Healthcare's vertical integration imitation games play on with no signs of slowing.

As payors (Optum, Humana), health systems (Kaiser, Geisinger), and drug distributors (AmerisourceBergen) shoot for scale to claim it all.

Since no obstacles stand in their way (1/11)👇 Some view the vertical integration games as an economic lifeline.

Others view it as a market-harming land grab.

But one thing's for sure: the players play on.

And no one's quite played the game like UnitedHealth Group.

A quick case study 🧵

Tens of billions of $$$ in healthcare exchange hands on the regular.

Here are some of the biggest stories happening behind the scenes in healthcare in 2023:

1. CVS acquires Oak Street Health for $10.6B, furthering the vertical integration trend happening among the HC giants. 2. Kaiser Permanente forms Risant Health and acquires Geisinger in the process

The goal is to get Risant to $35B+ in revenue over the next 5 years.

It's a direct health system response to vertical integration while giving Kaiser an avenue for significant national expansion.

BIG NEWS: Hospitalogy is more than a newsletter now.

In February, I launched a community. Today, I'm sharing it with you.

It’s called the Board Room: a private, vetted community for innovators and executives across healthcare.

Why go from content to community? I’ll explain. It all started in my inbox with my newsletter that demystifies the business of healthcare.

At first, a few colleagues would reply with questions.

Then, decision-makers I didn’t know did.

Today, I speak with healthcare leaders and people smarter than me regularly.

In 2021, Private equity invested $151 billion into healthcare, a freaking massive sum of money in a $4.3 trillion industry.

Here's a primer on how the private equity playbook works in healthcare. Let's use physician practice rollups as an example.

Investment hypothesis: healthcare in the US is opaque to consumers. Easy to exploit financially thru rate arbitrage.

Providers are (were) fragmented.

Demand is inelastic & growing. Shortages everywhere = pricing power.

40%+ of FSA dollars are wasted each year. Hundreds of millions of dollars straight up forfeited.

To add to that, legacy products that power healthcare benefits like HSAs, FSAs, HRAs, and MA benefits are outdated and anti-consumer.

Here's how things are changing for the better: Some background: I took a deep dive (note: sponsored) alongside the @firstdollarinc team to understand:

• The current state of health benefits; and

• First Dollar's value prop for third party administrators, health plans, and how things are improving for the end consumer.

"You've got one industry that's fucked up and three players that fuck it up and now it's my turn to fuck them up."

In just 9 months, Mark Cuban's pharmaceutical company has generated over $25M in revenue while saving people millions of dollars.

Here's how they did it: The Mark Cuban Cost Plus Drug Company business model is simple — Cut out all the drug pricing shit.

@mcuban and his team set out to push into the generic drugs market and cut out the middlemen.

Then, they would sell those drugs for just slightly more than it cost to make them.

Here's a decently comprehensive timeline of Amazon's push into healthcare: 2018:

January: Amazon, Berkshire, and JP Morgan launch Haven, a joint venture aimed to improve employee access to healthcare and lower costs. wikiwand.com/en/Haven_Healt…

June: Amazon buys PillPack for $753 million cnbc.com/2019/05/10/why…

All of this happened in healthcare this week.

A thread! (1/10) 1. A federal judge denied the DOJ’s request to stop UnitedHealthcare from buying Change Healthcare late yesterday, signifying the end of the antitrust trial and allowing UHG to move forward in acquiring Change Healthcare. My breakdown:

https://twitter.com/B_Madden4/status/1572616457409933314?s=20&t=oCyY7hJjkaec2COJ9cy2bw

Okay, so you might have seen the news that UnitedHealth Group is basically cleared to buy/acquire Change Healthcare after a year-plus-long antitrust battle with the DOJ. The deal had been in serious jeopardy.

Here's what that means and a quick breakdown of what's going on: 1/10 On Monday, a federal judge denied the DOJ’s request to stop UnitedHealthcare from buying Change Healthcare late yesterday.

The verdict allows UHG to move forward in integrating Change Healthcare into Optum.

$CHNG closed up 6% in after hours trading.

reuters.com/markets/deals/…

All of this happened in healthcare this week.

A thread! (1/10) 1. Retail overlord Walmart announced a deal with fellow healthcare overlord UnitedHealth to collab on MA plans. Over the next 10 years, the two will target the fast-growing Medicare Advantage population on a number of healthcare initiatives.
corporate.walmart.com/newsroom/2022/…

Pharmacy Benefit Managers have an incredible amount of power in the U.S. healthcare system.

