What You Should Know: 

– Walgreens, a leading pharmacy chain, is making a significant push into the specialty pharmacy market with the launch of “Walgreens Specialty Pharmacy.” 

– The new $25B initiative expands access to care for patients with complex, chronic conditions while driving profitability for the company.

Walgreens Specialty Pharmacy: A Holistic Approach

Walgreens Specialty Pharmacy aims to break down barriers within the healthcare system. By leveraging Walgreens’ existing network of trusted pharmacists and strong community presence, the program offers convenient access to hard-to-find medications while providing critical adherence support. This comprehensive care model empowers payers to better manage specialty drug costs. 

Walgreens Specialty Pharmacy goes beyond medication dispensing; it offers a comprehensive suite of services designed to improve patient outcomes. This includes:

• Gene and Cell Therapy Services and Innovation Center: A dedicated center in Pittsburgh, PA, equipped to handle the complexities of gene and cell therapies, including supply chain management, logistics, and financial assistance.
• Central Specialty Pharmacies: Four central pharmacies with nationally recognized accreditations house expert pharmacists and care teams focused on dispensing complex medications and managing chronic or rare conditions.
• Extensive Network of Community Pharmacies: Walgreens boasts the most extensive network of community-based specialty pharmacies in the nation, conveniently located near medical centers to provide faster access to medications. These pharmacies also offer services like injection training, medication side effect management, and financial assistance coordination.
• Specialty-Trained Staff: Over 1,500 specialty-trained pharmacists, 5,000 patient advocacy team members, and dedicated Specialty360 teams create a comprehensive support system for patients across all specialty conditions and therapies.
• Wide Range of Medications: Access to a growing list of 240 limited distribution drugs, including exclusive options and medications in narrow networks.

Integrated Care for Patients Who Need It Most

Effective August 1st, 2024, AllianceRx Walgreens Pharmacy will transition to Walgreens Specialty Pharmacy. Existing patients will gain access to a wider range of resources, including disease-state experts, nutritionists, and care nurses. Additionally, patients can now view their entire prescription profile, including both specialty and retail medications, at Walgreens. Walgreens’ subsidiary, Shields Health Solutions, a leader in specialty pharmacy acceleration for health systems, will continue to support health system specialty pharmacies, complementing the expanded offerings of Walgreens Specialty Pharmacy.

“With approximately $24 billion in annual enterprise specialty revenue, Walgreens Specialty Pharmacy is the largest independent provider that offers the industry’s most robust specialty capabilities not vertically aligned with a pharmacy benefit manager,” said Rick Gates, chief pharmacy officer, Walgreens. “We have the flexibility to contract dynamically with any payer. We can partner directly with pharmaceutical manufacturers to facilitate products to market, including limited distribution drugs, and coordinate closely with providers to ensure patients experience a smooth start to treatment.”

What You Should Know:

• Walgreens Boots Alliance announces the sale of shares of AmerisourceBergen Corporation valued at $1.85B for debt paydown and general corporate purposes.
• Walgreens Boots Alliance’s ownership stake of AmerisourceBergen’s common stock has not been impacted but is expected to decrease by to approximately 16 percent.

What You Should Know: 

• Walgreens and Freenome form a multi-year relationship to advance clinical studies of Freenome’s blood-based tests for the early detection of cancer. 
• Walgreens will combine its national footprint, patient insights, compliant recruitment technology and local infrastructure to engage diverse patient populations in Freenome’s multi-cancer research program. Walgreens will initially recruit patients across diverse populations for Freenome’s Sanderson Study, which aims to evaluate blood-based early detection tests for multiple cancers.

Sanderson Study Recruiting

Walgreens will initially recruit patients across diverse populations for Freenome’s Sanderson Study, which aims to evaluate blood-based early detection tests for multiple cancers. Using Curebase’s platform, Walgreens will deliver targeted outreach to potentially eligible patients and caregivers of all backgrounds via text, email or in-person consultation at the pharmacy. After completing a pre-screen, eligible patients are invited to enroll in the study. Walgreens healthcare providers will then perform a single blood draw at one of the company’s clinical trial locations and conduct a telehealth patient follow-up one year after their participation. The Sanderson Study will enroll approximately 8,000 participants through its clinical study partner network, which includes Walgreens.

The United States only represents five percent of the world’s population; however, Americans consume 80 percent of the world’s opioids.¹ The U.S. is the world’s leader in the use of opioid medications to cope with physical and emotional difficulties. And the recent Walgreens and Wal-Mart multi-state opioid settlement agreement disclosures have only hammered home the point. America continues to have an opioid addiction problem. 

In light of all these circumstances, the recent CDC announcement that it was softening guidelines for U.S. doctors prescribing oxycodone and other opioid painkillers seems to stand in stark contrast to the current reality. With such significant, impactful reparations coming from the original guidelines and accompanying grim statistics, does it make sense to soften them so soon? The answer may surprise many, but for some, it’s yes. 

Relaxed CDC guidelines call for new investment in data and technology 

With the proper precautions, tools, and technologies to harness the data needed, loosening the guidelines will likely not significantly harm the outlook for SUD patients. Why? The more stringent restrictions didn’t blunt the crisis at hand. If anything, it even got worse. 

So, while the new guidelines place more decision-making power on physicians prescribing opioids, guidance without continuous monitoring and feedback can potentially worsen the crisis. And providers could easily find themselves further in the deep end if nothing else changes. They need a new path forward. 

Therefore, unlocking the correct data–at the individual patient and population levels–is critical to reversing this crisis. If providers could easily and securely access dynamic and actionable behavioral health data, they could develop more effective treatment plans based on a patient’s complete history. They could better assess addiction risk and make the best judgment on the type of care delivered. 

Severe SUD disparities prevent facilities from tackling significant challenges 

Nonetheless, behavioral health practices are years behind other healthcare fields when it comes to technology and tools, leaving them largely unprepared for the 

challenges of a nation in the throes of a mental health crisis compounded with record opioid addictions. The reasons are numerous, but a conspicuous absence from the incentives provided by the Health Information Technology for Economic and Clinical Health Act (HITECH) of 2009 certainly left behavioral health at the back of the pack for technology access and funding. A June 2022 report from Medicaid and CHIP Payment and Access Commission (MACPAC) further illuminated the issue, explicitly citing an extension of the financing through state Medicaid programs to drive health IT adoption as a decisive step to addressing gaps in access, outcomes data, and oversight. 

Data-driven SUD care enables high-powered opioid-ready interventions 

With many deficiencies and a growing opioid patient population, data insights unlocked through technological investment are the most effective path forward. And there are several data processes, best practices, and tools that facilities can utilize to build a solid future-ready data foundation ready to meet the challenges ahead. 

To start, providers should use an advanced data approach that absorbs, connects, and cleans data from multiple sources. When data is missing or of lower quality, leveraging advanced data science algorithms that account for the missing pieces can correct systematic errors in SUD and mental health data. Then, artificial intelligence and machine learning can take it to the next level by detecting meaningful patterns and insights in this data. And by implementing these powerful technological capabilities and innovations, behavioral health providers can more quickly and effectively make up for incomplete values and standardize disorganized data. 

Further, prescriptive analytics can deliver refined insight into risk and the best care protocol even with dirty or incomplete data (as with many SUD providers). Dynamic algorithms can quickly transform crude data into a product. In this way, providers can leverage predictive modeling to identify patterns demonstrating people at risk of developing substance abuse or opioid relapse. And the infrastructure for predictive capabilities already exists, including patient engagement solutions, electronic surveys, and analytics. Industrializing, standardizing, and making these capabilities available to all providers will augment individual patient care and the industry’s alignment to measurement-based care. 

Beyond raw data, implementations such as the social vulnerability index (SVI) can enrich patient-level information, providing the foundation for dynamic analytics. Moreover, care coordination and implementing innovative models and tools such as Accountable Care Organizations (ACOs) and Health Information Exchanges (HIEs) 

are imperative to driving the best patient outcomes and ensuring visibility across the patient care experience. 

This cooperation and new data implementations will empower a holistic patient treatment model, allowing everyone involved to make informed and educated decisions about patient care, including prescription opioids. And by harnessing the power of their data assets and proven advanced analytic capabilities that are already solving some of the most challenging SUD patient health complications, providers can also empower ongoing operational and clinical improvements. 

New data approaches and tech power the future of SUD and opioid treatment 

SUD providers have a significant opportunity to advance patient care, particularly when it comes to substance abuse and opioid addiction, by harnessing the power of increasing and ever-available data. Through data unlocked via novel technologies and approaches, facilities can identify predisposed patient populations, early warning factors, and signs of addiction. 

These information insights, enabled by data science, predictive algorithms, and other technology-first implementations and tools such as SVI, ACOs, and HIEs, will be crucial to combating the opioid epidemic in the coming years. By leveraging this toolbox, SUD providers can create more opioid challenge-worthy treatments from the start. The coming years and softened guidelines cause concern across the SUD community. It’s evident, however, that the needle barely moved even with more binding restrictions, without impactful analytics and insight. Consequently, dynamic and actionable data-driven modeling and the technical foundations to support it remain necessary course corrections that can provide substantial progress. 

About Jeremy Bloom, CEO of NorthSight Recovery

Jeremy has more than ten years of healthcare experience. During this time, he has held various senior and executive leadership positions where he gained expertise in organizational management, regulatory guidelines, and care delivery. Mr. Bloom has built alliances with key local and national stakeholders and has assisted in developing many programs, including psychiatric crisis centers, inpatient facilities, outpatient facilities, and patient-centered medical homes. Mr. Bloom is passionate about healthcare innovation and developing systems that take a data-driven approach to measure outcomes and costs to improve the overall delivery of healthcare services.

References

1. “Opioid Crisis: Table of Experts.” The Phoenix Business Journal, January 5, 2018, p. 16.

What You Should Know:

– Home Healthcare market in terms of revenue was estimated to be worth $226 Billion in 2022 and is poised to reach $340.2 billion by 2027, growing at a CAGR of 8.5% from 2022 to 2027 according to a latest report published by MarketsandMarkets™.

– The report reveals growth in this market is mainly driven by rapid growth in the elderly population, and the rising incidence of chronic diseases.

Rising Demand for Home-Health Services & Solutions

The home healthcare industry is expected to experience rapid growth in the near future due to increased demand for home-based care services. The aging population, improvements in technology, and consumer preferences are driving the growth of home healthcare. This trend is likely to continue as more people seek out home healthcare services instead of going to a hospital or nursing home.

In addition, telemedicine and remote patient monitoring are becoming more popular as a way to provide healthcare services from a distance. This technology is expected to further drive growth in the home healthcare industry. As more people become comfortable with this technology, more providers will be willing to offer these services.

Advances in robotics are expected to revolutionize the home healthcare industry. Robots will be able to assist with a variety of tasks, from taking vital signs and administering medication to providing companionship and social interaction with patients. This will allow home healthcare providers to offer more comprehensive services and increase the number of patients they can care for.

Home Healthcare Market Drivers

The home healthcare industry is expected to experience rapid growth in the near future due to increased demand for home-based care services. Key market drivers include:

Growing elderly population: The global population of people aged 65 and over is expected to grow from 703 million in 2019 to 1.5 billion by 2050. This growing elderly population is driving the demand for home healthcare services.

Increase in chronic diseases: The prevalence of chronic diseases is increasing globally due to lifestyle changes, such as unhealthy diets, physical inactivity, and smoking. This is driving the need for home healthcare services as these patients require continuous monitoring and care.

