where that shakes out, and even still, it is only a few percent more of the population), and premiums are higher, but I would argue that generally the form and function are pretty similar to pre-ACA. Health insurance will continue to be modernized with advanced technologies being used primarily on the admin side, which should result in some modest premium relief (dwarfed by medical cost trend) but structurally without policy interventions, I would bet on more of the same.

 4) With the incoming Medicaid cuts, do you fear that commercial rates will only go up to offset that? I can imagine a lot of health systems raising prices to stay solvent. And if so, what will be the impact on employers and the people they employ? 

That's a really reasonable assumption, even if the cuts are not as dire as estimated. We've seen conflicting research on whether providers cost shift between lines of business, but I think certainly for systems that have local market strength, they will look to offset any losses, and the easiest place to do it is going to be the commercial group. As a result, you'll see continued cost shifting to employees, narrower networks, and increased costs to employers. This dynamic is also one of many reasons why I think the ICHRA (Individual Coverage Health Reimbursement Arrangement) opportunity is capped and won't be the transformative opportunity some would want you to believe.

 5) Bonus Q: It’s already $27,000 to insure a family, per WSJ. How much more expensive can this get before healthcare bankrupts us all? 

Great question. Healthcare spending continues to grow faster than the overall economy and is approaching 20% of GDP. Employers, individuals, and the government are all struggling with the cost, but fundamentally reducing healthcare spending means that some market participant(s) get less. Given how entrenched all of the factions are, that is a tough proposition. Everyone points the finger at someone else (payers blame pharma and providers, pharma blames PBMs, providers blame insurers, etc.), but the system is largely working for the largest players, so it is a lot of talk but very little meaningful progress on curbing spending.