22 March 2020 Equity Research Americas | United States
Healthcare Technology 3rd Healthcare Disruptive Technologies & Innovations (HCDT&I) Virtual Day Recap
Healthcare Technology & Distribution | Management Meeting
Last week, we hosted our 3rd Healthcare Disruptive Technologies & Innovations (HCDT&I) day Research Analysts virtually. Presenters included executives from Altruista Health, Buoy Health, Livongo, Quartet Health, Somatus, Welltok, Iora Health, and Heal. We also hosted sessions with Will Brady, the Jailendra Singh Chief of Staff to HHS Deputy Secretary, and Dr. Sylvia Romm, Atlantic Health System’s CIO. 212 325 8121 [email protected] Technology Playing a Critical Role in Dealing with the COVID-19 Pandemic. Dealing with the COVID-19 pandemic was a key discussion topic at our HCDT&I day. Jermaine Brown Artificial Intelligence (AI) focused companies, such as Buoy Health, released a COVID-19 212 325 8125 screening tool that took the CDC guidelines and layered them on top of the AI. Companies [email protected] such as Livongo and Somatus serve chronic care populations, which are most vulnerable to Adam Heussner the coronavirus. Their role and solutions in these circumstances vary from helping members 212 325 4727 manage stress/anxiety to sharing a detailed picture of member’s underlying conditions with [email protected] the appropriate provider to best inform the treatment (if needed). Livongo has not seen any disruption to date in sales activity. Quartet Health, which serves individuals with mental health conditions, is focused on the rapid acceleration of digital care options to help its members deal with fear and anxiety related to the pandemic. The COVID-19 pandemic has pushed Iora Health and Heal (both companies have historically relied on in-person interactions with members) to make changes to their clinical protocols, increase their focus on virtual care, etc. Finally, companies such as Welltok, are leveraging its consumer data and multi-channel communication platform to increase communication, education and support to its members and partners. Finally, Altruista Health noted that its RFP backlog has not been impacted by COVID-19. However, the company notes that the new sales may be impacted given that it’ll be difficult for people to come together to make decisions. Both Keynote Speakers Highlighted the Importance of Telehealth in the Current Circumstances. Dr. Romm noted that telehealth utilization has increased recently, driven by its usage to triage patients, patients avoiding crowded places, and physicians wanting to protect their staff/self. Dr. Romm also emphasized that, though an extremely valuable resource in the current environment, telehealth has been burdened by regulations which have hampered its adoption curve in recent years. Mr. Brady, in his session, noted that the Administration’s decision to waive several telehealth restrictions & expand the access to telehealth services will provide the incentives for physicians to provide virtual care & for patients to adopt telemedicine as a first line of defense. Mr. Brady also noted that the effectiveness of the role telehealth plays in these unusual circumstances will influence how the telehealth industry needs to be regulated going forward. Consumer Engagement Remains Critical. Several of the presenting companies highlighted the increasing importance of consumer engagement. Payers and providers are now increasingly evaluated through rating systems that incorporate customer satisfaction and engagement. The focus remains to deliver care in better, cheaper, and more efficient ways in locations that are easier to access and convenient for consumers.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
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Table of Contents
Keynote Speakers 4 Will Brady (Chief of Staff to U.S. Department of Health and Human Services Deputy Secretary) ...... 4 Dr. Sylvia Romm, Atlantic Health System’s CIO ...... 6
Altruista Health 10 Business Model ...... 10 Market Opportunity ...... 10 Value Proposition ...... 11 Defined Initiatives to Drive Continued Growth ...... 12 COVID-19 Impact to Business ...... 12
Buoy Health 13 Creating A Front Door to Healthcare ...... 13 Role as a Health Navigator ...... 13 Revenue Model ...... 14 Selling to Health Systems ...... 15 Responding to COVID-19 Pandemic ...... 15
Heal 17 Business Model ...... 17 Physicians and Other Company Staff ...... 17 Financials ...... 18 Responding to COVID-19 Pandemic ...... 18
Iora Health 19 Business Model ...... 19 Focus on Medicare Advantage ...... 19 Sourcing Patients...... 20 Target Markets & Hiring Physicians ...... 20 Responding to COVID-19 Pandemic ...... 21
Livongo Health 22 Business Model ...... 22 Roadmap to Growth ...... 23 Telehealth or Virtual Health? ...... 24 Responding to COVID-19 Pandemic ...... 24 Financials ...... 24
Quartet Health 26 Two-Sided Business Model Treats Patients Holistically ...... 26
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$5-10 Billion TAM with Few Competitors...... 27 Value Creation Opportunities ...... 27 On Shortage of Mental Health Specialists ...... 27 Competing with Tele-Behavioral Services...... 28 Quartet’s Response to COVID-19 Pandemic ...... 28 Thoughts on Regulations ...... 28
Somatus 29 Business Profile and Market Opportunity ...... 29 Tech Platform Improves Network engagement and Proactive Outreach ...... 30 Government Regulation ...... 30 Update on Somatus’ Response to COVID-19 ...... 30
Welltok 31 Well-Diversified Client base ...... 31 5-15x ROI Across Market Segments ...... 31 Competitive Landscape ...... 32 Integrated Partnerships ...... 32 Responding to COVID-19 Pandemic ...... 32 Financials ...... 32
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Keynote Speakers Will Brady (Chief of Staff to U.S. Department of Health and Human Services Deputy Secretary)
See our note: Healthcare Disruptive Technologies & Innovations Series: HHS Shares Views on COVID-19 Efforts & Role of Innovation; Virtual Meeting Takeaways With over 80 thousand employees and an annual budget of over $1 trillion, the U.S. Department of Health and Human Services is one of the largest government organizations in the world. It regulates over 20% of the US economy, pays for over 30% of healthcare in the US, and provides medical response for natural disasters and billions in education grants. The HHS is the largest R&D facility in the world. This department purchases over $25 billion in goods and services and grants over $100 billion per year. Update on HHS’s Response to COVID-19 Pandemic Mr. Brady notes that the U.S. is entering a new phase where testing will be much more readily and easily accessible as a result of the transition from public health laboratories to private sector automated high-throughput testing. Individuals are tested at the recommendation of their providers using evidence based guidance and CDC guidelines, which have always allowed for clinical discretion. With the administration unleashing the private sector in particular, the capacity is expected to increase to a level potentially sufficient to meet demand. This week more than one million high-automated throughput tests will become available and the U.S Food and Drug Administration (FDA) is working around the clock to authorize new testing options and monitoring to address supply chain challenges. The national public/private partnership that HHS launched last week will help complement state and local efforts and fill gaps. The HHS is also working to make testing easily accessible to those that need it most, namely the healthcare workers, first responders and those with preexisting health conditions. In addition to the lab testing efforts and increasing availability, HHS is gathering information from health centers to gain on-the-ground perspectives on responses to the coronavirus. HHS’s Biomedical Advanced Research and Development Authority (BARDA) highlighted the “technical expertise” of Mesa Biotech, a San Diego-based molecular diagnostic company, and announced funding to develop its coronavirus diagnostic test, which the company says would provide results in about 30 minutes. The effort is to support the company to complete developmental work needed to obtain Emergency Use Authorization from the FDA. The FDA’s emergency authorizations fast-track unapproved medical products for use during a public health emergency. Mr. Brady notes that, with the community spread in a number of countries, temporary travel restrictions and screening help the administration buy some time for further preparation to combat the virus spread. HHS is engaged in combating this outbreak from multiple fronts. The department will continue to operationalize a multilayered, cross-agency public health response (e.g. enhanced screening, educating the public etc). The Administration also secured funding from congress to help cover therapeutics, vaccines, PPE, state/local support and surveillance. A Phase 1 clinical trial evaluating an investigational vaccine designed to protect against COVID-19 recently began at Kaiser Permanente Washington Health Research Institute in Seattle, funded by National Institutes of Health (NIH). The study is evaluating different doses of the experimental vaccine for safety and its ability to induce an immune response in participants. HHS is also proactively reaching out to manufactures of FDA regulated products to gather supply chain information to mitigate shortages. These steps will help determine what stresses the healthcare facilities are experiencing and how to remove these pressure points since these facilities play a vital role in response efforts. HHS recently announced that the administration is purchasing 500 million N95 respirators over the next 18 months for the Strategic National Stockpile (SNS). Through guaranteed orders, this acquisition encourages manufacturers to immediately increase production of N95s for use by health care professionals. These
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22 March 2020 guaranteed orders offer reassurance to manufacturers that they will not be left with excess supply if private sector orders are cancelled once the COVID-19 response subsides. Manufacturers typically avoid ramping up production without such a guarantee. Finally, the FDA is working to authorize new testing options to monitor and address any supply challenges in addition to these efforts. A number of state and local government and private providers have already opened up drive- through testing as they know how best to meet their communities’ needs. The CDC also enacted guidelines that has made it possible to test more people with the same number of tests. As a result of these measures, state and local partners can make testing more accessible. The HHS has also taken unprecedented steps to expand Americans’ access to telehealth services during the outbreak including expanding Medicare coverage for telehealth visits across the country and allowing telehealth to be provided directly to the home which was not permitted under prior federal law. The administration also waived potential HIPAA penalties to allow telehealth visits to occur through everyday technologies like FaceTime, Skype and other video and audio communication tools. The HHS has also provided flexibility for healthcare providers to reduce or waive beneficiary cost sharing for telehealth visits paid for by the federal healthcare program. These three actions in particular will provide the incentives for physicians to provide virtual care and for patients to adopt telemedicine as a first line of defense. This will not only help hospitals save supplies but also reduce exposure for patients. In response to a question if these telehealth restrictions could be waived permanently (not just in case of the public emergency), Mr. Brady notes that the current environment is unique in so many ways. However, Mr. Brady notes that the effectiveness and role that telehealth plays in these unusual circumstances will influence how the telehealth industry will be regulated going forward. Driving Innovation via Four Key Buckets Best Practices for Approval and Reimbursement to Limit Uncertainty One of the key drivers of innovation that the HHS is employing is making sure that people who are innovating understand what needs to be done to get from an idea to commercialization. Some steps that the HHS is taking to meet these goals are to decrease regulatory reimbursement and cycle times and burden, particularly the time gap between SBA approval and CMS coverage of innovation. The HHS is also increasing new technology add-on payments (NTAP) from 50% to 65%. By way of background, NTAP is a mechanism in which Medicare pays for innovative devices and is used for a limited time to reimburse manufacturers delivering and providing innovative technologies that fit the criteria. The HHS plans to improve clarity by removing the regulatory hurdle of substantial clinical improvement for breakthrough devices and provide clarity on NTAP eligibility. Mr. Brady notes that ambiguity and uncertainty are factors that stifle innovation. There’s a framework in the FDA called “breakthrough devices” that allows for an accelerated review process if there’s no equal alternative and the therapy provides an outcome that is unmatched. HHS took the action to align those two standards, i.e. if the breakthrough standard is met, you don’t have to go through another process to explain why you have a substantial clinical improvement in CMS. Looking forward, the department is looking to further improve coverage of innovative technologies, reforming parallel review so devices are approved by both the FDA and CMS simultaneously and clarifying terminology such as “reasonable and necessary” so people can understand the standards necessary to be a part of the Medicare program. Transitioning to Value-Based Care The second bucket is transitioning to value-based care to ensure that the highest quality care can be delivered at the best cost. The department wants people to be incentivized to deliver outcomes and empower patients. Some actions that the HHS are taking to achieve these goals are Primary Care First and Direct Contracting CMMI Models, which allow for providers to take on risk for patient outcomes in total cost of care vs process metrics and more burdensome tracking and management. Healthcare Technology 5