Technological advancements: Technological advances, such as telehealth, remote patient monitoring, and artificial intelligence, are driving the growth of the home healthcare market. These technologies enable healthcare providers to provide quality healthcare services remotely.

Increasing government initiatives: Governments around the world are taking initiatives to promote the adoption of home healthcare services. These initiatives aim to reduce healthcare costs and improve patient outcomes.

Growing preference for home healthcare services: Patients are increasingly opting for home healthcare services due to their convenience and cost-effectiveness. In addition, home healthcare services reduce the risk of nosocomial infections, which are associated with hospital stays.

Recent Home Health M&A Activity

Humana and Walgreens Boots Alliance: In January 2022, Walgreens Boots Alliance (WBA) and Humana announced that they had reached a definitive agreement to combine their respective businesses in a merger of equals. The transaction is expected to close in the second half of 2022.

CVS Health and Aetna: In March 2022, CVS Health and Aetna announced that they had reached a definitive agreement to merge their respective businesses. The transaction is expected to close in the second half of 2022.

UnitedHealth Group and DaVita HealthCare Partners: In May 2022, UnitedHealth Group and DaVita HealthCare Partners announced that they had reached an agreement to merge their respective businesses. The transaction is expected to close in the second half of 2022.

Optum and MedExpress: In June 2022, Optum and MedExpress announced that they had reached a definitive agreement to merge their respective businesses. The transaction is expected to close in the second half of 2022.

Kindred Healthcare and Gentiva Health Services: In July 2022, Kindred Healthcare and Gentiva Health Services announced that they had reached a definitive agreement to merge their respective businesses. The transaction is expected to close in the second half of 2022.

Click here for more information about the report, visit

Frank Harvey, CEO at Surescripts

Community pharmacists trusted to deliver care: In 2023, pharmacists will play an integral role as part of the team managing patient care for diseases like diabetes, hypertension, or multiple comorbidities. And to support this work, I predict that we will see more activity between payers, pharmacists, the government and technology organizations to ensure that pharmacists are able to perform these important activities and be reimbursed for their work.

Greg Samios, President & CEO of Clinical Effectiveness at Wolters Kluwer

In 2023, traditional pharmacies like CVS and Walgreens will continue to move into the primary care and home health space, creating an expanded healthcare marketplace and more options than ever for consumers. But this decentralization of care poses consistency and quality challenges that are quickly coming to the fore. In this increasingly patchwork system, clinical decision tools capable of bridging the gaps between settings will be needed to eliminate care variability, better coordinate care, and ensure a single source of evidence-based information exists at every touchpoint in a patient’s healthcare journey.

AJ Loiacono, CEO and co-founder at Capital Rx

Drug Price Reform Will Come From the Bottom Up: With no real majority in the next Senate, expect reform and action to happen at the state level. State legislatures have been focused on PBM and drug price reform for some time and it will heat up as the new year begins. In 2022, 135 new bills that impacted PBM business practices were introduced in 36 states and many will continue to be in review in 2023. Some of the bills passed in 2022 vary – from Pennsylvania’s HB 1630, which enables the state to audit and review PBMs that service Medicaid-managed care organizations to Oklahoma’s SB 737 which prohibits PBMs from using spread pricing.

Mike Pritts, Chief Product Officer at Surescripts

Prescription drug costs takeover the spotlight: “In 2023, the spotlight will shine even brighter on rising prescription medication costs as they continue to outpace the rate of inflation and assume a greater proportion of overall healthcare expenses.

Ian Manners, Chief Strategy Officer & Head of Life Sciences at TailorMed

Drug pricing reforms meet reality: As key provisions of the Inflation Reduction Act enter the rule-making process, we will start to see more public debate about its consequences — as well as litigation from the pharma industry seeking to block their enactment. While 2023 will probably not be the year that all of these issues get resolved, we should expect to know far more about the IRA’s impacts than we did at the time of its passage. We’ll also be much closer to the 2024 phase-in of a new Medicare Part D out-of-pocket cost cap for seniors.

Annie Lambert, PharmD, BCSCP, Clinical Program Manager for Compliance Solutions for Clinical Surveillance & Compliance at Wolters Kluwer

Pharmacists and pharmacy technicians are often the most accessible healthcare providers in their communities. Both roles will continue to see an evolution in their scope of practice to include direct patient care that will only increase in the year ahead. However, advanced clinical roles must be balanced with maintaining compliance. With the final publication of USP <797> and an updated NIOSH Hazardous Drug list expected in 2023, intentional planning will be needed by experts in sterile compounding and medication management to manage changes and ensure standards are met. The myriad of pharmacy priorities will likely spur investment in technology capable of driving efficiencies, reducing care variation, and accelerating onboarding for new personnel.

Anna Dover, PharmD, BCPS, Director, Product Management, FDB (First Databank, Inc.)

Each year, clinicians are presented with thousands of medication-related alerts in their EHR and pharmacy systems—typically disregarding more than 73% of them—contributing to burnout and potentially impacting patient safety.  Expect these institutions to optimize systems in 2023 with patient-focused, intelligent guidance that drives safe and effective prescribing decisions.

Cecelia Byers, PharmD, Clinical Product Advisor for Specialty at Surescripts

Automated specialty prescribing making it less ‘special’ (and that’s a good thing). As more specialty medications are available and prescribed more frequently, enhancing interoperability will become even more important in 2023. Specialty medications require much more detailed clinical information than traditional medications and can require numerous phone calls and faxes between prescribers and pharmacists to chase down information and fill out paper forms. Specialty automation simplifies this process, giving providers time back so they can focus on what matters most: caring for their patients. Following major enhancements in interoperability across the Surescripts Network Alliance in 2022, specialty prescribing can be automated within a provider’s existing workflow, helping patients access and start their specialty therapies sooner.

Tracy Curley, CFO and interim CEO at iSpecimen

Focusing on the macroeconomic environment, which remains impacted by the lingering COVID-19 pandemic, there continues to be uncertainty about the strength of the global, Asia Pacific, UK and US economies. High-interest rates and a potential recession remain a concern for all market participants. At ISPC, we are closely monitoring the pace of specimen transactions. We believe that this industry can be resilient through a continued economic downturn or recession, as well as any impacts from inflation.

Dr. Linda Marban, CEO at Capricor Therapeutics

For the first time in a long time, we are seeing the emergence of three new viral infections: RSV, the flu, and COVID – all of these viral syndromes that were sitting dormant while the world was locked down for COVID-19. Given this triple threat, I think that we will begin to see the industry addressing how we are going to manage infectious diseases moving forward. For a while, things were focused solely on COVID.

Ariel Katz, CEO & Co-Founder at H1

Drug approvals and development will hinge on diversity. The FDA and other governing bodies will increasingly hold pharma companies accountable for diversity in clinical trials. In doing so, we’ll see more and more drugs rejected – not because of efficacy issues, but because diverse patient populations and providers are not being considered or recruited. We’ve already seen this with Eli Lilly and Biogen, and there will be more. This will cost pharma companies millions of dollars in wasted clinical trial costs, to the tune of an average of $1M per day for three years. But it’s extremely necessary and overdue. For progress to take place, companies will need to be held accountable for real, substantial changes to their clinical trial processes.

Dr. Mike Montalto, Chief Scientific Officer at PathAI

During clinical trials, it’s essential to be able to gather as much accurate data related to the patient and to candidate drug’s effect following treatment, such that important decisions can be made as early as possible in the clinical drug development process. Do they have the right patients enrolled who are most likely to respond? Can they see changes locally in the tumor microenvironment that indicate the drug is having a biology effect? Is the drug effect meaningful beyond the measurement noise of endpoint analysis? AI-powered pathology holds the key to answering those and other questions and will be a “must have” data platform for generating entirely new insights from patient samples so drug developers can have confidence they have selected the right patients and can assess sooner whether a drug works. This will accelerate drug development and help get the right therapies to the right patients at the right time, thus advancing precision medicine.

David Bleakman, President of Drug Discovery & Development at PsychoGenics

Necessary and opportunist types of pharma M&A – As many companies struggle to raise money in public markets, necessary M&A amongst weak players that temporarily delays the inevitable and opportunistic M&A where the strong capitalize on distress to pick up assets cheaply.

Marie Lamont, Global RWE Data Strategy, Access & Enablement at IQVIA and General Manager at Inteliquet

While decentralized trials are opening the doors for broader patient populations to be involved in research, there is still room for improvement to reach all groups. Many research studies are focused on academic centers, thus we need to expand to offer more trials into other care settings to ensure better diversification. In the coming years, and especially as AI and automation technologies streamline the trial processes for better efficiency, we will see researchers working with community healthcare centers and professionals to reach underrepresented populations.

Jane Myles, V.P. of Clinical Trial Innovation at Curebase

The future of decentralized clinical trials (DCTs) will become clearer as the industry evolves and as governing bodies clarify regulations around the globe.  Furthermore, the release of ICH E6 will distill many aspects of data expectations and standards. And large scale commercial players like Walgreens, Walmart, and Best Buy entering the clinical landscape will quickly evolve how trials are conducted. At the same time, patients will continue to seek trial options with functions like online data entry, telehealth, and utilizing local providers. The complexity of the evolving modern trial landscape, combined with prioritizing patient needs, means that a one-size-fits-all approach is no longer possible.

What You Should Know:

– While megadeals, trading multiples and overall deal values in the health services sector have not been immune to interest rate hikes and recessionary fears, PwC’s 2023 Health Services Deals Outlook report released recently forecasts a strong year ahead.

– Increasing transaction volumes and players embracing value-based care—coupled with large levels of corporate cash and private equity dry powder—are leading to continued expansion for deal volumes in 2023.

Trends and Insights into Health Services in 2023

The key insights are as follows:

1. Deal Volume Remains Resilient: Megadeals, trading multiples, and overall deal values in the sector have not been immune to interest rate hikes and fears of an economic downturn. However, transaction volumes continue to increase due to enhanced attention on private equity (PE) platform add-ons during this challenging macroeconomic rate environment and continued sector resilience. Megadeals, trading multiples, and overall deal values in the sector have not been immune to interest rate hikes and fears of an economic downturn.

However, transaction volumes continue to increase due to enhanced attention on private equity (PE) platform add-ons during this challenging macroeconomic rate environment and continued sector resilience. These factors, along with the continued large levels of corporate cash and PE dry powder, lead to a continued strong outlook for health services deal volumes in 2023.

2. An Outlook of Health Services: Health services deal volumes increased further from levels seen in 2021, but have softened thus far in Q4-22. Year-over-year deal volumes increased in each quarter through Q3-22, though some pullback has been seen in Q4 through November 15 (251 announced deals in Q4-22 through November 15 versus 307 in the same period in 2021). While deal volumes have continued to increase, deal values have declined from the peak set in 2021, a function of smaller value roll-up and platform add-on transactions representing a greater portion of activity in the current year. Industry-wide enterprise value (EV) to EBITDA multiples have also declined from heightened levels seen at the end of 2021.

As of November 15, the average multiple across health services sub-sectors was 14.4x, down from 15.9x as of December 31, 2021 and 14.9x as of December 31, 2020. Multiples dropped in four of the seven sub-sectors whose multiples we track, led by outsourcing (down from 19.2x to 15.0x) and managed care (down from 17.3 to 14.2).  Nearly half of announced deal value over the 12 months ending November 15 was from megadeals, consistent with the ratio seen in 2021. The 12 months ending November 15 had seven megadeals, including:

– $18 billion merger between two healthcare real estate investment trusts (REITs) and an $8.9B acquisition of Summit Health-City MD, a provider of primary, specialty and urgent care services, by Village MD (a Walgreens subsidiary). These two deals collectively represent $26.9B of the total $44.3B of other services deal value in the 12 months ending November 15.