But most people don't realize how much power.

Here's how they work: A Pharmacy Benefit Manager works on behalf of insurance companies to negotiate benefits and drug prices for government programs and employer-sponsored healthcare plans.

Healthcare has a data problem.

And synthetic data is a game-changer.

Today, I dropped an in-depth essay with some help from the Syntegra team on the current state of the healthcare data landscape In the essay, I talk about:

• What synthetic data actually is & what it solves
• Use cases for healthcare
• How Syntegra is working to solve these problems & its business model
• Challenges & threats facing synthetic data adoption

Recently, I wrote a deep dive on the inside baseball that happened in the Amazon / One Medical acquisition, including:

• Some perplexing valuation methodologies
• Why CVS (Party A) might have tapped out
• My thoughts on the ONEM biz in 2022

Here's what went down: By mid-2021, One Medical (ONEM) knew that it needed to raise cash (~$300 million) by the end of 2022 after its Iora acquisition.

Cash on the balance sheet was hitting a dire point.

Risk-based businesses require a lot more capital than did ONEM’s traditional fee-for-service biz.

Physician enablement care platforms continue to kill it quarter after quarter.

Here's the TL;DR on each: Agilon (AGL)

Strong growth across membership, revenue, and adjusted EBITDA, driven by membership growth in year 1 geographies.

They're currently operating in 16 markets with 2200 affiliated providers - Plans to onboard 7 new physician partners in 2023.

PMPM up 26% YoY, to $136

A really significant deal just went down between CareMax $CMAX and Steward Health Care in the VBC space - one I'll be covering on Hospitalogy.

They just bought into Steward Health Care's MA biz and will serve as the MSO for the platform.

What you need to know & my thoughts 👇 Here's the deal structure: CareMax pays Steward $25 million in cash and 23.5 million shares.

In return, CMAX gets access to manage:

-50k MA members
-112k MSSP members
-9k direct contracting members

and the opportunity to convert existing 869k other FFS beneficiaries to risk

Some notable, recent digital health partnerships with health systems that I'm watching: 👇 After raising about $132 million and announcing its first partnership with CommonSpirit Health, Tia announced a second partnership with UCSF Health in the Bay Area and will open at least 10 de-novo clinics there.

Tia also recently expanded into fertility services. Big moves.

Since the beginning of time, healthcare in the U.S. has prioritized fee-for-service arrangements, which are incentivized to increase utilization and drive up healthcare costs.

Here's why I think the healthcare delivery system is finally changing & my thesis for care platforms: More people than ever are aging into Medicare (shout-out Boomers).

This secular trend is gonna massively spike utilization. Given the current trend of rising costs, CMS and Medicare will have to do something, FAST.

That's where new risk-based programs come in.

Doing a breakdown of the physician enablement / care platform space for tomorrow!

Sign up in the tweet below to get it!

(so I can hear your hot takes on the future of the space.) workweek.com/discover-newsl…

Sheeesh. Another Health system megamerger!

Advocate Aurora Health is merging with Atrium Health to create a $27 billion health system - Advocate Health.

This is one of the biggest health system mergers since Providence / St. Joe's as well as Dignity / CHI (CommonSpirit)!! The new system's combined revenues puts it on par with that of Ascension & Providence at about $27 BILLION.

Advocate's new footprint will include:

-67 hospitals
-15 ACOs, 2.2 million lives
-1,000 sites of care
-7,600 physicians
-150k employees
-5.5 million patients

You've heard of the dot-com bubble, but what about the 90’s healthcare crash?

In the 1990s there were 40+ public physician practice management companies (PPMs).

By the early 2000s, there were none. 8 of the top 10 were bankrupt.

The craziest part? History is repeating itself. In 1988, four previous HCA executives formed a brilliant idea:

What if we managed back-office and administrative tasks for physicians in an increasingly complex environment while MDs focused on care?

The idea stuck, and PhyCor, one of many management companies, was born.

Healthcare Business 101

Part 3: The Physician Practice

Pretty much everything in healthcare runs through the physician.

Here’s what you need to know about how they operate: Physicians operate across a ton of specialties in healthcare.

Not gonna list em all here but a few bigger $$$ notable ones include orthopedics, ophthalmology, and dermatology practices

Of course practices can hold a number of specialties (aka, ‘multispecialty)