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Mr. Brady highlighted one of the key areas of focus is kidney care. There’s been a lack of innovation and new treatment therapies in this space. The Kidney Care Models are focused on improving organ transplant and dialysis at home so that patients recover faster. In addition to those larger efforts, the HHS has also reimbursed for virtual visits, remote patient monitoring within CMS and the FFS program. As patients become better connected, the Administration wants patients and their providers to be better connected and coordinate for care. The Administration removed meaningful difference requirements to allow for tailored MA plans focusing on certain needs of the population. In addition, the HHS allowed MA plans to vary supplemental benefits based on an individual’s specific medical condition and needs. Looking forward, the department is focused on removing barriers. One of the primary ways of doing that is reforming the Anti-Kickback Statute and Stark Law to allow for value-based arrangements, outcomes-based payments on personal and management services, bundled warranties of medical devices and services and provide protection for the sharing/donation of cyber security products and EHRs. Consumer engagement and empowerment The HHS has been focused on empowering consumers through data. The recent rules by the Office of the National Coordinator and the CMS opened up electronic access to personal health records and claims data thus allowing patients to make the best healthcare decision and to manage their care. The HHS has also focused on banning pharmacy “gag clauses” to make sure that patients are informed about alternative options for purchasing prescription drugs in the pharmacy. The HHS is also focused on “meeting patients where they are” such as reimbursing for virtual visits and remote patient monitoring. In addition, the department has another CMMI model called ET3 which focuses on emergency services and treating patients both at home via emergency management services or taking them to where they think is best for their care. Finally, the HHS is also looking to change the incentive structure to allow for patients to be taken to the most appropriate place of care. Looking forward, there’s an effort underway to develop a quality roadmap for healthcare to address the amount of quality metrics (over 25 thousand) which is currently unmanageable. The HHS also has proposals out on price transparency and to encourage the increased use of telehealth. Liberating Data to Drive Value The last bucket relates to liberating data to drive value and encompasses the first three buckets. There are two real mediums that will have a major impact on liberating data and making it more available as well as allowing providers to use the data that make them most effectively deliver care - Office of the National Coordinator (ONC) and the CMS. Within the ONC, measures that are proposed to liberating data include adopting standard APIs, standardizing data sets so that information is easily understood and accessible. The ONC also proposed prohibiting restricting communications. The CMS published a complimentary rule that gives patients access to claims, encounter and plan data. The CMS rule would also require admission, discharge and transfer information of patients to be shared with their PCP and designated providers as this helps accelerate healthcare delivery. The HHS is also working to make government data available while prohibiting information blocking. Two items on the horizon are improved pricing transparency and a synthetic data hub which is directed by an executive order to begin combining synthetic data from claims, clinical, demographic etc. for researchers to model various innovations. Dr. Sylvia Romm, Atlantic Health System’s CIO
See our note: Healthcare Disruptive Technologies & Innovations: Takeaways from Our Virtual Meeting with Atlantic Health System's CIO
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Headquartered in Morristown, N.J., Atlantic Health System is an integrated health care delivery system powered by a workforce of 16K team members. The system is comprised of 350 sites of care, including six hospitals. Atlantic Health System’s Response to COVID-19 Pandemic Dr. Romm notes that the guidelines of social isolation have brought a lot of anxiety and stress in the community Atlantic Health System serves. Atlantic Health has been putting in a lot of technology around education and early triage in order to keep people out of physical spaces (or limit the physical interaction). For instance, Atlantic Health set up patient facing nurse/physician hotlines eight days back. The hotline is strictly dedicated to COVID-19 and is continuing to ramp as efforts to control the virus spread increase. However, Dr. Romm notes that the system ended up getting overwhelmed almost immediately by the number of people calling in with questions. In fact, the hotline has already been staffed up to eight nurses and three physicians to accommodate volumes. With some areas of hospitals not running at full capacity (e.g. elective surgery centers), Atlantic Health has been able to allocate staff from those areas to places in most need, like the nurse hotline setup. The health system has also started to move to chat bots to help with the assessment, to guide people around symptoms and exposure to COVID-19, to emphasize the important of social distancing, etc. The health system has set up a drive-through sample collection center for the COVID-19 testing. These drive-through testing centers serve as a means to make sure people continue to get the right care, but in a way that doesn’t bring increased risk to others. Atlantic Health is continuing to build other tools to ensure they are reaching people. Dr. Romm notes that, when looking at the first places that had coronavirus outbreaks, they are starting to see that the social isolation works. In fact, China has reported for the first time having no new domestic cases of COVID-19. However, that took a lot of regulation of human behavior – something the U.S. might not be able to do because of cultural differences. Dr. Romm notes that how we as humans react, will dramatically change what this pandemic looks like in different areas. Role of Telehealth Dr. Romm notes that, though an extremely valuable resource in the current environment, telehealth has been burdened by regulations which have hampered its adoption curve in recent years. For instance, up until recently, providers needed to be licensed not only in the state where they are located but also in the state where the patient is. If a physician wanted to be licensed in all 50 states, that would cost between $40-$50k – before considering ongoing renewal fees. Under previous law, for example, if someone in New York had their PCP in New Jersey and if the physician in New Jersey wanted to follow up with that New York patient, technically – they wouldn’t be allowed to do that. However, now, both regulators and those practicing are realizing that a lot of the geographical boundaries don’t make sense. In response to the coronavirus outbreak, regulations around geographic, reimbursement, and privacy regulations have all seen relaxation. In terms of HIPAA as well, regulations have become less strict on enforcement of procedures on some platforms. For example, even though some technologies such as Apple FaceTime, Facebook Messenger video chat, Google Hangouts video, and Skype are not technically HIPAA-compliant, the HHS Office for Civil Rights announced that it will not impose penalties for non-compliance with HIPAA requirements against health care providers as long as the use of those technologies is in connection with the good faith provision of telehealth during the COVID-19 nationwide public health emergency. An interesting question posed by Dr. Romm was that of whether or not physicians who are being forced to use telehealth solutions during the coronavirus outbreak will stand up to keep the regulations relaxed once the outbreak ends or regulations revert to the pre-COVID-19 levels. Through the loosening of regulations, the Atlantic Health System has gotten more physicians on boarded and practicing in the last two weeks than in the previous year combined.
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The Atlantic Health System uses a combination of telehealth solutions. MDLive is used for their direct-to-consumer urgent care. However, because of the recent surge in volumes, the Atlantic Health is also setting up a second platform, which is adding a video technology within its EHR platform, Epic. Dr. Romm notes that the telehealth utilization has been increasing driven by its usage to triage patients, patients avoiding crowded places, and physicians wanting to protect their staff/self. To the last example, there is no reason to put a patient and/or the physician at-risk for having someone come in for a standard medication change visit when that interaction needs only a phone call. Given the long period of time where people carrying the disease are contagious and not showing symptoms, it has forced health systems to treat their patient populations in a more strategic manner. With respect to the readiness of telehealth companies for this demand surge, Dr. Romm notes that it would have been nearly impossible for them to have been prepared for such an event. Dr. Romm clarifies that the urgent care telemedicine companies can generally be split into two categories: 1) those that provide technology solutions to physicians, who see their own patients, and 2) those that provide clinical services that are technology-enabled. Teladoc Health (TDOC) for example, sells clinical services that are tech-enabled to health plans, employers, etc. that happened to be by phone and video. Whereas other companies, like Zoom (ZM), for example, sell their technology to physicians who see their own patients. The former category have been on a physician-recruiting binge as they have way more patients than they can possibly care for with the number of physicians typically kept on staff. In fact, physicians who have come on board to telehealth companies have reported seeing 10x the number of patients they normally do. On the other end of the spectrum, tech companies that provide solutions to physicians (albeit lower-priced platforms), have been reported to (a) be rejecting new physicians from purchasing their tech or (b) their tech has become spotty because it is reaching its capacity limits. However, Dr. Romm notes that these companies are ramping up capacity levels to need demands, and long-term, once volume levels come down post-outbreak the new/improved infrastructure is still going to be there (similar to how the lead-up to the Dot-Com bubble led to an immense array of telecommunications networks being built where ~80 mln miles of fiber optic cable was installed in the U.S. which allowed for the maturation of the internet we know today). Overall, Dr. Romm notes that the U.S. healthcare system was not designed to have a 50% increase in PPE, testing equipment, and the technology infrastructure. But, everyone involved is working long hours to make this work. Other Quick Takes ACO Strategy Atlantic ACO was created to reduce the growth of health care expenditures and improve quality of care through cooperation and coordination amongst providers. It comprises more than 1,700 physician participants who are affiliated with Atlantic Health System. Atlantic ACO aims to achieve the following goals: a) Undertake joint activities to improve health care delivery by developing and implementing effective clinical and administrative systems; b) Promote and create strategic physician and hospital alignment; c) Engage the Medicare Fee-for-Service patient population towards improved health in coordination with their primary care physicians; and d) Achieve improved care for individuals and improved health for populations, and reduce the growth of expenditures. Atlantic Health has a business intelligence unit that works very closely with its ACO. They also have a division of integrated care, which is part of the hospital division and works on creating a clinically integrated network and making sure that there are good transitions and focus on value- based care. Around 18% of Atlantic Health’s revenues are in downside risk contracts (the downside risk is not specific to the ACO but is in other populations as well). Dr. Romm notes that the vast majority of health systems don’t have any downside risk contracts. More than a year ago, Atlantic Health migrated all of its EHR data to the AWS cloud, enabling them to have
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22 March 2020 greater abilities in data analytics and better understand there different populations and their needs. Population Health Atlantic Health uses EPIC’s Healthy Planet. However, they do not have an actual population health management department per se. But instead, the health system’s focus on population health management falls under what they call ‘Integrated Care’. Dr. Romm described population health as being about understanding the different populations and the risks and then treating those populations. Dr. Romm believes that when you have integrated services, you can start understanding your patient populations as well as the inherent risk factors. Tech with Most Runway in Medicine When asked what technologies or other aspects of medicine have great potential over the next few years, Dr. Romm indicated that unquestionably, machine learning (ML) is going to get much bigger, mostly because of the amount of data that has been collected over the past 10 years and the opportunity to analyze that data has also been improving.