– Two home health & hospice megadeals noted above, which totaled $14B of transaction value.

– Other megadeals include Quidel Corporation’s acquisition of Ortho Clinical Diagnostics ($8.0B), Mediclinic International’s acquisition by a consortium of investors ($7.4B) and Chubb’s acquisition of Cigna’s life, accident and supplemental benefits businesses ($5.4B).

3. Health Services Deal Value and Volume: For select sectors, M&A volume retreated when compared to the historic levels experienced in 2021; however, the health services sector continued an impressive display of volume level through the last 12 months (LTM) ending November 15. While traditional buy-side activity comprised a portion of this volume, an upcoming PwC study has identified the role divestitures can play in creating value in the healthcare sector.

PwC anticipates increased divestitures activity within health services for 2023 based on a variety of economic, regulatory and overall strategic repositioning. Given the variety of healthcare participants (e.g. for profit, not for profit and PE, etc.), each of the parties have varied processes for decision-making, but growth is the one goal they all share. As management teams assess growth, the power of strategically reviewing and aligning an organization’s portfolio is critical to shareholder returns. Other key themes that can help create value through divestitures include: timely decision-making, actively embracing the process of divestitures and navigating inertial factors like entanglements.

What You Should Know:

– Music Health Inc. announced that its music wellness app, Vera, is now available through Walgreens Find Care® to provide people living with different forms of dementia with convenient and affordable access to personalized music from their computers and smart devices.

– Vera is a new app that supports caregivers by offering the person in their care a custom-made “soundtrack of their lives” that can trigger long-lost memories which may temporarily improve cognitive function, motor function, mood and sleep, while reducing agitation, aggression and other negative symptoms of dementia.

Why It Matters

Using AI technology, Vera discovers the soundtrack of someone’s life by combining information about their cultural background (such as where they grew up, their age and first language), with details about their music taste, such as a few favorite artists and genres. A recent study published in Alzheimer Disease and Associated Disorders found that using music therapy helped improve social engagement among people with dementia and their caregivers. The intervention also lowered caregiver distress.

Partnership Details

Through a strategic, industry-first agreement, Vera users are able to access the entire catalog of Universal Music Group (UMG), the world’s leading music-based entertainment company, to develop personalized music stations specifically designed to improve the lives of people living with dementia.

“We’ve built Vera to know and find the music that means the most and has the biggest impact for each person living with dementia. It acts as a music detective that re-discovers songs they used to love a long time ago but may have forgotten about, which their caregivers may have never heard of, and their families may not even know of,” said Music Health Co-founder, Stephen Hunt.

Before HLTH 2022 kicks off next week in Las Vegas, we asked 18 digital health executives for their predictions and major themes to expect at HLTH. 

1. Keith Reynolds, Chief Operating Officer at Welldoc

Access to care is a central focus for healthcare given several factors: a growing population being impacted with chronic conditions, increased resourcing constraints, and growing fatigue and workload among providers. A recent study indicated that it would require a PCP 26.7 hours/ day to serve their patients if they followed the national recommended guidelines for preventive and chronic care.

Big tech and healthcare companies are paying attention, as indicated by the recent moves of Amazon, CVS and Walgreens. They are all trying to tackle this issue of broader access by launching new primary care models and virtual services.

Digital health is a critical enabler as we think about the new models of healthcare emerging to address access issues. The shift from digital health being siloed from care to being a central connector between individuals and their care teams should now be the standard, so that valuable insights into vitals, symptoms and service needs can be managed and addressed beyond the typical office visit.

2. Emily Goetz, VP of Commercial at Bright.md

I expect workforce shortages and burnout will be major themes at HLTH, as well as the digital front door. The staffing crisis continues, but I’ve recently seen a shift from implementing short-term “fixes” towards identifying sustainable solutions. I’ve also noticed the resurgence of the term “digital front door” lately with health systems rethinking their entry points to care. As direct-to-consumer care companies shift consumer preferences, health systems are looking for answers around how to deliver convenient care at lower costs that meets those rising expectations. I’m looking forward to hearing what’s working and what we’re learning with automation to navigate patients through the healthcare journey.

I’m also starting to see talk around “telehealth 2.0” – shifting from simply replicating the in-person experience to actually rethinking care delivery. Virtual visits that don’t solve capacity challenges or integrate into existing workflows need to change. It’s encouraging to see more leaders talking about asynchronous, remote patient monitoring, rethinking chronic disease management, and other ways to foster longer-term strategic growth, and I’m really looking forward to conversations that center patient needs and creative solutions at HLTH.

3. Mark Engelen, CEO of RXLive

As the healthcare world continues to rapidly adopt telemedicine, move toward value-based care, and combat rising pharmacy costs, HLTH 2022 will showcase digital health companies that embrace those trends: medication management solutions, telemedicine services, and population health analytics. One-on-one attention helps patients improve their quality of life and healthcare organizations improve care outcomes, and technology should empower physicians and pharmacists to deliver that personalized care at scale. By better connecting entire healthcare teams, leveraging population health data, and delivering clear, actionable information to patients about their treatment plans, we’ll see better adherence and a reduced burden on entire healthcare systems.

4. Robin Shah, Thyme Care CEO and Co-Founder

We anticipate a continued shift in the digital health ecosystem towards personalized, disease-specific care that prioritizes support throughout all facets of treatment. The trend is clear: chronic care patients and their families want a care team that supports them through every step of the process, including sourcing and explaining viable options, as well as a consistent care team well-versed on a patient’s given case. The digital health industry is rising to the occasion, with value-based cancer care  at the forefront, as we will see at HLTH 2022. As this trend continues, companies will face the challenge of creating comprehensive support through all facets of the patients’ journey to health and doing so in a cost-effective manner.

5. Dr. Lissy Hu, President, Connected Networks, at WellSky

The pandemic showed us that the patient overwhelmingly would like to receive their care at home. Now comes the challenge of delivering it at scale. What works on a subscale level often breaks down when extended to a regional or national level. That will be a major theme of this conference – enabling new models of care delivery at scale.

6. Megan Callahan, COO at Twill

I’m expecting to see three interconnected themes come up repeatedly this year at HLTH. First, mental health should not be seen as some adjunctive problem to solve. It’s integral to physical health and should be treated as such. Behavioral healthcare can improve everything from depression and anxiety, to stress management, diet, physical activity, sleep, treatment adherence, and the list goes on. Medical-behavioral integration, or behavioral medicine, is necessary to drive true health outcomes.

Second, the one-size-fits-all approach to healthcare will increasingly feel like a thing of the past. Precision Care, where a person’s needs, individual characteristics, and preferences are factored into the tailored care they receive will ultimately prevail. Many companies, both virtual and brick- and-mortar, are transforming to enable a future of Precision Care. We feel well placed at Twill to play a leading role in establishing this future.

And finally, health equity and social determinants of health will continue to be important discussions. Moving care virtual certainly improved access, but there are still so many more problems in this space to solve. This theme relates back to my second point that while access is important, tailoring care to the individual will be key going forward.

7. Dr. Peggy Chou, Chief Medical Officer at Stability Health

Digital health and its transformational promises are no longer an abstract concept to healthcare systems and practices. However, organizations are now more than ever looking for proven solutions which address their most pressing challenges – staff turnover, morale, and profitability among them – and while these are big challenges, healthcare organizations that take a more transformative mindset can leverage the best solutions to their full potential.

8. Brian Whorley, CEO of Paytient

I expect reflection on today’s realities — diminished capacity at providers, a down market, rising inflation, etc. — and fast forward to how patients and providers can have a closer and more direct relationship in the years to come. Today’s headlines hint that it’s becoming ever more possible as price transparency rolls out and consumers feel an erosion of trust in institutions. I’m particularly interested in how individuals and employers are addressing skyrocketing healthcare costs and access to critical care.

The pandemic not only harmed people on a biblical scale, but it also harmed the health system’s operational capacity to provide care. Caregivers left the workforce, relief dollars were consumed by spikes in costs, and now we’re staring down a recession. One positive side effect of past market downturns was healthcare practitioners returning to hospital networks and the healthcare workforce. At HLTH 2022, I’m interested in hearing how healthcare leaders and innovators are working to control costs in 2023 and 2024 while delivering accessible and affordable care to patients who need it.

9. Nicole Rogas, President at symplr

Financial pressures are priority number one for hospitals and health systems and will be the leading focus of HLTH. This should surprise no one, as a Kaufman Hall Report predicts that 53% of hospitals are projected to have negative margins throughout 2022. Additionally, based on our own research, we know that the pandemic prompted hospitals and health systems to invest heavily in workforce and talent management solutions, as well as clinician scheduling solutions and compliance, quality, and safety solutions. This is indicative of how important – though historically not prioritized – healthcare operations truly are. With narrowing margins and continued workforce shortages ahead, optimization and automation of operations are officially mission-critical, and as a result, these topics will feature prominently at HLTH.

10. Matt Dickson, Senior Vice President of Stericycle Communication Solutions

Like the rest of the US economy, digital health companies will not be immune from strong financial headwinds being forecasted over the next 12 months. Digital health companies need to focus on building a demonstrable ROI case that likely requires deeper and better integrations into health systems that go beyond what is required to provide their specific service. This includes financial system integrations that draw a clear line as to how you are driving top-line growth or bottom-line savings, clinical systems that show you are producing better outcomes such as reduced length of stays or reduced readmissions, and CRM systems that show increased engagement in marketing, IT, and operations.

An emphasis must be placed on aggregating that information into dashboards that allow stakeholders at health systems to easily digest, analyze and disseminate that information to the entirety of their various internal partners.

11. Ramakant Vempati, Co-founder and President, Wysa

In 2022, mental health was top-of-mind at every healthcare event, with even the Surgeon General identifying it as the top health priority for the country. HLTH 2022 gives us a chance to expand on this conversation and consider how digital mental health solutions can expand access to mental health support, the impact they can have on the people and organizations that use them, and the role technologies like AI will play in its future. The promise of digital mental health has always been accessibility, and we now need to go towards showing efficacy. With this, 2023 could be the year where we can provide mental health support for everyone, anywhere, all the time.

12. Jay Goss, General Partner, Wavemaker Three-Sixty Health (Wavemaker 360)

There is no healthcare organization in the U.S. that is not consumed with the clinician shortage problem. Wavemaker 360 knows this because we are in constant conversation with the country’s leading healthcare institutions, thanks to our 300+ strong LP base. This year’s HLTH event is destined to have a lot of discussion around how healthcare organizations (of all shapes and sizes) can overcome this challenge. On the one hand, being smarter with staffing is a great answer, and companies like Trusted Health are doing exactly this. On the other hand, companies that have solutions that increase the productivity of clinicians (doctors, nurses and other allied healthcare professionals) and let them practice at the top of their license is the other way of tackling this issue. In so doing, the U.S. healthcare system (as a whole) can do more with less. Companies like Luna, DeepScribe, Luminate Health and Ufonia are bringing solutions to the healthcare industry that do exactly this.

13. Shireen Abdullah, CEO of Yumlish

One overarching theme we expect to see is a focus on equitable access to resources and health interventions. More than that though, and at the heart of what we’re accomplishing at Yumlish, is a commitment to actually meeting underserved communities where they are and tailoring solutions to cultural contexts to drive better outcomes. Underpinning all of this, and all conversations at HLTH, are the implications of inflation, an ongoing pandemic, and an ever- aging population.

