|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
One Medical prepares to go public
Fast out of the gates in 2020, One Medical became the first healthcare company to file for an initial public offering (IPO) last week. The “concierge-lite” primary care practice was founded in San Francisco in 2008, and has grown to 77 clinic locations across seven states and Washington, DC. It offers individual, subscription-based memberships to patients, as well as enterprise-level memberships for corporate clients, who then offer One Medical’s access-forward, consumer-friendly primary care services to their employees as part of their benefits package. Over time the company has shifted from the former model to the latter, and it now has over 6,000 corporate clients, from which it derives the bulk of its membership fees. More recently, the company has launched partnerships with traditional health systems, including AdvocateAurora Health, Providence, and UC San Diego. Despite touting itself as a technology-driven company with software-as-a-service (SaaS) revenue characteristics, the company’s IPO filing indicates that the vast majority of its revenue comes from traditional fee-for-service billings, raising questions about its ability to earn a market valuation in line with other “health tech” companies. We are huge fans of One Medical’s service offering, which we’ve had the opportunity to experience both as researchers and as patients. But we wonder whether One Medical can continue to grow revenue and earnings at a pace that will satisfy the public markets, given that at its core, it remains firmly rooted in traditional primary care practice economics. Its future success will hinge on its ability to deliver a lower total cost of care to the employer market, for which it will eventually need to show that it can reduce “downstream” specialty and hospital costs by managing utilization and referrals, not just providing a better primary care clinic experience. Stay tuned.
A Brand New Day for Bright Health
Bright Health, the Minneapolis, MN-based insurance startup that offers individual market and Medicare Advantage (MA) plans in 12 states, added a 13th to its footprint this week by acquiring the Southern California MA plan Brand New Day. It’s the first time Bright Health has entered a new market via acquisition, spending some of the $635M it raised in its latest round of funding. Brand New Day brings Bright an additional 41,000 enrollees, mostly in Medicare plans, and provides it an opportunity to pursue its narrow-network strategy of partnering with local health systems in the crowded Los Angeles and Orange County markets. By seeking such exclusive partnerships, Bright aims to offer lower premiums and reduce care costs through tighter coordination and integration, a strategy it has rolled out in New York, Chicago, Denver, Phoenix, and other metropolitan markets. With over 200,000 covered lives, Bright is one of a handful of venture capital-funded insurance startups rolling out across the country, including Oscar, Clover, and Devoted Health, all of which have targeted the lucrative MA space for growth. Bright is the first of this group to make a health plan acquisition, which may prove a more effective way to enter a crowded market with high MA penetration, versus an organic launch.
Given the unique structure of the Southern California insurance market, which is dominated by Kaiser Permanente but also populated by a number of risk-bearing, MA-focused physician groups, it will be interesting to see how Bright intends to grow the footprint of Brand New Day in the market, and in particular whether it follows its playbook of identifying a health system “care partner” for the 2021 enrollment season. (Southern California is also a top target for UnitedHealth Group’s integrated strategy, where it’s bringing together its Optum-owned physician assets with its commercial insurance platform in a new product it calls “Harmony”.) We’re bullish on Bright’s partner model, and keen to see how this latest evolution unfolds.
More people are surviving cancer, but can we afford it?
Cancer death rates saw the sharpest one-year decline ever measured, dropping 2.2 percent from 2016 to 2017, according to data published this week by the American Cancer Society. Cancer death rates peaked in 1991 and have continued to fall steadily since, translating to 2.9M fewer cancer deaths compared to the number if peak death rates had persisted. Long-term gains resulted primarily from declines in breast, colorectal, lung and prostate cancers. Last year’s progress was largely the result of novel therapies for lung cancer and metastatic melanoma. Both classes of treatments are effective but are extremely expensive and highly customized. However, progress in breast and colorectal cancers has stalled, largely due to racial and geographic disparities, and the continued rise in obesity. This contrast sets up a dilemma for researchers and policymakers: can we continue to afford skyrocketing prices for personalized genomics and immunotherapies, which seem to be the primary treatment targets for many cancers? And how do we balance that against the need to bolster public health efforts that could save thousands of lives through prevention and early diagnosis?