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Altruista Health Presenters: Ashish Kachru, CEO, Craig Wigginton, CTO; Tom Joyer, CCO; and Munish Khaneja, CMO Headquartered in the Washington, D.C. area, Altruista Health delivers care management and population health management solutions that support value-based and person-centered care models. Altruista’s GuidingCare technology platform integrates care management, care coordination and quality improvement programs through a suite of sophisticated yet easy-to-use web applications. The company has 35k daily users, 3k mobile users, over 5 billion transactions per year, grew at a 30% CAGR from 2015-2020e. Altruista has over 450 employees, 25% of which are US based, the remainder are in Hyderabad, India. Business Model
Altruista Health was founded in 2007 with a mission to remove barriers to care through intuitive care management solutions that enable information sharing and collaboration. It is leading provider of mission-critical care management enterprise solutions that enable payers, providers, and members to collaborate across the continuum of care. Management believes Altruista Health is a top 3 player if not the largest amongst peers (Med Physician Owned by HCSC, Casenet owned by Centene) in terms of revenues and number of lives on its platform. As a company with a fully modular SaaS platform that’s deeply embedded into mission-critical customer workflows, the company has high customer stickiness/retention ratios and benefits from high (80%) gross margins. The company’s market opportunity is over $2 billion with multiple vectors for continued growth. The $2 billion market opportunity consists of a $760 million market opportunity from payers, $600-700 million from provides, $160 million from employers and the remainder from specialty providers. The company has a large number of managed lives across the most sophisticated health plan customers and a measureable ROI. Management noted that the company has a rapidly expanding, blue-chip customer base with consistent net revenue retention. And as a result of recent executive management, R&D, implementation, and infrastructure investments, the company has significant operating leverage. Management notes that for the most vulnerable populations, which was becoming a larger part of the health insurance industry, no one spent the time really creating a chronic disease management platform and a member centric model. Because of the rapid release cycle of a SaaS product, management has the ability to sign on a few health plans and really develop the knowledge. As more complicated populations came onto the platform, the company was able to develop partnerships with additional health plans such as UNH, despite UNH having its own systems for other populations. UNH chose Altruista Health for the care coordination tool for its entire Medicaid population. In a two year period, Altruista was able to take on 4 million lives (6 million currently) across 26 states onto the platform. The company experienced continuous growth in both the core population (Medicare, Medicaid as the vulnerable population) and the dual eligible. Altruista Health is now the largest system that the LTSS dual eligible patients are on nationally. Market Opportunity
Adults over 65 will make up 20% of the U.S. population by 2050. Over 11 million adults have 5 or more conditions. The ability to manage multiple conditions is more important especially when the industry has transitioned from single disease management to chronic multi-disease management and complex care management. 35% of deaths are attributed to chronic diseases and 75% of healthcare spending goes towards chronic disease treatment ($6 trillion by 2050). National health expenditures will grow at a 5%+ CAGR through 2023 and reach nearly 20% of U.S. GDP. Management notes that the inadequate care coordination is responsible for $25 – $45 billion in annual wasteful spending. The ability to have a member centric model that allows for role-based delegation of the work of the health plan to a risk taking entity where value-
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22 March 2020 based care has already been important. Risk-bearing models for provider systems require a stronger level of coordination. It becomes very difficult for health plans to scale when they build they own components of the system. Altruista Health is able to scale and is supporting clients in being able to rapidly bring items onto its platform. 86% of payers are expected to make population health software investments within the next 12 months with an increased focus on solutions that offer analytics, tracking and reporting of health needs for large populations. Payers are also investing in software that enables workflow integration of care management and member services. Management noted that one of the company’s differentiators is its shift to patient-centric care as connecting members to the payer is becoming a focal point of software investment. Value Proposition
Management notes that the while company started in care management (chronic disease management for the vulnerable population), the world has transitioned to population health management. As a health plan, you must also look at utilization and appeals and grievances because you must be able to highlight the care that a person needs based on the stratification of the program that they’re set up in. Altruista has to support them with services and in some situations, those services are either high cost, experimental or potentially unnecessary. The key is automation. While the company is not seeing a true reduction in utilization management, there is a lot more automation where certain cases can be expedited through the system via the automation processes. On regulatory pieces, the appeals and grievances space has become more complex as Medicare, Medicaid and NCQA push hard to ensure that the patient is cared for. Within predictive analytics, management noted that Altruista is the first company to actually invent a risk tool within the platform and a focus on who needs to be cared for next. The company also looked at the cost structure in a way where it is able to look at the next costliest patient based on their sickness. Overall, the company is looking for a model that keeps adding onto core functionality after which, it finds the best in class partners and works with the health plans to bring that information as easy and quickly as possible to the provider. With more of a focus on the provider end user, the company is moving further into the provider portal where it supports full automated prior authorization workflow. Management noted that it was the first to move to Social Determinants of Health (SDoH) and will work further with referral management to ensure members have access to the right services at the right time. The growth in demand from customers to integrate into the provider and SDoH portals has driven Altruista to invest heavily into API integration. This is all possible due to the fully-integrated data model that sits underneath its GuidingCare (has NCQA pre-validation) platform and the API framework that the company has built. The core technology is what allows the company to keep extending these integrations. Finally, on population health management, the company plans to take all info and hand it back to the provider as they take on more risk and ownership of the entire care management structure. From inception, GuidingCare has been designed to ingest a large volume and wide variety of data to: Aggregate and integrate data from a variety of sources, including claims, eligibility, pharmacy, HEDIS/STAR, HRA and EMR systems in order to identify the population; Prioritize the population based on real-time business rules enabling dynamic population-ranking for engagement; feed the data into the GuidingCare platform which then drives it across the disciplines of care management, utilization management and population health; Improve health via integrated care and disease management, utilization management and team-based communication and coordination; and then measure the outcome via real-time analytics. Across the four disciplines within care management for the payer space (medical management and care coordination, pop health, member engagement, integrated bus solutions) the platform is presented as discreet modules within the system. As an example, the payer may implement care management first and then, a few months later, build into rolling out utilization management. The payer can then train their team and extend into SDoH referrals for the community-based providers and then add on appeals and grievances. Healthcare Technology 11
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Where a health plan normally has 15-20 discreet systems, the design of the platform allows Altruista to the implement those modules incrementally. The system is designed to be modular with discreet URLs and tabs within the application. These different products and components are fully integrated across the spectrum (similar to Microsoft Office 365) and are all backed by the GuidingCare core SaaS data model. On RFPs, management noted that the company will continue to participate in RFP and currently has 12 active. If an RFP is issued, 50% of the time, it’s awarded to Altruista (amongst 10-15 companies). The company has averaged 12 new customers per year 2019 and 2020e and implemented 13 new clients in 2020. In addition, the highly sticky nature of core care management platform presents significant opportunity for upsell / cross-sell within existing customer base. Defined Initiatives to Drive Continued Growth
On areas of growth, management noted that there’s the potential to increase its customer base within the company’s existing segments as potential customers are using internally developed “spreadsheet tracking”/legacy systems, which presents significant white space opportunity for Altruista’s solutions. Also, significant recent investments in sales and marketing functions position Altruista well to compete effectively against competitors. Within its existing customer base, which is very sticky, management noted that Altruista is well-positioned to capitalize on upsell/cross-sell opportunity. On new customers and populations, management noted that Altruista’s ability to address the needs of the highly complex dual-eligible population provides an unmatched ability to address adjacent populations such as PBMs, providers and employers. In addition, its deep relationships with blue-chip customers provide highly tangible opportunity to onboard payers’ full books of business. The modular nature of the company’s solution suite coupled with mission-critical nature of Altruista’s solutions has resulted in significant upsell/cross-sell historically, particularly with large accounts. On new innovations, management noted that Altruista has a dedicated product development team of over 300 individuals focused on a fully-funded roadmap for 2020. In addition, there are significant near-term opportunities include Internet of Things applications (e.g., location-based services, precision medicine, home monitoring, remote patient monitoring) and machine learning (e.g., predictive modeling with disparate data, dynamic utilization management, “smart” assessments). On M&A Opportunities, management noted that Altruista’s rapidly increasing scale positions the company as a potential consolidation platform in a highly fragmented industry. COVID-19 Impact to Business
On potential risks of COVID-19 impacting RFP processes, roll-outs and new tools/technologies, management noted that Altruista has a unique position with clients where the company assigns an executive sponsor to each customer. This executive sponsor is responsible for the success of the client relationship and has remained in communication with clients every week on actions taken as a result of COVID-19. While there remains a lot of uncertainty, the company is very nimble, is currently working on 12 active RFPs, and has a large backlog that will keep it busy for a long period of time. On the one RFP that was paused, management noted that it was related to a state renewal contract and was not paused as a result of the coronavirus outbreak. No new tools, management noted that upgrades will continue and it has not seen any delays on implementation. Looking ahead, however, new sales may be impacted given that it’ll be difficult for people to come together to make decisions. On operational protocols, management noted that about a third the company’s workforce already worked from home so it was a simple task for the whole work force to transition to working from home.
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22 March 2020
Buoy Health
Presenter: Dr. Andrew Le, CEO & Co-Founder Headquartered in Boston, MA, Buoy Health operates as a personalized all-in-one platform to help guide consumers to make better decisions about their health. Consumers can chat about their symptoms with Buoy Assistant and research their benefits through Buoy Dashboard. The service is available 24/7 to help consumers navigate health. For employers, Buoy offers customized configurations to surface benefits information and wellness programs, guide employees to in-network providers, and fully integrate with other health portals. The product was launched in March 2017 and has 9 mln users and adds a new member every 13 seconds. Notable investors include Humana, Cigna, Optum, Fidelity, and Quest Diagnostics. Creating A Front Door to Healthcare
Buoy was founded under the premise that when people get sick, they try to become a medical expert and a health benefits expert, in real-time, and in that order. However, not everyone understands all of the intricacies of the healthcare system. In fact, 72% of people start their healthcare journey on Google by searching for their symptoms in an attempt to self-diagnose. Even if someone has a medical background and can self-diagnose, chances are that they still need a helping-hand on the benefits side. As such, people feel like they are drowning in information – which is where Buoy gets its name from: ‘to help keep you afloat’. When people turn to Google to self-diagnose, they are required to sift through an enormous amount of information on what their symptoms mean and what they should do next – which results in some big problems. For example, 56% of ER visits are non-urgent which results from an overreaction of symptoms. Also, 47% of high cost claimants have acute conditions, which results from people assuming they are fine when in fact they are not and end up seeking care after their conditions have worsened – a costly endeavor. Buoy, thus created an AI health platform that helps people figure out what to do when they become sick. The program interviews people like a doctor would. After about 2-3 minutes of communicating with a patient, the platform can narrow down the library of diagnoses to a maximum of three possibilities, with reasons for each. The AI utilizes a library of 1,848 diagnoses, 8,422 symptoms, and 407 risk factors. Then, based on who they work for – or who their payer is – Buoy can navigate that patient to the right care at the right time within their network of care. Buoy AI was built from founders reading thousands of clinical papers by hand to teach the software program the underlying statistics behind medicine. It took four years – from 2013- 2017 – to conduct the meta analysis of diagnoses to build a sophisticated network of medical information. The program does not function like a decision tree, but instead uses reasoning based on statistics that a medical student/doctor would understand had they combed through the underlying medical literature. Additionally, Buoy’s list of diagnoses is not specific to acute care, but takes into account diagnoses from all body systems and provides assistance in the following areas: pediatrics, behavioral health, internal medicine, orthopedics, specialty care, dental, and geriatrics. As more and more people use the platform, the AI gets more sophisticated based on the millions of interactions with users as well as from what the end-diagnosis ended up being. Dr. Le noted that users inform Buoy what ended up happening in their health situation ~15% of the time, and with each instance the algorithm is curated and improved. Role as a Health Navigator
Buoy sells mostly to health plans and self-insured employers. When someone gets sick, they either go to their health plan hub or they go to their employer hub, where they’ll find Buoy. From there, Buoy helps drive them to their in-network options. Buoy also finds patients looking for help navigating their healthcare needs through Google. As previously mentioned, 72% of Americans use Google as their first step. To that end, Buoy uses a team of writers who Healthcare Technology 13
22 March 2020 constantly compete on Google for search engine optimization (SEO) to attract people searching for symptoms. The company competes in this regard with others, such as Healthline and WebMD. However, when consumers come to Buoy from Google they are asked who their health plan is – where 59% of people inform them. If that health plan is a partner with Buoy, then they can claim the efficiency for having captured that person who otherwise wouldn’t have come to the health plan’s portal – which is completely independent than the health plan’s traditional B2B2C marketing tactics. Once Buoy gets up to speed on what the consumer is looking for, they are able to hand them off to whatever set of services they want. The granularity of the data Buoy is able to generate through its referral engine presents valuable insights. Data obtained is not just related to the patient’s clinical situation, but things like time of day. For example, if it’s late at night, and the clinical situation is not an emergency, Buoy might show options to the patient that are open starting the next day. Alternatively, if the clinical situation is more dire, Buoy would show telehealth options, emergency rooms, or urgent care centers. Another data point collected is that of location. Buoy collects 100% of people’s IP addresses, which provides a good estimate of their zip code thereby allowing Buoy to show relevant options for care that are available in their area. Revenue Model
Buoy’s revenue model is based on per-member per-month (PMPM) in addition to performance guarantees based on cost savings. Generating revenue through performance guarantees is based on where the client would be headed in terms of costs vs what their costs are after having used the solution. Dr. Le described the business as a nurse line combined with what an intensive benefits navigation call center, like an Accolade or a Quantum Health does. What makes Buoy different, however, is that they become involved earlier in the healthcare journey which means they have to do less of the claims redirection than an Accolade or Quantum would do. Further, the company is digital only which means there is no need to replace what payers are really good at, like standing up customer service call centers. Buoy does not need their clients to rip any of those services out in order to install their solution. Dr. Le indicated that there is a misconception that Buoy is some sort of millennial-only product. In fact, 11% of users are over the age of 65, while the company’s main demographic is 18-40 year old women. Further, around 10% of people use the platform for their kids as well as people that use it for their elderly parents. The key component of their business model revolves around distribution of information – serving as a middle man between the healthcare system and the consumer. Dr. Le noted that a lot of companies will have an AI chat interface and will then hire doctors for telemedicine, which is the key money maker for those companies. A potential conflict of interest can occur when an AI chat platform is combined with telemedicine where the company makes money on a per-visit basis. Dr. Le thinks Buoy is in a valuable position as a navigator of healthcare – an impartial referee that guides patients to what’s best for them. Their PMPM and performance guarantee model showcase this value-based approach. Another key component of Buoy’s business model is their data approach. By using their proprietary data and not just claims and EHR data, they are able to gather insights from people who went to the hospital (i.e., where the claims/EHR data is captured) as well as the data they obtain through their own interactions. According to Buoy’s data, when people have a symptom, 40% of the time they don’t see a doctor at all. As such, if a company were to overlook the dataset of people that were sick but did not go to the hospital, you run the risk of having a selection bias in the recommendation. Additionally, Buoy has found that the ‘tipping point’ – the point at which it becomes more likely for someone to seek primary care vs self-treat – is 72 hours while the average person who uses Buoy has been sick for less than 12 hours. Although Buoy has a valuable follow-up feature enabled now, it opted to not start out with one. The thought process behind this was that it is extremely difficult to know exactly when to follow- up with a patient. If the follow-up occurs too soon, it might be annoying and turn the patient off. If it is too late, the reason for following up might not even be relevant anymore. Buoy found that the right time to follow up is: ‘it depends’. Based on the millions of interactions, the AI has Healthcare Technology 14
22 March 2020 started to develop a deep understanding of when people are about to make a decision to go seek care. For example, Buoy has found that for a 40-yr old man with moderate shoulder pain, the likelihood that they self-treat begins to fall over-time and at 110 hours, they reach a tipping point and become more likely to seek primary care. Being able to introduce care solutions at the inflection point of self-treat or seek primary care provides Buoy a unique opportunity for employers to show their employees they truly care about their well-being. The healthcare system today functions similar to a directory. It has not gotten to a level that takes that directory, interprets that directory, and shows you what you need and when you need it. A large component of that problem is because there isn’t enough data to know when consumers need healthcare; most data used is claims data, which is after the decision has already been made.