The digital health ecosystem is experiencing a transformation from one focused on user acquisition to one set on demonstrating performance through sustainable margins. That will show up in how digital health buyers talk about their strategies particularly with respect to outcomes and patient experience. Additionally, the digital health revolution continues to give patients greater agency in their own wellness regimens.

We suspect that many business models that found traction in the earlier days of the pandemic will be tested now that consumers have pocketbook pressure and more options on the table.

Some of those companies will have a tough time. The challenge for the industry is ensuring that we don’t suffer too much collateral damage and lose progress by really good companies benefiting underserved communities that just need time to establish.

14. Mustafa Shabib, Co-Founder of Season

Social Determinants of Health (SDOH) will continue to be an important part of the industry conversation as health systems and payers begin to pressure test which solutions simply check marketing boxes, versus those that are driving engagement and improving outcomes. It is heartening to see the growing understanding that the root cause of much of the country’s health issues stem from society’s systemic problems and that healthcare must shift to prevention.

Similarly, the dearth of mental health providers is a pressing topic of concern and should take center stage at HLTH. To address this shortage, we are in dire need of cross functional support teams that provide early access to care and move care upstream towards a more holistic prevention focused approach. Doing so would alleviate pent up pressure on the health system and enable existing providers to treat the most acute patient needs.

15. Rex Chekal, Principal Product Designer at TXI

At HLTH 2022, we’ll see digital health firms will continue to stretch innovation beyond the patient. The healthtech space is an increasingly two-sided marketplace: patients and practitioners are equal parts of the equation. By identifying the overlap in patient and practitioner needs, we can improve outcomes for patients and empower practitioners to improve care over time. Physicians need to know why a specific solution is the correct tool to unlock improved patient outcomes, and patients must understand its function so they’ll commit to using it. The winning medtech firms of the future will invest equally in both patient and physician pain points during the discovery process and ease those areas of friction with thoughtful product design.

16. Neal Stine, General Manager at uMed Technologies

I think the first generation of “digital” was more about provider efficiency, or put another way, shifting responsibility/burden from the provider onto the patient. I don’t know how many patients find filling out forms and printing them at home before a provider visit “empowering” As a point of comparison, do we really feel “empowered” using self-checkout at the grocery store? Or just something else we have come to accept.

The new wave of digital is about bringing together efficiency-focused initiatives with those that actually empower the patient. At uMed, we reach out directly to patients – on behalf of their recognized providers – to bring them the opportunity to participate in clinical studies. It works for the patient because they don’t always know where to look / how to find studies. It’s a win for the provider because the administrative and IT burdens associated with recruitment are removed.

I believe that the next wave of digital innovation will be similar – Approaches that make the patient an active part of the care discussion, and outcomes focused on what’s important to the patient versus statistical significance that has little bearing on their lives. Digital health is uniquely poised to fill many of these gaps, and the offerings that are rigorously tested with significant outcomes will be the clear winners in the coming year.

17. Kristin Russel, Chief Marketing Officer at symplr

Hospitals and health systems are facing challenges from all sides—inflation is squeezing already tight margins, their workforce continues to burn out and resign at staggering rates, and patient volumes are on the rise as COVID cases collide with an early cold and flu season. The tools that got us through the last two years are inadequate to solve for this triple threat, as new symplr data shows, executives at provider organizations believe their health system’s management of provider data is ineffective. HLTH will be an environment for frank conversations between key stakeholders about how to streamline technology assets, synchronize technology for an enterprise-level approach, and ultimately facilitate better care for patients and a better work environment for clinical and administrative staff at hospitals. 

18. Theresa Demeter, Managing Director of Clinical Solutions at Tegria

The healthcare industry is beginning to understand and act on the idea that to achieve health equity and whole-person care, healthcare organizations must partner with other industries. At HLTH 2022, I expect to learn about partnerships that are leveling the playing field to improve access and address societal factors like food insecurity, unreliable housing, and lack of access to broadband services that prevent individuals from reaching their full health potential. I’m seeing a positive shift from concepts to action that will drive more innovation and even unexpected partnerships to make meaningful and sustainable improvements.

COVID’s impact on uncovering the harm of bias and inequities in healthcare can’t be overstated. Barriers to access, biases in patient care technology and lack of trust in the healthcare system all result in worse outcomes and higher mortality for marginalized populations. There is now a rush of interest and energy to solve these long-standing and systemic problems. I look forward to discussing how healthcare organizations, technology companies and community partners can work together to create well-designed, inclusive solutions.  

What You Should Know:

Primary care provider, VillageMD has entered a definitive agreement to acquire Summit Health-CityMD, a provider of primary, specialty and urgent care in a blockbuster M&A deal valued at $8.9 billion with investments from Walgreens Boots Alliance (WBA).

The combined company will create a multi-payor platform to deliver quality, affordable care for all patients and will enhance WBA’s robust portfolio of leading, integrated healthcare offerings across the care continuum. Together, VillageMD and Summit Health will have more than 680 provider locations in 26 markets.

Walgreens’ $3.5B Investment

As part of the transaction, WBA will invest $3.5 billion through an even mix of debt and equity to support the acquisition of Summit Health-CityMD, which drives meaningful synergies and accelerates WBA’s path to profitability for its U.S. Healthcare segment. WBA will remain the largest and consolidating shareholder of VillageMD with approximately 53 percent ownership. The company expects to maintain an investment-grade rating.

As a result of the transaction, WBA is raising its U.S. Healthcare fiscal year 2025 sales goal to $14.5 billion to $16.0 billion, from $11.0 billion to $12.0 billion previously. WBA’s U.S. Healthcare segment is now expected to achieve positive adjusted EBITDA by the end of the fiscal year 2023. Assuming a Jan. 1, 2023 closing date, WBA is raising the U.S. Healthcare adjusted EBITDA target for the fiscal year 2023 to $(50) million to $25 million, from $(240) million to $(220) million previously.

Evernorth to Serve as Minority Owner in VillageMD

Evernorth, Cigna Corporation’s health services organization that creates and connects benefits, pharmacy and care solutions, will also be a minority owner in VillageMD. The collaboration is part of Evernorth’s commitment to accelerating value-based services that deepen relationships with high-performing primary care physicians and specialists to improve outcomes and lower costs.

What You Should Know:

– A new dawn is on the horizon in healthcare. Equipped with new digital capabilities and pressured by new consumer expectations for personalized, convenient experiences, healthcare organizations face a predicament — act now and stay afloat, fail to act and get consumed by the competition, or risk financial ruin.

– Market research leader Forrester’s latest report explores 5 key predictors for healthcare in 2023.

Healthcare in the Era Post-Covid

COVID-19 changed how consumers and brands do business, and healthcare organizations are no exception; the pandemic accelerated transformation by a decade. In 2023, hospitals must identify their financial risk and focus on employee retention and recruitment as the threat of a recession looms. Healthcare organizations must reevaluate their approach to consumer engagement and experience as external industry players vie for a larger foothold in the healthcare market. Care will continue to extend beyond brick-and-mortar settings as technology advances to support chronic care management and decentralized trials in remote settings.

The top 5 predictions made by Forrester regarding 2023 are listed and explained as follows:

1. Economic downturn and consumer behaviors will spike hospital bankruptcies by a third: Inflation, the nurse staffing crisis, labor cost hikes, supply chain disruption, and sourcing shortages are breaking the banks of US hospitals and shutting their doors. Over the next 12 months, hospitals that averted financial crisis due to the Fed’s contingency provisions, state-based funding sources, and lender-granted waivers and extensions will succumb to a lack of cash flow.

In 2023, hospital and health system expenses are expected to increase by nearly $135 billion, driven by a projected $86 billion increase in labor expenses. Backlogs for surgery, imaging, and diagnostic services will prevent hospitals from recovering a $20 billion loss of revenue, spurred by the shutdown of elective procedures from March to May 2020. Chapter 11 bankruptcy filings for large healthcare organizations in 2022 are tracking 28% higher than in 2021, and this comes after large healthcare organization bankruptcies in 2021 were 44% behind 2020 levels. More than 30% of all rural hospitals are at immediate risk of closure due to low financial reserves or reliance on government aid.

Patient volumes, high-deductible health plans, and commercial insurance rates will move the needle on hospital sensitivity to recession from low to high. A lack of access to hospital care for underserved, chronically ill, and elderly populations will result in serious ramifications for public health and the economy. To navigate this crisis and stay afloat, hospitals should start quantifying their financial distress levels now by calculating their Z-score monthly and tracking it over 24 to 36 months. This will help identify risks and trigger a financial turnaround strategy for hospitals at or near the red zone.

2. Retail health clinics will double their share of the primary care market: Forrester forecasts that retail health clinics will double their share of the primary care market in 2023, fuelled by patient demand and additional retail companies looking to join the ranks of CVS-Aetna, Walgreens, Walmart, Amazon, and Optum-UnitedHealth Group, which are all buying primary care practices or hiring PCPs directly. In 2023, patients will choose retail health for their primary care needs, as health systems, constrained by inadequate resources, fail to match retail’s elevated patient experiences. Retailers’ large consumer bases and multiple store locations give them a leg up offering immediate care options when, where, and how patients want and need them.

The CDC says that nearly nine in 10 Americans live within five miles of a community pharmacy, making primary care readily available. Additionally, an increase in retail health clinics will help lower the cost burden on healthcare organizations and patients, with Modern Healthcare stating that care at retail clinics costs around 30% less than similar treatment at physician offices and 80% less than similar treatment at emergency departments. As retail health doubles its share of the primary care space, demand for health systems to step up their patient experience game will increase as patients flock to retail health primary care providers.

3. Decentralised clinical trials will double, signaling a shift in rural patient participation: During the past decade, DCTs have quietly made inroads into the vast landscape of clinical research. Only 120 DCTs were initiated globally, or a meager 0.4% of all initiated trials, in 2019. The pandemic dramatically exacerbated clinical study recruitment problems and catalyzed trial decentralization: 230 DCTs commenced in 2020 and 422 in 2021.

Forrester believes this surge was not just a knee-jerk reaction to the lockdown but the beginning of a lasting change in patient recruitment practices. The pressure to speed up time to market and clinical study diversity and inclusion imperatives will leave the industry with no option but to embrace trial decentralization and increasingly adopt DCT-enabling technologies for remote monitoring, engagement, and telemedicine. Entrepreneurs and disruptors in this space must convince investors that the DCT business model is viable. Study sponsors and contractors should take advantage of the favorable regulatory environment for DCTs and incorporate DCTs into their workflow. This will alleviate geographical barriers and bring clinical trials to a broader range of patients.

4. A quarter of US adults will be treated with RPM tools for chronic conditions: The need to monitor, report on, and analyze patients with chronic conditions in their time of need is a national imperative. Forrester predicts that remote patient monitoring (RPM) tools will play a critical role in treating multimorbid patients to mitigate potentially avoidable hospitalizations and the exacerbation of chronic diseases. In 2022, RPM became the beating heart of acute care at-home programs, now operating in 114 systems and 253 hospitals in 37 states.

There are now five codes specific to RPM services, facilitating reimbursement and widespread adoption. The global RPM market is projected to reach $175.2 billion by 2027, from $53.6 billion in 2022, at a CAGR of 26.7%. Devices like weight scales, pulse oximeters, blood glucose meters, blood pressure monitors, heart monitors, and wearables will improve clinical prognosis and remove socioeconomic hurdles due to social determinants of health. RPM implementers must take a multifaceted approach to safeguard their own network infrastructure, devices, the edge, and the cloud using administrative, technical, and physical safeguards for optimal security and patient outcomes.

5. Forty percent of the hospitality industry will offer mental health benefits: A healthy workforce is the backbone of the hospitality industry, yet the burnout rate of people working in this industry is among the highest of all industries. Stress, anxiety, and depression caused by employment rank among the top reasons that hospitality employees seek employment elsewhere. Four out of five hospitality employees report high-stress levels due to their positions, and the CDC reports an overall increase in depression and anxiety symptoms to 42% across the US. In response, the hospitality industry is snapping into action and has begun offering healthcare benefits — including mental health services — to combat high turnover. In fact, 87% of employers said that enhancing medical health benefits will be among their top priorities in the coming years.

This includes access to free or reduced-price counseling sessions, subscriptions to virtual health offerings, as well as subscriptions to wellness apps. Monitoring morale and welfare requires reassessing and reestablishing burnout prevention and management strategies continuously. Employers should partner now with a teletherapy company that offers evidence-based solutions — including cognitive behavioral therapy, coaching, symptom tracking, and therapy appointments — to ensure improvement in employee mental health. This will bolster their employee medical benefit offerings, help retain staff, and improve their employees’ mental well-being.

There is an adage that change in healthcare moves at the speed of tectonic plates.  The slow adoption of Alternative Payment Models (APMs), the central feature of value-based care, is a good example of constraint despite immense pressure to control costs.

Data from 2020  demonstrate almost zero change from 2018 in the proportion of straight Fee-for-Service (FFS) reimbursement.  Other results show a slight uptick in APMs with or without downside risk at 34.6 percent. However, only 6.7 percent of total reimbursements were based on population-based payments. By any account, FFS still reigns, even if APMs are growing.

Government and private insurers are increasing the pressure on providers. CMS has announced ambitious plans for new population-based ACO Reach, and higher penalties for providers remaining on MIPS/Fee-for-Service. Private insurance likewise is moving increasingly to per-member payment models. But the biggest impetus to change may well be competition.

The New Competition in Healthcare is Business, and They’re After Physicians and Patients

Business has moved into healthcare and is eager to participate in Risk – in fact, the companies have built their business models around it.  Walmart, Amazon, CVS Aetna, Walgreens, Apple, Google and others are all active on the healthcare front. Payer vendors like Optum are acquiring practices and competing with traditional health systems and groups. 

Capital-backed practices are expanding, and the hybrid MSO-ACOs like Aledade are drawing physicians and their patients away from regular healthcare. Employers are buying practices or purchasing ready-made capabilities for providing care to employees 

Healthcare is surrounded by competition. With practice ownership almost equally split between hospitals and corporations, it is easy to miss how much the last few years have been won by healthcare corporations, which grew their physician employees by 86 percent over the last three years.

The year 2021 was the biggest single year of physician migration, with 74 percent of all physicians now employed and over half of all medical practices owned. By making employment decisions, physicians are showing their alignment to value-based care. Corporate healthcare is growing fast and its practices are deriving their market value from APM growth strategies. The practices that agreed to those purchases believed in embracing the APM future.

Likewise receptive to new avenues of care, even eager for them, are consumers. Convenience, transparency, and self-management focus of non-traditional providers support the growing healthcare consumerism trend.

Traditional Health Systems Have Done the Spadework for APMs, but Need a Transition Strategy

The problem for health systems is that moving away from Fee-for-Service and its lucrative volume-based model is hard.  Over years, FFS has been a well-oiled revenue machine that has fueled growth, industry consolidation, practice purchases, and financial stability. The new machine must do that too while constraining costs and improving outcomes and accessibility for people.

Health systems have already made investments in APM preparation.  Progress has been made in the digitization of healthcare data in EHRs, and, in some health systems, investment in data repositories, population health, and other data-based strategies.

There is no instructional manual for building the new person-centric system financed by APM reimbursements. But it is time to craft and implement a detailed Plan that will safely lead health systems and groups to APMs, working through financial issues, technology infrastructure, payer contract conversion, physician payment and compensation changes, selection of APM types, and the engagement of clinicians and payments in transparent processes to improve outcomes and costs.

The time to start is now. The stakes for shoring up the enterprise has never been greater for health systems. We are rapidly moving to a healthcare system financed by private investment, and the waters are uncharted. The value to health systems and medical groups that represent the core of our healthcare system is irreplaceable, and we must modernize and reinforce it.

About Theresa Hush

Theresa Hush is the CEO and Co-founder of Roji Health Intelligence, a company that guides healthcare systems, providers and patients on the path to better health through a collaborative process of improving outcomes and reducing costs. Hush is a healthcare strategist and change expert with experience across the healthcare spectrum, including public, non-profit and private sectors. Terry’s broad range of healthcare experience includes executive positions in public, non-profit and private sectors, from both payer and provider sides of the business, peppered with healthcare public policy and regulation experience. She jokes that she has occupied a seat in every healthcare position except for the pharmaceutical industry. She led the transformation of Blue Cross Blue Shield in Illinois, reformed the Illinois Medicaid program to create better access and increase funding, and directed the strategic and contracting activities for a large clinically integrated hospital system.

What You Should Know:

– David Larsen, healthcare IT and digital health analyst at BTIG published a note highlighting his preview for health-tech Q2 earnings.

– Given high inflation rates, costs for traveling nurses, and light volumes in 2Q:22, he is cautious on stocks that sell into the acute care market in the near term.

An Overview

According to the report, there are many macro headwinds that continue to affect the HCIT sector and the broader market, including inflationary pricing pressures, supply chain challenges, the Russia-Ukraine war, and COVID.

Some of the key factors are elucidated as follows:

1. Inflation is still high. Inflation is very real, spiking to ~9.1% in June 2022, which is above May’s 8.6% figure, and is a 40-year high. In our HCIT coverage group, company such as Cryoport (CYRX, Buy, $60 PT) and Omnicell (OMCL, Buy, $175 PT) rely on raw materials such as semiconductors, freight, and steel for their solutions. While both these companies have implemented pricing measures to manage costs more effectively, inflation could continue to put margin pressure on these businesses. Wage inflation for nurses and hospitals are high, which is pressuring hospital margins.

2. COVID has caused light volumes in 2Q:22 but a spike in volumes in June. In terms of COVID, while analysts don’t expect another massive COVID surge from Delta or Omicron, which caused significant spikes in both case rates and hospitalizations, the BA.5 COVID variant continues to gain prevalence, which could cause another spike in COVID in 2H:22. We believe that volumes in hospitals are light in 2Q:22 mainly because of delayed elective procedures.

3. Hospital Cap-Ex is under pressure in 2Q:22. Given light volumes in 2Q:22 and high inflation costs, analysts  believe that hospital capex is under pressure in 2Q:22. This could cause elongated demand cycles for Omnicell (OMCL, Buy, PT $175) and Health Catalyst (HCAT, Buy, PT $25).

4. The U.S. Healthcare System also continues its push to value-based care (VBC) and risk-based deals, and at- risk groups may benefit from light volumes in 2Q:22. The Center for Medicare and Medicaid Services (CMS) is leading the charge in value-based-care, with recent updates, including the CY 2023 Medicare Advantage Rate Notice to its CY 2023 Physician Fee Schedule (PFS) Proposed Rule. CMS’ VBC initiatives highlights CMS’ commitment to get all traditional Medicare beneficiaries and the vast majority of Medicaid beneficiaries into an accountable care relationship by 2030. Companies that are highly aligned with CMS’ and its customers’ VBC initiatives, and that profitably take and succeed in risk-based deals will succeed in this market, which includes companies like Evolent Health (EVH, Buy, $45 PT), Privia Health (PRVA, Buy, $39 PT) and agilon health (AGL, Neutral). Companies that have tech-enabled healthcare solutions that are based on VBC principles with business models that emphasize both growth through high-quality, highly recurring revenue streams and earnings that are able to meaningfully expand their margins will succeed in this market.

5. M&A activity is very significant in the space. Another consideration is that M&A activity in the HCIT coverage universe is very real as evidenced by Amazon’s (AMZN, NR) recently proposed acquisition of One Medical (ONEM, Neutral) on 7/21/22.. Solutions in HCIT companies are valuable both to larger healthcare enterprises and non-traditional conglomerates that are entering the healthcare space.

Stocks That Look Good Ahead of 2Q:22 Results

According to Larsen and his team of analysts, the following are the healthcare IT stocks, and the reasons they look good ahead of the 2Q:22 results:

1. Evoke the Health: EVH is one of the top picks in 2H:22 and was also listed as one of the top 10 picks with additional technical analysis. Analysts like EVH’s healthcare offering across its clinical and technology solutions, which is highly aligned on VBC principles. EVH continues to enhances its value proposition through new client wins and additional product offerings. EVH has multiple growth opportunities across the business, and especially in its NCH business including a $4B top-line potential opportunity if EVH can sell into ~25% of the members of its five largest NCH customers, most of the $75M revenue lift from EVH’s Molina (MOH, NR) contract is still to be recognized in F2022, and continuing to transition its customers from its Tech and Services Suite with PMPMs of $0.38 to its Performance Suite with PMPMs of over $20+.

2. Privia Health: PRVA is a VBC industry leader that works with healthcare stakeholders across the spectrum from medical groups, health plans, and health systems to optimize physician practices, improve patient experience and satisfaction, and increase provider compensation for delivering high-quality care across in-person and virtual care settings. PRVA’s healthcare model, which is based on VBC principles has enabled healthcare entities to transition to VBC, decrease administrative burden on healthcare practices, and utilize its user-friendly technology platform, which is based on athenahealth’s (Private) EMR and collector solution, that has advanced capabilities that enhance clinical care delivery. As the market continues its shift to VBC, analysts  believe PRVA is well-positioned to continue to grow profitably and take market share as it expands into new markets.

3. Cryoport: CYRX is an industry leader for its cryogenic logistics solutions and services. CYRX has a significant runway for growth as more commercial CAR-T therapies continue to be approved by global regulatory agencies such as the FDA and EMA for an expanded range of conditions, allogeneic therapies continue to gain traction, which are more scalable, efficient, and effective in providing time-sensitive treatments to patients versus autologous therapies, and CMS continues to increase base- rate reimbursement related to CAR-T therapies.

4. UnitedHealth Group: UNH reported a solid quarter in which revenues and adjusted operating income were both ahead of FactSet Consensus estimates and F2022 adjusted EPS was increased for the year. UNH saw double digit growth in both its Optum and UnitedHealthcare business segments. Much of UNH’s growth in its Optum segment was driven by growth in its Optum Health Revenue, which grew +32% y/y in 2Q:22 led by growth in patients under VBC arrangements. Optum now expects to serve 600K new patients in VBC arrangements in F2022, which is up from in its initial outlook of 500K. UNH continues to expand its care services offered from at-home and digital offerings that complement its clinic-based and outpatient services, including ambulatory surgical care. UNH is one of the largest health plans in the country, and its embrace of VBC is promising for companies in our HCIT coverage universe that are highly aligned with VBC principles, including EVH, PRVA, and AGL.

5. Walgreens: Walgreens reported a largely in-line quarter in F3Q:22 in which WBA’s F3Q:22 revenue of $32.6B (-4% y/y) was above the mean of $32.1B and its adjusted operating income of $955M (-35% y/y) versus the mean of $932M. Walgreens continues to face numerous headwinds across the business, including in its AllianceRx business, increasing competition in its specialty and home delivery pharmacies businesses, the decline in vaccinations, ongoing reimbursement pressures, and the 340B program as well as macro headwinds from wage inflation and other inflationary pricing pressures. Walgreens’ results show that it is “tough sledding” in the retail pharmacy space and highlights the tough pharmacy services macro environment. Headwinds in the 340B program could adversely affect OMCL. Walgreens is also seeing good growth from its Walgreens Health business segment. F3Q:22 sales were $596M in the quarter from VillageMD ($511M; +69% y/y) and Shields Health ($85M; +47% y/y). VillageMD has 315 clinics as of the end of F3Q:22 in which 120 are co-located within Walgreens’ pharmacies. Walgreens seems to have big plans and with new strategies in Walgreens Health, including extending its primary care network. Walgreens Health seems to be growing rapidly, which bodes well for continued adoption of solutions in our HCIT coverage group.