Selling to Health Systems
Buoy started out selling to a lot of health systems. In fact, they sold their solution into a healthy system in Milwaukee which was rolled out to all of their patients. The company found that they were changing the intended care path for those patients. Based on data from a health system, Buoy was reducing the intent of people to go to the ER by 50%, 48% in urgent care, 42% in primary care, and 60% in telemedicine resulting in $174 in savings per use while maintaining a net promoter score of 80. However, when Buoy showed this data to their health system clients they were not so happy as health systems rely on those ER visits, urgent care visits, etc. to find patient’s healthcare problems, which result in revenue for them. The health systems would rather have Buoy take care of their Medicaid populations or their employees, who they are fully at-risk for. This resulted in Buoy realizing they were in the wrong space and eventually prompted them to move over to the risk-bearing side of the healthcare ecosystem.
Responding to COVID-19 Pandemic
On February 5th, Buoy released a COVID-19 screening tool that took the CDC guidelines and layered them on top of the AI. The company has also been exchanging data back and forth between the CDC as the situation has developed. By using the CDC guidelines, Buoy puts people into three buckets: 1) low-risk, 2) at-risk, or 3) high-risk. Telehealth’s role in the coronavirus outbreak has largely been to triage patients virtually and place them into the three buckets of risk. However, at a time like this, a doctor’s time is highly valuable and time spent triaging may not be the best use of it. Buoy’s view is that doctors using telemedicine should be seeing those who are at-risk, so they can potentially prescribe them a test. As the situation develops, Buoy intends to do different things for people placed into each of these ‘risk buckets’. For example, those patients who are likely to have contracted the disease, but who are having no respiratory distress should not enter a hospital and take up resources that could be allocated to someone in a more critical condition. Buoy is essentially acting as an air traffic controller, directing people to the most appropriate course of action. Based on CDC guidelines, 87% of the people screened by Buoy have been deemed to be at low-risk. When asked about how effective AI technology could be in the current situation where there isn’t a great data experience to learn from, Dr. Le agreed in that if a doctor cannot discern between the flu and COVID-19 without a test, a computer program is not likely to be the answer. However, the value Buoy brings to the situation is in their COVID-19 screening tool and the guidance they give to people declared as low-risk. If someone starts developing any sort of symptoms of COVID-19, they are likely to assume the worst and want answers. That is where the AI takes over and attempts to alleviate their fears and gives them a better idea of what their diagnosis could be. Buoy had partnered with researchers from HealthMap, a digital epidemiology tool developed by a team at Boston Children’s Hospital. HealthMap has been working on tracking the coronavirus from the onset and has been tracking disease outbreaks for 15 years. As part of the collaboration between the two, HealthMap provided clues to Buoy so they could look into specific areas across the U.S. One of those tips was that one of the patients confirmed to have the virus in Washington, had been walking around for a month without being tested. With that Healthcare Technology 15
22 March 2020 tip, Buoy took a further look in their data to determine if there had been increasing coronavirus- like symptoms in Washington compared to the previous months. What the company found was that there was a 96% increase in coronavirus-like symptoms in February in Washington relative to the previous two months. Dr. Le noted that Buoy is not having any problems from a strain perspective. They are seeing about 110k people per day and have not had any tech challenges due to volume. Interestingly, Dr. Le indicated they have been prepared for volume surges based on what they have experienced after going on TV to talk about the company. What they found in their early days was that after going on TV, volumes would surge every hour, on the hour – because it would be shown in different time zones. Thus, that early experience enabled the company to be ready for spikes in volume.
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22 March 2020
Heal
Presenter: Greg Drobnick, Co-Founder & Executive Vice President, Corporate Development Heal is the market leader in technology-driven doctor house calls. Heal has over 100 major corporate clients and is covered as an in-network benefit with Aetna, Anthem Blue Cross, Blue Shield of California, CareFirst, Cigna, Health Net, Medicare, and United Healthcare. Heal house calls are available across California, Atlanta, Georgia, and Northern Virginia/D.C. Business Model
Mr. Drobnick notes that Heal was launched with the aim of transforming primary care with in- person in-home doctor house calls. The company notes that every dollar invested in effective primary care saves $13 in total healthcare costs. However, primary care continues to face several challenges. In fact, doctors waste two-third of their time on bureaucracy, spending only seven minutes per patient, and average U.S. wait time to see a primary care doctor is 24 days. Heal lets patients call a doctor for a same-day visit in their home while allowing doctors to take more time with their patients and have time left over to finish required documentation. Typically the patient completes a booking through the app and based of the input, Heal knows which doctor and medical team to dispatch. Then at the end of the visit the company might book a follow up or install a remote monitoring hub in the home, so that Heal can continue tracking the patient’s progress across data points. The Heal Hub IoT solution provides doctors with real-time vital signs for proactive life and cost-saving care. Heal Hub accurately reports vitals (mmHg, SpO2, HbA1C, BMI, etc.) to doctors in real time. Paid by Medicare, Heal Hub is free to patients and drives $105 PMPM in recurring net margins. The Heal Hub platform provides real- time remote monitoring proven to reduce hospitalization by 28%. Heal believes House calls solve the “last mile” problem. Mr. Drobnick notes that 35% of U.S. patients can’t get to the doctor’s office. Mr. Drobnick notes that the home is the only place to see social determinants of health, which determines up to 80% of health outcomes. Additionally, the in-home doctor-patient interaction builds a relationship that extends across all modalities of care. Heal is in-network with essentially all the major health insurance plans in the areas it serves. Heal has completed over 150K house calls thus far. Heal estimates its house call services have helped reduce unnecessary emergency room and urgent care visits by up to 71% and also reduced hospitalization by 28%, averaging healthcare cost savings of an estimated $54 million annually. Heal’s novel technologies improve outcomes by 78% and increase margins by 61% compared to office-based practices. Heal liberates doctors with a proprietary platform that reduces Operating Expenses by more than 65%. Heal doctors see 70% less patients per day and spend 5-6x more time per patient. Overall, management notes that the company delights patients with price transparency, app-based booking and same-day service. The company notes that the reason health insurers or brokers promote Heal is because it is a competitive differentiator in the marketplace. Heal’s NPS score has historically been well over 80. Heal recently acquired Doctors on Call, a similar service for elderly and homebound patients in the New York City area, for $15 million. The integration of the two companies has gone really well. Physicians and Other Company Staff
Heal hires <14% of applicants—selecting only the most qualified, caring and tech-savvy professionals. Heal has both full time doctors and nurse practitioners on staff. The nurse practitioners are only for senior patients who need both diagnostic care and maintenance of care. Heal also has about some doctors who are contracted with the company; the company will lean on these doctors during the times of heavy volumes. Heal does want to keep the PCP the same for the patient and, in fact, 90% of visits are seen by the full-time doctor. However, the
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22 March 2020 company’s routing and dispatch algorithm analyzes the demand (including the advance bookings), and the doctors are then paged by the system. Each of Heal’s doctor sees about 10 patients a day; it is about 30 providers working on any given day. Financials
Around 73% of Health’s 2020 revenues are expected to come from Medicare FFS, Heal Hub, and value-based care. The company’s Medicare/MA FFS care model is the company’s lowest margin model, albeit still at around 39% grow margin. Under this model, the company completed over 30K house calls, representing 4.1 house calls/patient/year in 2019. Heal Hub generates 83% of gross margin for the company. In 2019, the company completed 5.3 real- time vitals/patient/week in 2019. Finally, in its value-based care model, the company generates margins of close to 57%, because the company shares in cost savings and objective quality metrics (HEDIS measures, STAR ratings, etc.). Heal has helped improve stars rating for its partners and, as a result, the company is hitting on all of its savings objectives. The company’s contracts are typically benchmarked against the savings for 3-4 years period. However, only the one-third of the company’s revenues come from the gain-shared savings and the remaining two-third of revenues come from the quality metrics (which need to be evaluated every year). Responding to COVID-19 Pandemic
Heal has a COVID-19 protocol in place, which means that if patients are showing any symptoms, the company is careful about not exposing its doctors. The company has rolled out additional telemedicine products. Typically, Heal uses telemedicine as a mode for follow-up. However, in light of the pandemic, the company has opened it up for even first-time patients and using the tool to identify the symptoms.