6. Elevance: Elevance (formerly Anthem) reported F2Q:22 revenue of $38.6B (+14% y/y), which was ahead of FactSet Consensus estimates of $37.9B and its operating income of $2.4B (+14% y/y), was behind consensus of $2.5B. ELV also increased its F2022 adjusted EPS guidance from greater than $28.40 to greater than $28.70. ELV highlighted headwinds from COVID and non-COVID utilization on the Commercial business during the call. ELV remains focused on building out its digital organization and digital platform as it continues to build out its digital connectivity that furthers its patient-centric care approach. According to analysts, ELV is a forward- looking health plan with an innovative digital health solution. As health plans look to expand and extend their digital capabilities, this should drive demand for solutions in our HCIT coverage group.

7. Tenet Healthcare: THC experienced an improvement, relative to pre-COVID baseline, from 1Q:22 to 2Q:22, for admissions, outpatient visits, emergency room (ER) visits, and hospital surgeries. However, these figures were down from 4Q:21, we think due to the Omicron surge. United Surgical Partners International (USPI) surgical cases or outpatient surgery cases remained ~flat in 2Q;22 from 1Q:22, based on surgeries as a percentage of baseline.THC continues to balance meeting volumes and managing costs despite a difficult environment in terms of wage inflation and contract labor rates and utilization. THC continues to focus on adding back high acuity volumes in surgical and procedure-based areas while employing financial discipline across the business. THC has been very thoughtful and deliberate regarding capacity management by prioritizing maintaining open access, ensuring that its high acuity strategy remains a focus, and continuing to expand margins through efficient staffing to effectively manage and control staffing costs.

Act III of COVID: Navigating the Crosscurrents of Post-Inflation

2022 ushered in Act III of the market’s latest transitionary period: The Post-Inflation Era. Since 2008, the US economy functioned with remarkably low inflation and interest rates. As the cost of capital went lower and lower during the decade, valuations steadily rose. Between 2010 and 2020, the NASDAQ experienced a 17.1% annual growth rate, with no small share of the growth a result of expanding valuation multiples in addition to earnings growth. An entire generation knows no other environment than cheap capital and climbing valuations. The story began to change in late 2021 as steep inflation took center stage thanks to a near-perfect confluence of excess liquidity, demand acceleration, and supply constraints. As inflation rates rapidly accelerated from 1% to over 9%, and market sentiment on inflation shifted from “transient” to a feeling of being “entrenched”, the market extravaganza that was 2020-2021 came to a screeching halt after a period of extraordinary gains.

Act I: Pre-COVID (Pre-2020)
Act II: Post-COVID (2020 – 2021)
Act III: Post-Inflation (2022 – ?)

We leveraged our experience executing transactions, extensive network, and market analysis from our 16-year history of advising and selectively investing across the ever-evolving Health IT and Digital Health sectors to gather key market information. We’ve bifurcated this market information between hard data (facts) and the accumulation of our anecdotal experience (observations). Beginning with the facts, the data shows that while it certainly has felt as if we’ve been on a sharp downturn when taken within the context of where we were before the pandemic, valuations, investment value, and M&A volume continue to be at healthy levels, though the downward trajectory is undeniable.

HGP Facts and Analytics

Valuations are undeniably falling but remain at a very high level when put into a historical context.

Despite gloomy headlines and the seemingly harrowing declines in valuation, it’s important to not lose sight of the steady climb in valuations since the beginning of 2018. Comparing Q2 vs. Q1, the 16% decline feels sharp, though begins to feel like a softer landing when compared to the average experienced in the pre-COVID period. Further, when looking at 8-month trailing data (see the chart on page 3), valuations today continue to be ~70% higher compared to the 8-month trailing multiple from January 2018. It is important to note that one-quarter of data is not indicative of a trend, though we appear to be on a downwards trajectory and may not have yet hit the bottom.

The amount of investment going into Health IT is nearly half the Post-COVID peak, but still 27%
higher than Pre-COVID levels. In 1H 2022, US-based health IT companies raised $9.4B, which is 40% below 1H 2021, but still 46% higher than the amount of investment seen in 1H 2019 (see the chart below for more detail on T6M data).

Private company valuations are much more stable than public company valuations. Private company valuations did not experience nearly the same level of Post-COVID euphoria nor are they declining as precipitously. In fact, comparatively, private company valuations appear almost flat against the high volatility of the public equity Health IT and SaaS valuations. However, the impact from declining public company valuations is now being felt in the private sector, representing the historically consistent two-quarter lag.

The cumulative overhang of private equity capital peaked in 2020 and has declined modestly since, but remains at historically very high levels, indicating that there is substantial capital on the sidelines. Dry powder peaked at $846 billion at the end of 2020, and declined to $819 billion by the end of 2021, and is now sitting at $749 billion.

The private debt market is tightening. The rising cost of debt makes financing more expensive, increases the share of equity required for transactions, and ultimately puts further pressure on valuations. The cost of debt has more than doubled for B-rated issuers (junk bonds) in 2022. The debt financing environment has become so tight that larger banks have effectively exited the market, leaving the debt financing to private lenders.

Quality is at a premium. Valuations remain historically strong for high-quality assets, seeing little impact Post-Inflation. See our table on page 12 with the typical criteria for the “best” health IT assets. While less frequent, HGP continues to see quality companies fetching superior valuations.

However, the criteria for a “quality company” has been raised to a higher standard. During PostCOVID euphoria, investor investment standards slacked, and many lower-quality companies received high-quality valuations. In Post-Inflation, investors have been less forgiving, causing companies that no longer meet the thresholds to experience lower valuations as compared to their superior-performing counterparts. As a result, more lower-quality companies are failing to transact in current market conditions either due to a lower valuation or declining levels of interest.

All else equal, profits are at a premium over growth. All things equal, EBITDA multiples are holding stronger than revenue multiples. Companies expecting to trade on revenue multiples are facing more scrutiny over their ability to scale, and the hypergrowth strategy is no longer being rewarded.

Fewer investors are stepping up, but there is a strong enough capital overhang to keep valuations high. In a competitive process involving multiple investors or acquirers, a smaller share of suitors is delivering high valuations, but the share is still sufficient to support higher valuations overall. If support from premium buyers declines further, valuations will feel more pressure.

The M&A and capital investment thesis remains strong. While investors and acquirers are more cautious, they generally remain in active pursuit of investments and acquisitions. Processes continue to start strong and receive a high degree of interested parties, but both acquirers and investors are tightening their investment standards.

The private debt market is tightening. In our conversations, lenders indicate that the cost of debt is rising, but demand remains high despite a decline in leveraged buyouts. Like equity investors, lenders are more cautious and hold higher standards for quality.

Industry consolidation will be fueled by low public company valuations and create opportunities for ongoing market share consolidation or big strategic moves. Smaller companies that were raising large amounts of capital and feeling bullish about going up against the large incumbents may struggle to access capital and become prime acquisition targets for the incumbents.

Companies that raised premium-priced capital Post-COVID may struggle as they face the need to shift away from a growth-at-all-costs business model and are forced to make workforce and cost reductions and potentially face dilutive down rounds. In some respects, this will result in a healthy reduction in disruptive yet unsustainable strategic practices.

Companies who did not pursue a growth-at-all-costs strategy and have instead successfully proven their ability to scale will benefit as competitive pressures ease, resulting in improved pricing pressure and customer acquisition cost dynamics as underscaled competitors shake prove to be unsustainable.

While valuations are falling, HGP believes multiples are nearing the bottom, but we do not expect a significant bounce back. We think a return to post-COVID euphoric levels is unrealistic, and investors and sellers need to detach themselves from those expectations. We expect valuations to settle back into the 2018-2019 range, near where they range today although with more forgiveness and support for breakeven growth companies than the market is providing today. It is worth noting that the Fed Funds Rate peaked at 2.42% in 2019 and valuations were not under pressure at the time, and we believe that further rate hikes are reaching a point where they are priced into current valuations.

During the Post-Inflation period, winning sectors are those that benefit from a down market, such as supply chain management, spend analytics, contract and vendor management, lead generation, revenue enhancement (strong RCM tools, denials tools, payment integrity).

The market will shake out those who benefited from luck and timing from those with real ability following a decade of hyper-accommodating Fed policy.

A challenging and uncertain market environment will produce long-term benefits, teaching skills such as tenacity, discipline, adaptability, and patience that ultimately lead to more stable strategies and wise leadership in the future. Those that show the ability to adapt and respond to change will survive and emerge stronger.

Synthesizing Our Sentiment

The crosscurrents from macroeconomic and inflation data are challenging for even the most studied
economist to interpret, as fragmented and contradictory data points flood the news. Similar crosscurrents of data exist in the Health IT market. A strong appetite for investment and M&A persists, yet the appetite for risk is dramatically lower than a year ago. Any expectation for a return to Post-COVID euphoria is unrealistic, and as such, if the market settles at Pre-COVID levels, which is where it stands as of Q2 2022, we will consider this an excellent outcome. In some respects, the regression to historical norms is a healthy process for the market to return to patterns that are more predictable and sustainable. For now, given the falling trajectory as of Q2, we will monitor the data closely in search of the floor and the idealistic “soft landing”.

HEALTH IT MARKET TRENDS

HGP keeps close tabs on M&A valuations to see how the market evolves over time. While we can only draw data from deals with disclosed multiples and therefore must be careful to consider bias in any conclusions we draw from this data, we can still get a good sense of how the market values companies within the different subsectors of health IT. The following table and accompanying box and whisker plot show the distributions of revenue multiples in 13 subsectors of health IT. The sectors were sorted according to median revenue multiple from largest to smallest.

We believe it’s important to keep dispersion in mind when assessing valuation data, which is why we include the 25th percentile, 75th percentile, and standard deviation in our summary statistics. While measures of central tendency like the median and mean are certainly indicative of how buyers are valuing assets, the dispersion shows that with higher multiples, we also see higher risk. This becomes especially apparent when we chart the data using a box-and-whisker plot. Generally speaking, the sectors with the highest median revenue multiple also experience large standard deviations and positive skew. For instance, while 25% of the observed telemedicine companies received 10.0x revenue or more in sale transactions during the period, another 25% received less than 2.7x revenue at exit. Companies in these hot spaces cannot forget that they still need to show strong operating metrics in order to realize premium valuation multiples.

In the first half of 2022, we have observed that a few sectors saw their median multiples tick up relative to the period between January 2017 – December 2021, namely Analytics (by 1.3x), Infrastructure Technology (by 0.9x), and RCM Services (by 0.7x). We see this as a possible indication of the resilient nature of the sectors, when juxtaposed with sectors that had benefited from COVID tailwinds, such as Telemed, where M&A activity has decreased by ~60% compared to 1H 2021.

The box-and-whisker plot graphically displays the Median, 25th Percentile, 75th Percentile, Minimum, and Maximum; where points beyond 1.75 times the Inter-Quartile Range are shown as outliers. The inter-quartile range is represented by the “box” and shows the range between the 75th Percentile and the 25th Percentile. Visually, the inter-quartile range serves to describe the variability of the data. Note that point estimates such as the mean or median can often be misleading on their own, as they do not convey the level of variability which can be very high such as in the Telemedicine and Population Health sectors.

The sectors were sorted according to decreasing median revenue multiple and show a trend of decreasing IQR as median revenue multiple decreases. Thus, while companies that fall within sectors further to the right on the graph can expect a lower revenue multiple in a transaction, the transaction outcome is also more predictable. A company that falls within a sector on the left, however, cannot have as strong confidence in their expected outcome. These observations follow a common theme in investment theory: that with greater potential upside, there is also greater risk and volatility.

While the metrics presented here may be used as a guidepost for expected outcomes, the end result of any transaction often depends on buyer circumstances as much as on seller or market fundamentals, and buyer circumstances tend to be extremely unpredictable. It is not uncommon for the clearing price of a transaction to be significantly higher than the cover bids. This usually occurs when a buyer has unique circumstances that justify a higher price than the rest of the buyer universe. Identifying those buyers and appropriately positioning in relation to them is part of the art of running a successful transaction process.

The following table provides additional context on the valuation trends within each sector as well as a
sample of recent transactions within each.

HGP has observed a number of tangible and intangible company and transaction characteristics that typically define where a deal falls on the valuation distribution. Growth, profitability, and recurring revenue are the most commonly identified factors used to justify valuation multiples. Not all health IT companies capture premium valuations just because they operate in health IT. However, those companies that offer a combination of growth, address an unmet need, and fit into the vision of healthcare reform are seeing valuations significantly higher than historical patterns of activity. Premium value is also created when a seller fulfills the specific needs of a buyer at a specific point in
time. Timing and serendipity are external factors that play a large and sometimes unpredictable role
in the creation of value.

The M&A frenzy of 2021 seems to be over at the onset of the market correction era: compared to 1H 2021, deal volume and value declined by 28% and 30% in 1H 2022, and quarterly deal volume in the US dipped below 100 for the first time since Q2 2020. However, it is imperative that we put these statistics in perspective. Compared to the period between Jan 2018 – March 2020, deal volume and value in the US are up by 8% and 45% respectively. Therefore, while the pullback shows nervousness and pause on the buyers’ side, the level of activity still hasn’t fallen back the pre-COVID norms, and deals that are happening are happening at high valuations.

It is worth noting that 2021 deal value skyrocketed due to few mega-deals: Cerner, Nuance, and athenahealth marked three out of five largest Health IT M&A deals in history and constituted almost half of the entire deal value for the year. Notable transactions in 2022 included Ensemble Health Partners (Berkshire Partners), Cloudmed (R1 RCM), and Vocera Communications (Stryker). It’s important to note that M&A deal value is a metric largely impacted by mega-deals, and thus deal volume is a preferable indicator when assessing market momentum.

Getting more granular into valuation multiples, it is useful to note that multiples are often somewhat correlated to a target’s enterprise value. Software company valuations steadily climb as enterprise value increases until approximately the $1B valuation mark. Services company multiples experience a similarly steady climb in EBITDA multiples, and in larger increments at the $500mm and $1B valuation marks. The inflection points are in part due to a private equity universe that has expanded leverage capacity for larger transactions, which in turn drives up valuation multiples as the enterprise value increases.

Generally, companies have three valuation inflection points: proof-of-concept, growth scalability, and
mature scalability.

1. The proof-of-concept is value created when a company shows that its product can be successfully
sold and deployed in a commercial setting.

2. Growth scalability occurs when an earlier stage company begins to show profitability or at least
scale at high levels of growth, although the organization is still small and lean.

3. Mature scalability takes place after a company has matured to a level where it takes on real
corporate and organizational infrastructure and the company begins to show strong profitability.

The above tables demonstrate the positive relationship between valuation and scale. As software businesses grow in scale, so do their multiples. Revenue multiples steadily increase from 3.0x to 4.8x as companies begin to reach the $100mm mark. As software businesses grow further to over $500mm and reach mature scalability, they experience a material step up in value, with revenue multiples further increasing to a median of around 6.4x.

Services businesses do not seem to benefit as drastically from increased scale as do software companies. While median revenue multiples do not rise substantially as services companies mature, premium assets (such as RCM Services) seem to be rewarded for scale as they fetch steadily rising multiples in the 75th and 90th percentiles, going as high as 8.8x for companies over $1 billion in enterprise value.

Detailed multiples trends can be found in the following bar charts. It should be noted that valuation multiple trends can be very volatile given the limited availability of data.

While we would traditionally expect valuations to be higher for software companies, 2022 presents an anomaly with a higher reported EBITDA multiple for services. Delving into the dataset, there is a small sample size of 6 services transactions mostly comprising high-quality mega deals. These include Aspirion, CloudMed, Ensemble Health Partners, and Revecore. Due to the large size and high quality of these transactions coupled with the limited number of transactions in the dataset, the 2022 EBITDA multiple for services may not be a reasonable valuation indicator for services transactions on the whole.

HEALTH IT CAPITAL RAISES (NON-BUYOUT)

Capital raise activity echoed the M&A market: not as frothy as 2021, but still above the pre-pandemic average. HGP monitored 487 capital raise transactions in 1H 2022, representing $13.0 billion in value globally, marking a 50% decrease from 2021 levels; however, when compared to the first halves of 2018, 2019, and 2020, this year outpaced them 48%, 38%, and 60%, respectively. We expect investment activity to stay higher than pre-pandemic levels since record venture fundraising in 2021 equates to capital being deployed for years to come; however, factors like the closed IPO window and declining valuations will distribute those funds across more start-upsto diversify risk.

HEALTHCARE CAPITAL MARKETS

HGP tracks a custom index within the health IT space. What classifies a company in the universe of
health IT, and ideally creates a valuation premium, is a strong information technology and data
component that creates scalability and competitive strength. This is particularly relevant to services
organizations that use technology and data analytics to streamline their operations. With this in
mind, HGP evaluated the performance of publicly traded health IT companies against the S&P 500
and the Nasdaq indices, in order to assess the health IT companies within the wider market.

Public HIT companies were not spared in the market downturn that began in January 2022, losing an
astonishing 34% over the last 6 months, with an overwhelming 56 out of 68 tracked companies
ending the first half of the year with negative returns. Although public health IT companies
undoubtedly endured the systematic market pressures felt across the broader markets, it is
important to acknowledge the unique dynamics impacting the health IT space.

As we saw in 2021, the post-pandemic era saw a massive amount of capital pumped into private
markets, fostering a highly competitive environment, crowded by private-equity backed companies
operating under a growth-at-all-costs mindset. In 1Q 2022, we began to see cracks in this new
environment: customer acquisition costs began to rise as more companies in the arena were fighting
for members, access to clinicians continued to be exacerbated by supply constraints, pricing pressure
was acutely felt due to the intense competition, and sales cycles were prolonged in many endmarkets. Private companies seemed to get away with playing by a different set of rules for a number
of months, creating a disadvantage for the public comps. While we have started to see private
investors refocusing their criteria to catch up to the public markets, the lag was acutely felt by public
markets and created unique headwinds, amplifying the downturn seen in 2022.

It’s worth noting that the HIT Index is composed of 34 companies that entered the market in 2020 or
later. These new entrants have been especially volatile, with IPOs and SPACs declining 40% and 48%,
respectively.

HIT & SUBSECTORS INDEX PERFORMANCE 1H 2022

To drill-down into the drivers behind the variability within the Health IT index, HGP classified the 68
constituents into their respective sectors – Benefits Tech, Consumer Health, Infrastructure, Pharma
Tech, Population Health Management, Tech-Enabled Payers, Value-Based Care, and Virtual Care.

Though every index has lost value in the double digits, the Infrastructure basket stands out from the
mix as the only sector to have outperformed against the major market indices, largely benefitting
from its seasoned and value-based make-up. The sector differs from the others in two distinct ways:
1) only 11% of the constituents represent companies that went public since 2020 (as compared to
45% – 100% in the others); and 2) the sector did not benefit from COVID-19 tailwinds in the peak of
the pandemic as much as the other sectors, and thus, did not see a drastic correction once those
tailwinds subsided. The relative success of these companies that tend to be bigger, profitable, and
core technologies is an indication that the market has pivoted towards rewarding profit over growthat-all-costs.

Other sectors have underperformed the market by a thick margin, as their high-multiple growth
constituents took major hits due to their high sensitivity to interest rates and inflation. Despite the
rocky performance across the board, HGP expects investor interest in Health IT to remain strong, as
we continue to see an indisputable market thesis for Health IT.

HIT AND SUBSECTOR INDEX PERFORMANCE DETAIL AS OF JUNE 30, 2022

Detail on the sectors and companies HGP tracks as part of the health IT index can be found below. Multiples shown are based off 2022E revenue and EBITDA.

HEALTH IT IPOS AND SPACS

“We believe this is a Crucible Moment, one that will present challenges and opportunities for many.
First and foremost, we must recognize the changing environment and shift our mindset to respond
with intention rather than regret.” Sequoia Capital, Adapting to Endure Presentation, May 2022

In no segment is the market dynamic more dire than the IPO market. The US IPO market is coming
off its slowest quarter since 2009 with continued deceleration throughout the second quarter.
According to Bloomberg, companies raised $4.9 billion in 1H 2022, less than 6% of the record sum
raised in the first half of 2021. Although 2021 was an outlier year, 1H 2022 still pales in comparison
to the 5-year 1H average of $47 billion. Over 90% of companies who went public via IPO in 2021 are
trading below their offer prices, with the average trading down 44%.

SPACs faced a similar story – after 589 SPAC IPOs in 2021, 1H 2022 saw only 27 SPACs. From a Health
IT perspective, there were no public listings in 1H 2022, marking the first period without a public
listing since the drought year of 2018.

With stock markets suffering the worst first half since 1970, the doors are virtually closed to public
market exits. This reality is particularly difficult for late-stage companies that raised capital at frothy
valuations in 2020 and 2021 with aspirations to go public. On the other side of the table, IPO
conditions have proven to be particularly challenging for crossover investors. Crossover investors
typically seek higher, shorter-term investments in the round immediately prior to an IPO. The
investment category exploded during COVID, led by marquee names such as Tiger Global and Insight
Partners as well as many large mutual funds, such as Fidelity and T. Rowe Price. These funds also
provided liquidity to early-stage investors, making these rounds of financing an increasingly pivotal
part of the capital cycle. As the IPO drought continues to play itself out, the future remains very
precarious for both late-stage companies and the investors who bankroll them. A sign of hope is the
growing backlog of 185 IPO registrations. Should the market provide an opening, there is plenty of
demand for new public listings. However, not a single Health IT company is in the hopper.

MACROECONOMICS

If 2020 and 2021 can be characterized as a market extravaganza, 2022 is felt as a hangover. Though we
had begun to see signs of the market cracking towards the end of 2021 across growthy sectors, 2022 has
been marked by a tough turmoil that has not been experienced since the Great Recession. As the
pandemic’s hold grows weaker around the globe, new economic disruptors have entered the stage,
namely inflation and geopolitical instability, in addition to the ever-present supply chain issues.

Inflation, which lay at or below the targeted 2% level for the better part of the last decade, started
breaking its shell in Q2 2021, which was largely welcome as a positive indicator of economic growth and
recovery from the impact of the pandemic. However, when the rate reached 6.8% in November 2021,
the severe challenge the Fed was now facing became apparent. The escalation in 2022 did not slow
down, with June seeing a record peak of 9.1%.