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22 March 2020
Iora Health
Presenter: Dave Fielding, CFO Based in Boston, Iora Health, provides infrastructure to small medical practices to allow them to lower health care costs and improve quality and experience by better managing their patients with complex chronic disease. Iora Health was ranked as one of the most innovative companies for 2019 by Fast Company. Business Model
Iora uses primary care as a lever to reduce healthcare spending. Iora tells patients to leave their doctors and come to their practice. Iora believes that this can be done as long as the patient is being provided a fundamentally better experience. The company highlights that it needs to meet the patient once and create a plan customized to the patient. After the first meeting, Iora follows up several times, via e-mail, chat, text message, etc.; patients also attend group meetings. Iora’s main patient base primarily includes low-moderate income individuals. Iora Health management notes, unlike typical practice based on a fee for service model, the company is getting paid based on patient outcomes. The company’s health coaches work closely with patients to ensure they take appropriate actions to take care of their health. Iora management notes that one of the problems today is that doctors often have too much social distance from the people they are serving. Iora health’s health coaches are generally people from the patient’s community, who speak their language and live similar lives, but work for Iora Health. The company has also incorporated mental health into its practices and has behaviorists in every practice. Iora has teams which are typically no more than three providers, three health coaches per provider, nurses, some operational assistants to help with paper work, etc. Iora Health also uses primary care as a lever by building a de facto narrow network (small group of specialists, hospitalists) that it co-manages the patient with. The company doesn’t negotiate prices but leverages its health plan partners and helps guide patients to the right specialist. Iora has doctor-to-doctor compacts. For example, it will send all its cardiologists to a specific cardiologist as long as that doctor agrees to certain behavior principals (i.e., the doctor will call Iora before any big decisions and the doctor won’t send the patient to another specialist without informing Iora first). Iora management notes that healthcare is a data (e.g., cholesterol, lab tests, glucose, and blood pressure) intensive business which allows companies to pick up signals. However, there needs to be a human factor to take the insight of the data and turn it to behavior change. The company notes that there are four keys to the model of changing healthcare: 1) change the payment model (Iora is a pure play value-based payment model – no FFS); 2) change the process; 3) change the platform/IT; and 4) change the people/culture. The company notes there are many groups that do value-based care but don’t do anything about the consumer experience; those groups only deny certain tests and are being a little more frugal. The company notes that there are competitors that operate hybrid models which will do FFS for some of their practice and risk for the rest of their practice. Iora believes it’s very difficult to run both models simultaneously. To protect itself from outlier cases, Iora has stop-loss insurance for its patients. The company is looking at programs to minimize the number of people hitting that cap. Iora notes that the ratio of patients to Health Coaches is risk adjusted. There are typically 500-800 patients (600 on average) per provider, and each health coach has one-third of that. Iora Health has an NPS score in the low-90s. Focus on Medicare Advantage
Iora Health evolved into moving into the Medicare Advantage space as the company believes that its business model works better with older and sicker individuals. This move into MA put Iora into a global risk model business in which Iora gets the bulk of the healthcare dollar. When money is saved downstream, Iora gets to keep the dollars and plow it back into its business. Healthcare Technology 19
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Iora receives roughly 85% of the premium dollars for an MA patient. Iora is running MLR in the mid-60’s to low-70’s in Medicare, which represents a 15-20% decline in healthcare spending. Iora has seen hospitalizations drop 40% and specialist use lowered by 30-40% (some by as much as 80%) under its model. The company notes that MA is a retail product, whereas in the commercial market companies are typically selling to an HR director. The first year an MA member joins a plan, the insurer typically loses money on that member, however the longer that member is kept in the plan, the better the profitability. Medicare Advantage brokers receive roughly $400 in commission the first year and $200 for each out year – effectively an annuity for a broker. Iora notes that MA is a great place to use its model, but that there are many dynamics in the employer market that cause difficulties. The baseline hospitalization rate in Medicare is 300 per 1,000, but for the employer population it’s 50 per 1,000 (a lot of which is childbirth). The key obstacle in the employer market is retention since there are many large employers that have high churn of employees and it typically takes 2-3 years for the company to see results. The company notes that it thinks its model would work well with HSAs but as it stands now, the IRS doesn’t allow fixed fee primary care with HSAs – a change that can’t be done through regulation but requires legislation. Sourcing Patients
On sourcing patients, Iora Health has a dual sales process. The company signs contracts with Medicare Advantage plans that make Iora an in-network provider for that plan. In some markets, Iora might have an exclusive partnership and in other markets, Iora will work with multiple plans. The other process is self-sourcing through three strategies: 1) sales agents/independent brokers; 2) digital direct-to-consumer advertising using social media; 3) word-of-mouth patient referrals. Iora Health management notes that when it enters a new market, its contracted health plans will sometimes use that as an opportunity to rationalize their networks by taking low performing doctors out of the network, however, with the consolidation that has occurred in the industry, it can be difficult to take one provider from a group out of the network. Target Markets & Hiring Physicians
Iora Health is currently in eight markets, covering around 40K patients with 48 practices. On selecting markets it wanted to enter, Iora was opportunistic early on. It now looks at things such as MA penetration rates. However, the company does take Medicare FFS patients in which it hopes to convert to a Medicare Advantage patient. Iora also looks at places where there are high levels of avoidable admission rates typically around academic medical centers. For instance, the company highlighted that are many unnecessary admissions in Cleveland – this is a market that could be interesting to Iora at some point. Additionally, the company looks at areas where there are physician shortages. Iora Health notes that the two strategies Medicare Advantage plans generally focus on include: 1) focusing on markets where an MA plan could potentially grow membership; and 2) focusing on markets where an MA plan already has a significant presence but doesn’t have high quality providers. Iora notes that it generally has discussion with its health plan clients (Humana, UnitedHealth, and Aetna) on their problem areas (markets with high unnecessary medical spending, markets with less high quality providers, etc.). Iora prefers to build out its practices as opposed to attempting to convert existing practices. The company has extensive physician recruiting – which it likens to networking. Iora is entering the Houston market and the company began reaching out to doctors and individuals in residency programs in that market six months ago. The company is also receiving inbound interest from physicians. Iora highlights that it has several young doctors but also has many experienced doctors. Iora notes that its doctors don’t make less but also don’t make more than a physician in another practice. The company is not in a position to overpay physicians but believes it pays a fair salary. In general, Iora doesn’t give doctors monetary incentives.
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Regarding retention rate of its physicians and health coaches, the company notes that 10% of its doctors leave early (in the first six months). For health coaches, which is an entry level position, the retention rate is roughly two years and the company would like to get that to three years. Iora is attempting to build a career path for those individuals through management programs, etc. The company notes that there are markets that don’t work well for the company’s model. For example, Maryland has a fixed rate system and New Hampshire has rules that make Medicare Advantage difficult. Additionally, markets with dominant health systems make it hard for new entrants to come in. The company notes that it does well with over age 65 duals but that those duals (typically under 65) which are severely disabled are better served by different interventions. With respect to initial investment to start a practice, Iora Health management notes that it costs roughly $1 million to build out a practice and then there are a few million dollars of burn until the practice is cash flow positive which is usually at the end of year three. The company will sometimes share the start-up costs with health plans through contractual means and mitigate some of its early capital losses. Iora’s practices are typically in retail spaces and are about 5,000 square feet. Overall, Iora is on track to post a revenue CAGR of 70% over the period of 2016 to 2020. Responding to COVID-19 Pandemic
Iora Health has operations in Seattle, where some of the first COVID-19 cases were reported. The company notes that over the past 2-3 weeks, it has changed some clinical protocols. While the company prefers to engage with patients, over the last 2-3 weeks, the company has shifted the visits/interactions to as much as virtual possible. The company has not had historically invested in telehealth. However, the company were able to deploy the technology fairly quickly over the past couple of weeks. Management notes that the current situation has helped the company to sharpen its focus.
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22 March 2020
Livongo Health
Presenter: Zane Burke, Livongo’s Chief Executive Officer Headquartered in Mountain View, CA, Livongo Health (LVGO) develops and operates a consumer digital health platform that provides smart connected devices, informed coaching, data science-enabled insights, and facilitates access to medications across multiple chronic conditions. The company focuses on diabetes, hypertension, weight mgmt., and behavioral health. Business Model
Livongo uses Applied Health Signals (e.g., blood pressure, weight, glucose readings, etc.) to capture and then translate data into actionable, personalized and timely signals to improve the lives of those with chronic medical conditions, both medically and financially. Through their data- driven, personalized approach, LVGO has created a sticky consumer platform with NPS of 64. However, the company not only achieves a high satisfaction rate and improves outcomes for Members, but also drives financial savings with $1,908 in medical savings in diabetes on a per- participant per-year (PPPY) basis. LVGO contracts with some of the largest self-insured employers, health plans/payors, health systems, labor unions, and governments. The company operates using a SaaS-based per-participant per-month (PPPM) model. LVGO attempts to organize healthcare – similar to how Google organizes content, Facebook organizes communities, and how Amazon organized commerce – by creating different experiences for their members through their virtuous business model. Chronic conditions are one of the largest problems in the healthcare industry today. Over 147 mln adults in the U.S. have a chronic condition and 40% have more than one, ~90% of U.S. healthcare spend is attributable to people with chronic and behavioral health conditions, and chronic conditions cost the U.S. economy $3.7 trillion per year. LVGO aims to help solve these issues and in doing so, sees a $46.7 bln TAM in just diabetes and hypertension alone. The core of LVGO’s strategy is its AI+AI (stands for Aggregate & Interpret, Apply & Iterate) Data Engine, where it takes over 500 mln data points and runs them against their algorithms to help coach members on a clinical basis. Their AI+AI Engine begins with aggregating data across the healthcare ecosystem (e.g., Apple HealthKit, Fitbits, LVGO’s glucose readings, weight scales, blood pressure data, claims data, etc.) and then interprets that data to identify what it is that person exactly needs. After interpreting the data to understand member needs, LVGO applies the insights gathered and delivers specific Health Nudges to members based on their specific chronic condition and needs – at exactly the right time, format, and context. Lastly, LVGO learns from that data through an iterative approach where a member’s experience is constantly updated based on their behavior and feedback (e.g., did the member take action upon receiving a Health Nudge). Beyond data, the company maintains key relationships in its marketing machine, using almost all of the leading benefit plan consultants, 17 of top 25 health plans, and two of the largest PBMs, in addition to its own marketing team. Livongo uses its sales force to create direct relationships to clients (e.g., self-insured employers, health systems, governments, etc.), but also to create relationships with other healthcare ecosystem players, like PBMs, health plans, and other channel partners (e.g., Cerner, Mercer, Willis Towers Watson). By engaging in these types of partnerships, LVGO is able to obtain quick access to a greater set of clients. In exchange for the speed and access to new sets of clients, LVGO gives up a HSD% of its top-line. Once LVGO has the relationship with the party who has financial risk, they take their data and run it through the AI+AI Engine to determine who would benefit from their health solutions. The company looks at health risk assessment data, claims data, and any other piece of information from the employer or health plan to pinpoint potential beneficiaries of their health tools. As of 12/31/2019, the company had 804 clients and ~223k Members. Contributing to these numbers were 391 new client relationships and 109k Livongo Diabetes Members in 2019 alone. Healthcare Technology 22
22 March 2020
Additionally, in 2020 so far, Livongo has launched over 420 new implementations compared to ~200 in all of 2019. Mr. Burke noted that Livongo loves working with companies in the continuous glucose monitoring (CGM) space, as these CGMs are able to help people with diabetes – particularly those with Type 1 – manage their condition more effectively and without having to prick their finger constantly. Further, the data collected by CGM systems feeds LVGO’s AI engine providing more robust information. Specifically, the partnership will offer Livongo Members the ability to synch data from their Dexcom G6 CGM System with the Livongo platform, which will provide LVGO further access to key insights and improvements in Health Nudges. Through the company’s use of data science, they are able to create better health outcomes for their members, but also further build their book of business. For example, LVGO uses data science in its targeted enrollment strategy which has resulted in a 34% sign-up rate in the company’s diabetes management solution with some of their best clients around 50%. Mr. Burke indicated their goal is to reach a 70% sign-up rate. Another interesting metric cited was that 40% of Members take action on a Health Nudge. For example, if a Member were to measure their blood pressure in the morning and it came in at a high reading, LVGO would ask if they had breakfast that morning. Based on the response, LVGO can then provide nutritional messaging to improve that person’s habits. Additionally, if the Member responded by saying they did not have breakfast, that becomes an important data point since what happens to someone’s blood sugar while sleeping is an indication of how well their medication and dosage are working. Further, if a Member does not take action on a specific nudge, LVGO can alter their algorithm and prioritize other nudges more likely to work. Mr. Burke noted that it takes about three months from contract signing to launch of the service. Then, from launch to a full 34% enrollment is about a nine month time period. These timelines provide the company good visibility into future revenue as they know what contracts are in the pipeline, when those contracts will launch, and an accurate expectation in terms of the dollars rolling in from those contracts. In fact, based on these factors, Livongo cites 90% visibility into revenue. Roadmap to Growth
When asked about what other areas of health Livongo has interest in, Mr. Burke responded by indicating that without disclosing the next thing, there certainly are other conditions/markets they are working towards. Further, Mr. Burke cited the company’s success in both building and in acquiring/integrating solutions. For example, after seeing nothing in the marketplace for a hypertension solution, Livongo opted to build its own from scratch. Speaking to Livongo’s roadmap, Mr. Burke cited diabetes management as its core and are adding solutions where people with diabetes have a higher incident rate. For example, that’s why the company decided to move into weight management – which was an acquired/integrated solution. The company also believes they are just getting started in behavioral health as it can be a highly supportive solution to those with diabetes, but also as a standalone solution. Livongo announced in October 2019, it had been awarded a contract with the Federal Employees Health Benefits Program (FEHBP) to provide the Livongo for Diabetes solution to eligible members. The contract was the largest contract in the history of Livongo. With around 5.3 mln people covered under the Federal program, Livongo sees a big opportunity to service individuals within that population impacted by diabetes. The program launched on January 1, 2020 and the company notes it has been very pleased with what they’ve seen so far. Mr. Burke noted that chronic conditions are not centric to the U.S., but are a worldwide challenge; and Livongo will look for the right spot to maximize its impact outside of the U.S. When asked whether that expansion would be done organically or through M&A, Mr. Burke indicated we can expect to see both.
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22 March 2020
Telehealth or Virtual Health?
Mr. Burke believes it will be virtual health that will be more impactful over time. Virtual health is what’s needed to keep people out of the health systems entirely, vs telehealth just providing another medium into that health system. As part of the impact from the coronavirus, Mr. Burke sees a side effect of a huge acceleration of virtual health and virtual care overall and believes Livongo is uniquely positioned to reap the tailwind of such momentum. Responding to COVID-19 Pandemic
Livongo has been in constant communication with members, corporate clients, health plans, etc. Additionally, the company has rolled out a COVID-19-specific behavioral health solution for all members with diabetes and hypertension, which are two of the most vulnerable populations to the coronavirus. Members using the Livongo Behavioral Health solution have access to coronavirus as well as social isolation content. The company expects this solution to help members manage stress and anxiety as well as other behavioral health concerns. Through the tracking of blood glucose, blood pressure, and other vitals in real-time, Livongo has a consistent view of Members’ vitals and is able to reach out with targeted Health Nudges and personalized coaching support, if needed. Additionally, health coaches are trained on the CDC’s COVID-19 guidelines and protocols and where merited, are directing members to the right care for their symptoms – whether it be a telehealth visit or, when necessary, a hospital visit. Additionally, when a telehealth visit is deemed most appropriate, Livongo is able to share a detailed picture of that Member’s underlying conditions to best inform their treatment. When asked whether the COVID-19 has impacted new sales, the company indicated they have not seen a disruption to date in sales activity and have taken steps to move sales interactions to a virtual environment. In fact, Mr. Burke noted that, if anything, the company has seen a bit of an acceleration. Additionally, the company’s sales team has been increasing their efforts to inform prospective clients how they can help during this crisis. Having access to populations most at risk of COVID-19 has put Livongo in a unique position to be able to communicate with their Members and provide resources as needed. From a supply chain standpoint, the company noted they are not experiencing any disruption to their supply chain yet. Additionally, Livongo’s key contracting manufacturing partners in China have all resumed production after a 2-week delay in operations. The company has started to increase its backlog of supplies in response to potential trade issues. Further, Livongo has not had any impact to member shipments and does not anticipate any, given their preparation efforts. Lastly, Livongo maintains a buffer of finished goods inventory within the U.S., which allowed them to mitigate the impact from the 2-week delay in production from their Chinese manufacturing partners. Financials
Livongo maintains a strong financial profile, as highlighted by ~$170 mln of revenue representing 148% Y/Y growth in 2019. Revenue is derived predominantly via its SaaS-based PPPM model offering highly recurring and visibility into growth. Additionally, in 2019 its client contract retention rate was 94%, highlighting the stickiness of the model. Being a SaaS company, LVGO operates on high margins having reached a 73.8% gross margin rate in 2019. For context, Livongo cites its long-term target of gross margin at 72-74%, thus already having met that goal. For FY2020, LVGO expects revenue to be between $280-$290 mln (up 65-71% Y/Y) and revenue for Q12020 to be $60-$62 mln (up 87-93% Y/Y). Adjusted EBITDA for FY2020 is expected to be between $(22)-$(20) mln (representing margin improvement of +3.5-4.5%) and adjusted EBITDA for Q12020 to be $(5.5)-$(4.5) mln (representing margin improvement of +20.3-22.3%). The company expects to turn adjusted EBITDA positive in 2021 and remain there on a sustained basis.
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Figure 1: Membership* Growth Figure 2: Revenue Growth ($M)
Source: Company data, Livongo Diabetes Members only Source: Company data Mr. Burke sees a number of key drivers to fuel future growth for the company, including: 1) increasing enrollment rates with existing clients, 2) penetrate new markets and cross-selling additional solutions to existing clients, and 3) continuing to win new clients. The company has already began to execute on some of these drivers, having launched hypertension, behavioral health, and weight management solutions in the past 18 months. In fact, 20% of bookings came from outside diabetes management in 3Q2019 with that number moving up to 30% of bookings in 4Q2019. The company sees a massive opportunity in some of these additional solutions that have launched recently. For example, hypertension impacts ~40% of Americans, 25-30% of Americans have behavioral health issues, and ~40% of Americans struggle with weight management. Although these issues are an unfortunate reality, Livongo is able to make a meaningful difference through cross-selling solutions to its existing diabetes management member base as well as attracting new clients.
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22 March 2020
Quartet Health
Presenter: David Wennberg (CEO) and Jeff Soffen (Head of Nationals) Quartet is a healthcare technology and services company on a mission to improve the lives of people with mental health conditions. Quartet Health connects people to the right care at the right time. Its collaborative technology and range of services bring together physicians, mental health providers, and insurance companies to effectively improve patients’ health and drive down healthcare costs. Quartet has experienced record Growth (over 100%) in 2019 and expects to repeat this feat in 2020 via strong same store growth as well as new market launches. Two-Sided Business Model Treats Patients Holistically
With mental healthcare being a more important aspect of deliberate care, Mr. Wennberg believes that Quartet is in a really good position. The company’s mission statement is: Every person with a mental health condition gets the care they need. Despite the mental health parity act, which the company believes is not very effective, it is the company’s mission that someday every person with a mental health condition gets the care that they need through technology and services. Thesis of Quartet is based on over 30 years of academic publications around integrating mental and physical healthcare (aka collaborative care, impact model). By way of background, the Impact Model emphasizes pairing a behavioral health specialist within a primary care practice in order to induce collaborative care that allows for mental health systems to be integrated more holistically. If the mind and body are treated as one, people with comorbid mental and physical health conditions have a higher probability of improving their functional status. From a value creation for the insurer or the payer (self-insured employer or fully-insured business or MA models), the overall cost of care can be reduced. Mr. Wennberg notes that the key challenge when starting Quartet over 5 years ago was taking the very expensive difficult-to-implement “brick and mortar” approach and scale it to address the tremendous amount of need across the country. Using modern technology, data communication and collaboration platforms, the company created a two-sided market where physical and mental health can communicate with each other and treat the patient in a holistic manner. The first aspect of the two-sided model relates to physical health which extends to case management as well as other specialist (e.g. endocrinologists, OBGYN, etc.). The company’s goal is to go where there is a trusted side with the member. Mr. Wennberg notes that studies show that engagement rates in behavioral healthcare is very low due to stigma and a lack of trust with the provider that’s bringing up mental health as an issue. Mr. Wennberg notes once you give the physical health system the opportunity to refer patients to an expert to match the patient but also remain abreast to have a collaborative environment, you create a propensity for impact that’s much more scalable. The second aspect of the two-sided model relates to mental health. The company seeks out mental health specialists. Those could be in-person therapists or psychiatrists as well as those with virtual capabilities (tele-therapy, telepsychiatry, online cognitive behavioral therapy etc.) to ensure that company can meet patient where they are and give them the best opportunity for success. Management thinks of Quartet as sitting between patients and physical/mental health providers as the company connects all these parties via data, collaboration and communication. Quartet also has products that engage patients, physical health teams, mental health providers and have extended that into other engagement strategies through case and care management at the plan level, food banks and community centers in community-based settings. Management believes that this business model produces good outcomes. Advanced data and analytics identify patients with both diagnosed and undiagnosed mental health conditions and recommend to PCPs to engage patient in mental healthcare. e.g. a diabetic patient with depression can get the depression treated and they will more likely be compliant with their diabetes medication and avoid hospital visits. Additionally, this model can be scaled to hundreds
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22 March 2020 of thousands of patients. Quartet is currently in seven markets and will be in 3-4 additional markets by year-end despite the current environment. $5-10 Billion TAM with Few Competitors
The large addressable market ($5-10 billion total addressable market) includes BCBS, national insurers, government and health systems and regional insurers. Mr. Wennberg notes that this is a complex industry with few competitors. Mental health conditions affect 25% of Americans on an annual basis. 11% of the U.S. population has at least one chronic physical condition and a mental health condition. By way of background, the 11% drives 50% of total healthcare spend and costs 2-4 times their matched counterparts without mental health conditions. Those with mental health conditions receive adequate care less than 25% of the time. The vast majority of these patients visits PCP and specialists almost monthly which drive a lot of the company’s engagement strategies. These factors, not only drive Quartet’s mission but results in a powerful recruiting retention force for the workforce given the intense competition for data scientists, product managers, engineers. The company’s strong focus on mission coupled with a broad technology stack has been a strong recruitment strategy and major barrier to entry. Value Creation Opportunities
Quartet integrates directly with providers to deliver enhanced patient care leading to quick and effective member engagement. For payers, Quartet creates value by flagging to physicians the patients that are higher risk of having and underlying mental health condition that isn’t treated. The company uses advanced data and analytics identifies patients with both diagnosed and undiagnosed mental health conditions and recommend to PCPs to engage patient in mental health care. As the company adds more providers and users, the company can more easily add additional payer health plans and surface their data for those users. This adds value to both the users and the health plans driving better cost of care for members. The company’s proprietary SmartMatch technology/algorithms matches patients to most appropriate care modality. Mr. Wennberg notes that the company’s virtual care team platform brings fragmented mental health and physical health providers together to coordinate treatment plan. A lot of mental health practitioners don’t have existing software that they use to manage their practice. While there are EMRs on the physical health side there aren’t any on the mental health side to manage referrals or patient notes. What the company does on the physical health side is it plugs in existing EMRs via APIs. Management stands up the stand-alone software on the mental health side. This allows for data infrastructure across both provider groups that’s powered by claims data to better understand the members that plan partners are referring into care. This also enables the company to highlight members to that are higher risk and then build out machine learning around the propensity to map people most effectively to the appropriate mental health setting. The company’s data-rich operating model allows for continuous improvement targeting that drives a scalable solutions with national health plans and also allows the company to maintain healthy SaaS gross margins as it adds on health plans to existing markets. In response to a question on best practices when managing population with mental health conditions and acute conditions, the company empowers delivery systems to practice medicine at their highest level. Quartet does not reach out to patients directly but helps identify those patients that are higher risk and then partners with their trusted physician to engage them into an appropriate mental health care treatment. On Shortage of Mental Health Specialists