Why is the US and the world experiencing so much inflation? Supply and demand imbalances from the
COVID-19 pandemic, an explosive Fed balance sheet, and high energy prices taken together resulted in
significant and rapid price escalation. In more granularity…

Supply-Side Issues
▪ Ongoing COVID lockdowns in China and globally exacerbated supply chain issues stemming
from the original COVID lockdowns.
▪ Unemployment is at a 5-year low driving very tight labor markets.
▪ Russia’s invasion of Ukraine caused a spike in energy prices, which historically are a root cause
for most inflationary environments. Energy prices must be contained if inflation will be
contained.

Demand-Side Issues
▪ Household spending and business fixed investment remains strong.
▪ With low unemployment, wages are gaining but at a lower rate than prices overall.
▪ Post-COVID, the Fed ballooned its balance sheet, caused direct transfer payments from the
government to households, and cut interest rates to near zero.

Combatting such high rates of inflation had not been the Fed’s primary objective for the last 20 years,
but it has been signaling decisive action against inflation since the first benchmark interest rate hike of
25 basis points in March and a second one of 75 basis points in June, marking the most aggressive rate
increase since 1994. In the June FOMC meeting, the Fed officials indicated that they would raise the
target range on rates by another 175 basis points through 2022 and downgraded their GDP growth
estimates.

It is worth noting that compared to the inflation level, the Fed benchmark interest rate still seems low,
and could stand to aggressively rise to 2-3% levels to establish a higher neutral rate, instead of running
the risk of remaining “behind the curve” and not being able to reign in further inflation driven by wage-price spiral, launching inflation expectations into the “unanchored” territory.

Despite the rapid escalation in 1H 2022, most forecasts predict inflation will decline to a range of 5.5-
6.5% by year-end with further declines into 2023. The Federal Reserve aims to combat inflation while
not tipping the economy into a hard recession. Inflation averaged 2.4% for the last 20 years, allowing
the Fed the luxury to focus its policy on employment. The current environment, with inflation feeling
pressure from both supply and demand imbalances, is largely uncharted territory.

Under these circumstances of uncomfortably high inflation levels and correspondingly rising interest
rates, the equity market and the expectations that shape it have drastically worsened over the last six
months, following a sharp pivot into bear territory. The major indices of S&P 500, NASDAQ and DJIA
have all ended the six-month period with double-digit losses, at 21%, 30%, and 15%, respectively.
Technology stocks were particularly vulnerable to tightening expectations: more than 60% of all
software, internet, and fintech companies are trading below pre-pandemic prices, and a third are
trading below COVID lows, effectively canceling out gains.

When the public markets look grim, the sentiment trickles down starting with initial public offerings,
where the window seems to have closed until we start seeing positive indicators. Public equity raised in
initial public offerings in the first half of 2022 was a minuscule fraction of the activity in the same period
in 2021: 6%. Only $4.9 billion was raised in US initial public offerings, hitting its lowest since 2009.
Notable companies that went public this year were TPG, the private equity firm that is now minted an
alternative asset manager, and Bausch + Lomb, the eye-care spinoff from Bausch Health.

Private equity dealmaking activity would be the second line expected to feel the impact of gusty market
headwinds, namely contracting valuations, tightening debt markets, and overall volatility. However, the
lagging nature of the market due to deals that were negotiated in late 2021 and early 2022 seems to
uplift the picture for Q1, and compared to 2019 levels, the first half of the year seems to have a healthy
level of activity. Not to be fooled by the numbers, the landscape ahead is challenging, but there are valid
factors at play that are advantageous for PE deal activity. Firms are still sitting on a mountain of dry
powder, M&A deals will likely be less competitive given strategics’ reprioritization, and companies with
cash burn may prefer a buyout scenario to business-as-usual.

M&A markets had a relatively strong beginning to the year. According to EY’s research, global M&A
activity is down 27% year-over-year, but 35% above the pre-pandemic average (2015-19), highlighting
the extraordinary nature of 2021. In the US, 2022 became the year of tech mega-deals: Microsoft
announced that it will acquire the gaming giant Activision Blizzard for $69 billion, breaking a record as
the biggest tech M&A deal in history, and Broadcom’s acquisition of VMWare for $61 billion will help the
semiconductor company diversify into enterprise software. The most notorious of all, however, was
Elon Musk’s on-and-off runs at buying Twitter for $44 billion. After announcing an agreement in April,
Musk backed out of the deal in July, only to be sued by Twitter for destroying shareholder value.

On the VC front, the trend echoes the M&A deals – while 2021 levels of activity were frothy and difficult
to maintain, there is a healthy level of deal activity relative to the pre-2021 trajectory. Per Pitchbook, 1H
2022 deal value is almost double the 2018-2020 average, and deal volume is 26% higher, while both are
down 9% and 10% against 1H 2021, respectively. It’s worth noting, that the impact of the market
correction on VC investments was felt immediately, as deal value pulled back by 24% quarter-over quarter in Q2. With the IPO exit window closed, capital becoming expensive, and economic conditions
becoming harsh, funds are preaching profitability over growth-at-all-costs, adaptability, and discipline.
Based on this confluence of factors, we expect a more measured approach prevailing over VC
investments.

In the near-term future, the market will present unparalleled risks and opportunities for everyone, and
it will likely select those with real ability and tenacity to steer their ships in raging waters.

HEALTH IT HEADLINES

Notable headlines from 2022 are outlined in the following pages on a quarterly basis. The headlines
in 2022 illustrate the significant influence that policy and regulatory intervention have on the
incentives that dictate health IT investment and innovation trends, the increasing vertical integration
across healthcare, and the expanding presence of non-traditional companies in the health IT market.

Q1 HEADLINES

Elizabeth Holmes is found guilty of defrauding Theranos’ investors

January 3: A jury found Elizabeth Holmes guilty of defrauding investors out of hundreds of millions of dollars. The verdict capped the downfall of one of Silicon Valley’s most dynamic and scandal-plagued young executives who promised to revolutionize blood testing with an innovative technology that required just a small sample of blood pricked from a patient’s finger.

Microsoft, Cleveland Clinic and Providence join coalition to innovate AI in healthcare

January 18: With healthcare increasingly placing bets on artificial intelligence, Microsoft has formed a coalition with some of the nation’s top health and life sciences organizations to build and track new AI innovations. The Artificial Intelligence Industry Innovation Coalition (AI3C) unites 9 other big names alongside Microsoft: Brookings Institution, Cleveland Clinic, Duke Health, Intermountain Healthcare, Novant Health, Plug and Play, Providence, the University of California, San Diego and UVA.

IBM sells Watson Health assets to investment firm Francisco Partners

January 21: The assets acquired by Francisco Partners include extensive and diverse data sets and products, including Health Insights, MarketScan, Clinical Development, Social Program Management, Micromedex and imaging software offerings, the company said in a press release.

ONC completes critical 21st Century Cures Act requirements, publishes the Trusted Exchange Framework and the Common Agreement for Health Information Networks

January 18: The U.S. Department of Health and Human Services (HHS) Office of the National Coordinator for Health Information Technology (ONC) and its Recognized Coordinating Entity (RCE), The Sequoia Project, Inc., announced the publication of the Trusted Exchange Framework and the Common Agreement (TEFCA). Entities will soon be able to apply and be designated as Qualified Health Information Networks (QHINs). QHINs will connect to one another and enable their participants to engage in health information exchange across the country.

DOJ sues to block UnitedHealth-Change Healthcare deal

February 24: The Department of Justice filed suit to intervene in UnitedHealth Group’s acquisition of Change Healthcare, just days shy of the company’s planned consummation date of Feb. 27. In an announcement, the DOJ said that the deal would harm competition in commercial health markets as well as the market for technology that insurers use to process claims and reduce healthcare costs.

Teladoc to partner with Amazon on Alexa-enabled virtual visits

February 28: Teladoc Health announced that it was partnering with Amazon to launch voice-activated virtual care on Alexa-supported Echo devices. According to the companies, U.S. customers around the country can connect with a Teladoc provider via audio at any time for general medical needs.

Amazon Pharmacy teams up with Blue Plans in 5 states to roll out prescription discount savings card

March 8: Amazon Pharmacy is partnering with Blue Plans in five states and Prime Therapeutics to tackle the affordability of prescription medications. The online retail giant’s pharmacy arm is rolling out a prescription discount savings card that’s available to some Blue Plans members.

Bipartisan legislation would broaden telehealth benefits for employees

March 31: The House of Representatives has drafted a bill that would provide new virtual care options for American employees. The Telehealth Benefit Expansion for Workers Act would amend HIPAA and the Affordable Care Act to allow employers to offer standalone telehealth service programs – not unlike dental and vision plans – in addition to existing health insurance plans.

Q2 HEADLINES

3M is said to consider sale of its healthcare IT division

April 26: 3M Co. is said to consider a possible divestiture of its healthcare information technology unit. The move comes after 3M (MMM) originally evaluated a sale of the unit in 2015, though it shelved the plan in 2016. The healthcare IT unit is located within 3M’s larger health group, which contributed about $9B of 3M’s 2021 revenue.

Walmart Health rolls out virtual diabetes program as retail giant moves deeper into treating chronic conditions

April 28: Walmart’s telehealth provider, MeMD, is rolling out the virtual diabetes program as a standalone service or as part of a comprehensive medical and behavioral telehealth program for enterprise customers and health plans. The retail giant collaborated with the American Diabetes Association on the virtual program, which was developed to help employees and members close gaps in diabetes management through early intervention, Walmart Health executives said.

DOJ launches investigation into Cerebral’s prescribing practices

May 7: Mental health startup Cerebral said it is under investigation by the Department of Justice (DOJ) for “possible violations” of the Controlled Substances Act. Cerebral Medical Group received a grand jury subpoena from the U.S. Attorney’s Office for the Eastern District of New York. The Controlled Substances Act regulates the distribution of potentially addictive medicines like Adderall and Xanax.

NowRx, Hyundai partner on last-mile medication delivery

May 13: Silicon Valley startup NowRx is teaming up with Hyundai Motor Group for a pilot project testing last-mile medication delivery, with an eye toward testing autonomous vehicles down the road. NowRx, a digital pharmacy that offers same-day and same-hour prescription medication delivery as well as telehealth services, plans to roll out the pilot project later this year, serving two micro-fulfillment centers in the Los Angeles area.

Pharmacy retail giant Walgreens looks to disrupt the clinical trials business

June 16: Walgreens’ healthcare ambitions continue to grow as the pharmacy retail giant expands its reach into clinical trials by leveraging its vast trove of patient data, its technology assets and its retail locations. Walgreens aims to revolutionize the antiquated clinical trials model with an eye toward using its community reach to increase patient enrollment as well as racial and ethnic diversity in sponsor-led drug development research, executives said.

New class action lawsuit claims Meta’s discreet patient data tracker was active across 664 provider websites

June 21: Facebook parent company Meta was hit with a class action lawsuit alleging the tech company has been collecting sensitive patient-status data through hospital websites in violation of the Health Insurance Portability and Accountability Act (HIPAA). The case was filed in the Northern District of California by an anonymous patient of Baltimore’s Medstar Health System on the behalf of “millions of other Americans whose medical privacy has been violated by Facebook’s Pixel tracking tool.”

Supreme Court overturns Roe v. Wade

June 24: The Supreme Court has overturned 49 years of a women’s right to an abortion in siding today with Mississippi Department of Health Officer Thomas E. Dobbs in Dobbs v. Jackson Women’s Health Organization. In the 6-3 decision, Justice Samuel Alito wrote the opinion for the majority, including Chief Justice John Roberts and Justices Neil Gorsuch, Brett Kavanaugh, Amy Coney Barrett and Clarence Thomas. Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan dissented.

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