In response to a question on shortage of mental health specialists, Mr. Wennberg notes that the company has tackled this challenge by using teletherapy to better triage patients. The vast majority of people that are referred to psychiatrists by their PCP actually don’t need to see a psychiatrist. Through the SmartMatch technology/algorithm, the company takes info from the PCP, EMR, claims and patient preferences and matches patients to most appropriate care modality. Less than 10% of patients that are referred to platform actually get matched to a
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22 March 2020 psychiatrist. Additionally, the company is focused on appropriately matching the patient so that the constrained supply isn’t overused. Finally, the company also focusses on enabling PCP to be more effective in managing patients from a pharmaceutical perspective. Over 70% of psychotropic drugs are prescribed by a PCP even though the vast majority of PCPs are undertrained for managing psychotropic drugs. Quartet has created a service called Curbside Consults which is a PCP and psychiatrist consultation approach to better manage the usage of psychotropic drugs. Competing with Tele-Behavioral Services
In response to a question on whether established telehealth providers have an advantage, management noted that some partners that are nationally known are already on the platform. Quartet enables care across the continuum by connecting patients to a variety of treatment options. Management believes the company has the best of both worlds as it has contracts with existing players and also supporting, via its technology platform, smaller practices (in NC and Pittsburgh) who have not historically utilized telehealth. Quartet’s platform allows these practices to quickly move to teletherapy. The ability to offer services across multiple types of providers is an advantage because Quartet doesn’t have to go through the contracting process. Since Quartet already has providers who’ve historically done face-to-face care on platform, it can now enable them to do teletherapy. Quartet’s Response to COVID-19 Pandemic
Mr. Wennberg notes that since the median age of Quartet’s workforce is 28 years old, the group has never been through a crisis like this before. Management is working together with the team to create a calm, transparent, and purposeful approach to this effort. Because of its successes, the company has people in multiple markets (including Seattle, Bay Area, NYC) and cancelled travels and implemented work-from-home protocols three weeks ago. Fear and anxiety about a disease, particularly from the news and social media, can be overwhelming and can cause strong emotions in both adults and children. As a result, the company has been very open and transparent about what is being done internally. Management created a COVID committee led by the Chief People Officer, COO, CMO and CEO. Credibility from the top has been an important part of engagement strategy. The company has also reached out to customers and discussed the rapid acceleration of digital care options (e.g. Computer Based Trainings (CBTs), tele-therapy etc.) realizing that even if you had access to the network, most providers would not be willing to offer face-to-face care. Thoughts on Regulations
On government regulation, there are two major categories on mental healthcare and they pertain to the type of care. Telepsychiatry can only be use in counties with underserved resources. The challenge is a lot of patients would rather see a teletherapist rather than in- person. This regulation been loosened recently as a result of the coronavirus outbreak. The second category relates to privacy issues and the inability to share data amongst different facilities around substance abuse disorders. While this regulation was to ensure that employers and other providers didn’t have access to confidential information, this has created a roadblock to be able to perform collaborative care for substance abuse disorders.
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22 March 2020
Somatus
Presenter: Satish Cheema (CTO) Somatus was formed in 2016 in order to introduce a preventative and more holistic solutions for patients who have or are at risk of Chronic Kidney Disease (CKD) and preventing them from progressing to End-Stage Renal Disease (ESRD). The company is currently in 6 statewide markets, has over 200 employees, manages 20k lives and has over 120 signed agreements with nephrologists. Business Profile and Market Opportunity
Somatus is on a mission to be the world’s best and most comprehensive provider of integrated care delivery for patients who have or at risk of kidney disease. Management notes that the company is disrupting the industry with innovative approach. This approach is based on a focus and mission to delay or stop the progression of kidney disease as well as increasing transplant rate within the industry. Patients with chronic kidney disease (CKD) is a largely unsupported population but at over $200 billion, the dialysis and kidney care market is a massive addressable market opportunity. Nearly 37 million Americans have kidney disease, with millions more at-risk and the majority are unaware they have it. Of the over $200 billion market opportunity, more than $140 billion is from the MA population and $80 billion is from the commercial population. 40% of the market opportunity is within the later stages of CKD progression and the area that Somatus focuses on. Most of the members who are at the highest risk in terms of mortality are those that are in stage 3b CKD or higher. Dealing with a Costly and Complex Population With Significant Avoidable Cost
Kidney disease is costly and complex with significant avoidable cost. By way of background, the majority of patients aren’t aware that they have kidney disease or that they’re at risk of developing kidney disease. Of those that get kidney disease, 38% “crash” into dialysis, i.e. their kidneys fail, the patients go to the ER which results huge hospitalization costs. Of those that begin dialysis, almost 41% did not receive care from a nephrologist. Only 59% actually receive care from a nephrologist prior to initiating dialysis. Across CKD stages 2 through 4, only 60% of patients are on ACEI / ARB medication to delay and stopping disease progression. Opioid utilization is also high among these patients with 43% of members on opioids. The readmission rate of these CKD patients is 21.6% and there is a high mortality and hospitalization rate. On average, members pay over $24k per year to treat this condition. Across CKD stage 5 and ESRD, patients are on over 14+ unique prescriptions and have over 4 comorbidities (diabetes, hypertension, CHF, anemia) on average. Over 80% of patients are started on in-center hemodialysis and with CVC as initial access type, which is prone to infection. The readmission rate of these CKD patients is 35% and there is also a high mortality and hospitalization rate. On average, members pay over $90k per year to treat this condition. Mr. Cheema notes that, to makes matters worse, the industry has experienced very little differentiation. The industry had little or no incentive to focus on getting the members healthier while they have chronic kidney disease. Providers are incentivized to continue providing services at their brick and mortar dialysis centers. Somatus reduces total cost of care and supports whole health management for costly, complex members on behalf of payers and providers through value-based partnerships. Through predictive analytics, Somatus measures not just the comorbidities but also the severity of the comorbidities and the rate at which these comorbidities impact the disease progression. For members that are on later stages of CKD, the company takes measures to increase the kidney transplant rates via planned starts and pre-emptive transplantation. For members ineligible for transplant, Somatus’ focus is to increase the mix of home dialysis. The company’s focus is to Healthcare Technology 29
22 March 2020 delay or stop CKD progression with early intervention, analytics, education and evidence-based therapies. Benefits to this strategy and Somatus’ services are: detection and management of kidney disease progression; patient insights from analytics and in-home assessments; 24/7 local care team and community resources; collaboration and support across a continuum of care; assistance with food & nutrition, transportation, education, medication management, home support etc; referral coordination, appointment assistance and care planning with high-quality, in-network specialists; care planning and appointment coordination; and cost and quality performance incentives and opportunities. Tech Platform Improves Network engagement and Proactive Outreach
Somatus has a comprehensive kidney care platform called RenalIQ and within this platform, the company has three critical components. RenalIQ Prognostics focuses on risk stratification, developing disease progression models, machine learning algorithms and predictive analytics for kidney disease progression monitoring. RenalIQ Care Management is a proprietary workflow solution for field-based nurses and physicians to use when entering the homes of patients to capture data and create evidenced-based workflows. This enables medical professionals to perform the right interventions at the right times. All data is then fed back to centralized platform and used to further improve risk stratification and machine learning. RenalIQ Insights focuses on reporting an analytics. This component of the platform offers business intelligence metrics for cost & utilization, kidney disease progression, and dialysis and KPI reporting. This component also offers network reporting to health plan partners and provider partners which gives them a sense of how the population is doing over time and how Somatus’ services is impacting the population Somatus’ proprietary cloud-based platform combines advanced analytics with clinical and business intelligence to identify kidney disease progression, engage members and care teams with timely alerts, and manage complex populations with kidney disease through evidence- based care pathways. Government Regulation
Recent government regulations announced by CMS have been favorable. In July 2019, the President signed an Executive Order to launch Advancing American Kidney Health, a new initiative designed to improve the lives of Americans with kidney disease by expanding treatment options and reducing health care costs. Previously ineligible ESRD patients can now select an MA plan during OEP for the 2021 calendar year. Update on Somatus’ Response to COVID-19
Mr. Cheema notes that CKD patients have the second highest risk of developing coronavirus. As a result, Somatus is actively monitoring the situation and constantly in communication with partners, nephrologist and providers. From the perspective of field-based medical professionals, the company is focused on telephonic visits, telehealth and other video calls. As a result of new guidelines from the CDC, management expects to see an increase in engagement rates, particularly because members are anxious, particularly those that need to go out for dialysis. While the company has not seen any disruption in inpatient and outpatient service plans, to mitigate patient concerns, Somatus is using a combination of technology, network engagement, and proactive outreach. Additionally, the company has developed a video conferencing app to engage with more members. While it is currently in the testing phase, the COVID-19 outbreak has given management the opportunity to accelerate its launch.
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22 March 2020
Welltok Presenter: Chris Power, Welltok’s CFO Headquartered in Denver, CO, Welltok is a data-driven, enterprise SaaS company that delivers the healthcare industry’s leading consumer activation platform. Welltok works with health plans, large employers, hospitals, and health systems to get consumers to take and complete actions that improve their health and well-being. Welltok leverages a machine-learning, multi-channel approach proven to help innovative organizations power growth and retention initiatives, improve healthcare value, and streamline the consumer experience, while upholding the highest security and compliance standards. Business Model
Mr. Power notes that the healthcare industry is typically focused on the clinical aspect of health. However, people spend less than 1% of their time in a doctor’s office, hospital, or any kind of clinical setting. Welltok has built its business around focusing on the 99% of time people are outside of that clinical setting, which they believe is critical to manage an individual’s health over time. With 70% of a consumer’s health status driven by social determinants of health (e.g., lifestyle, environment, etc.), Welltok helps consumers year round to optimize their health and prevent issues from negatively impacting them – helping them stay out of a clinical setting. Welltok serves as the connective tissue between the sponsor (i.e., health plan, employer, and provider) and their consumer population (i.e., member, employee, or patient). The company’s consumer activation platform begins with clinical and claims data plus they then leverage their own proprietary consumer data, including social determinants of health, and utilize machine learning to target consumers to achieve their sponsors’ ROI objectives. From there, Welltok creates a personalized itinerary customized to each individual’s needs. Multi-channel communications and incentives are used to drive targeted action (e.g., joining a resiliency program, talking to a financial coach, or getting a health screen). Finally, Welltok customizes rewards to drive that consumer to take action. These rewards can take the form of anything from gift cards to medical premium reductions to points programs. Throughout the entire year, Welltok coordinates a whole health and well-being experience for the consumer. These programs can include: flu shots, nutrition coaching, vision management, step challenges, financial programming, and open enrollment, etc. Welltok then leverages their preferred communication channel, which could be anything from an automated voicemail for Rx, text, email, direct-mail, etc. They then layer on rewards and incentives to drive the actions where consumers earn by completing the actions that drive their overall health. Welltok spent a decade building its proprietary consumer database with exclusive rights to public and private sources. The company factors in predictive variables, like where people work, live, if they vote, family size, etc. As a result, Welltok is able to get a 360 degree view of over 275 mln Americans across 800+ variables. Interestingly, Welltok was the first healthcare partner with IBM Watson, which has allowed them to leverage AI technology to continue to refine their platform and grow. Well-Diversified Client base
Welltok works with 55% of the top 20 health plans, 450 hospitals and health systems, some of the largest pharmacies – which Welltok is working with closely to promote drive-through and mail options given the coronavirus outbreak, and was recently selected as a platform of choice for a 50-member large employer Co-op. The company maintains a well-diversified client base even within these groups, with no client representing more than a single digit percentage of revenue. 5-15x ROI Across Market Segments
For the sponsors, Welltok helps them optimize their resources by using data to determine what resources to invest in, and where they can have the greatest impact. The solution provides a Healthcare Technology 31
22 March 2020 sponsor dashboard where it predicts the ROI for each of the campaigns and programs that the sponsor could be running at that time. Additionally, Welltok can retrospectively look back and determine what the ROI was and compare to the ROI that was predicted for each of the programs. On average, Welltok delivers between 5x-15x ROI across market segments and does so through one platform that can flex across all markets. Depending on the market served, the company delivers ROI in different ways. For providers, the ROI typically comes from driving additional revenue into their business. With health plans, it comes from building a relationship with members and helping drive retention of those members – in addition to reducing healthcare costs over time. On the employer side, the ROI is driven by making resources available to ensure their employees are managing their health (e.g., diabetes management, weight management, etc.). Mr. Power noted that the 5x-15x tends to be consistent across these markets. Competitive Landscape
Welltok sees a $15 bln TAM in the U.S. and notes the company is still very early in penetration of that market. Mr. Power indicated there are a few competitors that tend to be around the $100 mln revenue level. Further, these competitors tend to be in different market segments that Welltok operates in. For example, in the health plan space, the company notes Castlight Health, HMSY’s Eliza, and Rally Health. In the employer space, competitors include Sharecare and Virgin Pulse. For the provider market, Welltok indicated a main competitor is Healthgrades. The company believes it is in a unique position, as its platform can cut across all three of the segments. Up until 3Q19, the company was exclusively in the U.S. until it signed its 5th largest client deal in company history, expanding Welltok internationally. As such, as the company expands to international markets, the TAM is expected to only increase. Integrated Partnerships
Welltok partners with a variety of programs across all aspects of health, including: Livongo, Telespine, Hello Heart, HealthFitness, and others. The company combines resources from its partnerships as well as in-house resources developed over the years. A key aspect of these partnership resources is that they are pre-integrated. This is a critical component to their strategy as it allows Welltok’s partners a faster time go live with their clients and Welltok only has to integrate with that channel partner once. For example, Welltok has an employer client that has ~36 integrations with healthcare partners/point solutions. Through Welltok’s platform of pre-integrated solutions, it can take those 36 individual integrations down to one. Importantly, HR departments are typically not first on the list to get IT resources to be able to execute on health and well-being programs. Once integrated with a client, Welltok delivers its services via multi-channel communications based on consumer preferences and data. In 2019, Welltok generated over 330 million consumer touches across all of its channels, which include: live agents, email, text, web, AI Chatbots, and direct mail. Responding to COVID-19 Pandemic
Welltok has been working with their clients across the country to increase communication, education, and support to their members, employees, and consumers. The company is uniquely positioned to help by leveraging their consumer data and multi-channel communication platform, which provides multiple vehicles to reach out to individuals. Financials
Welltok primarily generates revenue on a per-member per-month (PMPM) basis. On top of that, the company drives transaction services, which are campaigns and programs based on the ROI the platform identified as being the best opportunity. Through Welltok’s platform, they will run campaigns for their pre-integrated partners and will participate in a revenue share agreement
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22 March 2020 with those partners while at the same time obtaining the performance data from those campaigns. Thus, not only does Welltok get compensated from the revenue share, they store the data from the campaign which allows them to continue to refine their algorithms. The partner ecosystem channel has been showing great momentum having grown revenues by 50% in 2019. A smaller component of the revenue model is from professional services fees – accounting for ~MSD% of revenue. Oftentimes, Welltok acts as an agency, helping clients work through the various ROIs of the programs and helping them determine what is going to deliver the most value over time. Welltok has over 130 enterprise clients with a 95% retention rate among the top 20. Welltok claims to have 80% of revenue visibility while 94% of revenue is SaaS-based recurring. The company sees the biggest opportunity to be in the health plan space, especially from ASOs as these entities need opportunities to add more value over time. On revenue mix, health plans are the company’s largest market making up ~50% of revenue, with providers and employers each making up ~25% of the remaining revenue stream. Mr. Power noted the company is approaching sustainable profitability having been EBITDA positive in Q42019, which seasonally is the best quarter for the business. Over the past few years, Welltok has grew operating margins by ~10% per year as the platform has scaled, from driving down data costs, G&A, etc. Further, Mr. Power indicated the company expects continued improvement in operating margins going forward.
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Companies Mentioned (Price as of 22-Mar-2020) 1life Healthcare (ONEM.OQ, $19.49) AMN Healthcare, Inc. (AMN.N, $62.75) Acadia Healthcare Company, Inc. (ACHC.OQ, $12.59) Allscripts Healthcare Solutions Inc. (MDRX.OQ, $5.51) Amedisys (AMED.OQ, $169.67) AmerisourceBergen (ABC.N, $80.61) Anthem, Inc. (ANTM.N, $191.59) CVS Health (CVS.N, $54.7) Cardinal Health (CAH.N, $43.33) Centene Corporation (CNC.N, $48.85) Cerner (CERN.OQ, $56.55) Change Healthcare (CHNG.OQ, $7.82) Cigna Corporation (CI.N, $142.09) Community Health Systems (CYH.N, $2.63) Cross Country Healthcare, Inc. (CCRN.OQ, $7.75) Encompass Health Corporation (EHC.N, $50.54) Evolent Health (EVH.N, $4.85) Genesis Healthcare, Inc. (GEN.N, $0.79) HCA Healthcare (HCA.N, $78.5) HMS Holdings Corp (HMSY.OQ, $23.08) Health Catalyst (HCAT.OQ, $23.45) Health Insurance Innovations, Inc (BFYT.OQ, $17.09) HealthEquity (HQY.OQ, $44.31) HealthStream (HSTM.OQ, $20.76) Healthcare Services Group (HCSG.OQ, $21.58) Humana Inc. (HUM.N, $230.61) Inovalon Hldg (INOV.OQ, $13.91) Livongo Health (LVGO.OQ, $22.55) MEDNAX, Inc. (MD.N, $9.4) McKesson (MCK.N, $124.97) Owens & Minor (OMI.N, $5.91) Phreesia (PHR.N, $20.12) Progyny (PGNY.OQ, $19.5) Quality Systems, Inc (NXGN.OQ, $7.12) R1 RCM (RCM.OQ, $8.85) Select Medical Holdings Corporation (SEM.N, $11.5) Service Corporation International (SCI.N, $35.94) Tabula Rasa (TRHC.OQ, $44.51) Teladoc Health (TDOC.N, $141.74) Tenet Healthcare Corporation (THC.N, $12.98) Tivity Health (TVTY.OQ, $3.84) UnitedHealth Group Inc. (UNH.N, $206.59) Universal Health Services (UHS.N, $75.42) Walgreens Boots Alliance (WBA.OQ, $46.42) eHealth (EHTH.OQ, $102.76)
Disclosure Appendix Analyst Certification The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as Europea n (excluding Turkey) ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the an alyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin America, Turkey and Asia (excluding Japan and Australia), stock ratings are based on a stock’s total return relative to the average to tal return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Healthcare Technology 34
22 March 2020 22March 2020 Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the
past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors. Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 48% (33% banking clients) Neutral/Hold* 38% (26% banking clients) Underperform/Sell* 12% (21% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors. Important Global Disclosures Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to https://plus.credit-suisse.com . Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.credit- suisse.com/sites/disclaimers-ib/en/managing-conflicts.html . Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional. Credit Suisse has decided not to enter into business relationships with companies that Credit Suisse has determined to be involved in the development, manufacture, or acquisition of anti-personnel mines and cluster munitions. For Credit Suisse's position on the issue, please see The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities See the Companies Mentioned section for full company names Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): TVTY.OQ, EHTH.OQ, SEM.N, ABC.N, CVS.N, CAH.N, CHNG.OQ, CI.N, CYH.N, UNH.N, WBA.OQ, ANTM.N Credit Suisse provided investment banking services to the subject company (TVTY.OQ, EHTH.OQ, SEM.N, ABC.N, CVS.N, CAH.N, CHNG.OQ, CI.N, CYH.N, UNH.N, WBA.OQ, ANTM.N) within the past 12 months. Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): TVTY.OQ, ABC.N, CVS.N, CI.N, GEN.N, UNH.N, ANTM.N
Credit Suisse has managed or co-managed a public offering of securities for the subject company (EHTH.OQ, CVS.N, CHNG.OQ, CI.N, CYH.N, UNH.N) within the past 12 months. Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): TVTY.OQ, EHTH.OQ, SEM.N, ABC.N, CVS.N, CHNG.OQ, CI.N, CYH.N, UNH.N, WBA.OQ, ANTM.N Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (EHC.N, HMSY.OQ, TVTY.OQ, EHTH.OQ, SEM.N, ABC.N, CVS.N, AMED.OQ, CAH.N, MCK.N, CHNG.OQ, CI.N, CNC.N, CYH.N, HUM.N, UNH.N, WBA.OQ, ANTM.N) within the next 3 months. Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non- investment-banking, securities-related: TVTY.OQ, ABC.N, CVS.N, CI.N, GEN.N, UNH.N, ANTM.N Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non- investment-banking, non securities-related: UNH.N Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): AMN.N, ACHC.OQ, AMED.OQ, ABC.N, ANTM.N, CVS.N, CAH.N, CNC.N, CHNG.OQ, CI.N, CYH.N, CCRN.OQ, EHC.N, GEN.N, HCA.N, HMSY.OQ, HCSG.OQ, HUM.N, MD.N, MCK.N, OMI.N, SEM.N, SCI.N, TDOC.N, THC.N, TVTY.OQ, UNH.N, UHS.N, WBA.OQ, EHTH.OQ
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22 March 2020 22March 2020 A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (TVTY.OQ, EHTH.OQ, SEM.N, ABC.N, CVS.N, CAH.N, CHNG.OQ, CI.N, CYH.N, UNH.N, WBA.OQ, ANTM.N) within the past 12 months. As of the date of this report, Credit Suisse beneficially own 1% or more of a class of common equity securities of (EHTH.OQ, MCK.N,
CHNG.OQ, CYH.N). Credit Suisse is acting as financial advisor to New York Life on its announced acquisition of Cigna’s group life and disability insurance business. For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit- suisse.com/disclosures/view/report?i=502145&v=20ixmzeidlql58tbjtt1oruf2 . Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Investors should note that income from such securities and other financial instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire principal investment. This research report is authored by: Credit Suisse Securities (USA) LLC ...... Jailendra Singh ; Jermaine Brown ; Adam Heussner Important disclosures regarding companies that are the subject of this report are available by calling +1 (877) 291-2683. The same important disclosures, with the exception of valuation methodology and risk discussions, are also available on Credit Suisse’s disclosure website at https://rave.credit-suisse.com/disclosures . For valuation methodology and risks associated with any recommendation, price target, or rating referenced in this report, please refer to the disclosures section of the most recent report regarding the subject company.
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