We’re talking about accountability for one’s actions in this week’s healthcare roundup. You’ll get what I mean in just a second.

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Cerebral and Accountability.

Virtual mental health startup Cerebral announced on May 18 that its founder and CEO Kyle Robertson is stepping down to be replaced by current Chief Medical Officer, David Mou.

Amid the reported abuse of controlled substance prescriptions, subsequent decision to stop prescribing controlled substances, and now pending investigation by the DOJ, Mou, who has taken up the challenge of defending Cerebral while acknowledging mistakes, has his work cut out for him. You have to believe he has a golden parachute at this point.

Cerebral was a perfect storm and looking back on how the various factors played out, you can pretty easily figure out why this happened and what led to Cerebral’s insane growth / subsequent pill mill problems:

  • Robertson founded Cerebral in January 2020, as the pandemic was taking shape;
  • The U.S. economy was experiencing record low interest rates that resulted in over speculation and hordes of capital;
  • Covid accelerated telehealth and digital health adoption by 10+ years;
  • The public health emergency instituted shortly after Covid began suspended the Ryan Haight Act among loosening other regulations (telehealth) friendly to Cerebral’s business model. Behavioral health in particular is well suited to telehealth. You can see how the stars aligned to exploit regulations here;
  • Prescribing controlled substances allowed for stickier patient retention for Cerebral (and I’m sure others), so it was likely pushed by Cerebral’s investors. This is pure speculation, but please, Oak & others, let me know how it went down.

So what’s next for Cerebral? They’ll phase out prescription of controlled substances and who knows how the investigation ends. But at this point, without the bump from pills, I can’t imagine the firm is having a ton of success financially given current labor struggles and inflationary CAC environment in mental health. Cerebral will have to raise again. With the macro conditions and constant press attention, the mental health unicorn last valued at $4.8 billion will face a severe down round.

Madden’s Musing: This will probably be my last time touching on Cerebral until we get a documentary on the company’s collapse. Please prove me wrong, Dr. Mou, and fix the cesspool.

This business model is not what digital health founders envision for the future of healthcare. While expanding access to mental health is amazing, charging patients a monthly subscription fee for a prescribing platform doesn’t really compute and lends itself to patient exploitation. The incentives between growth at all costs, and actual provision of healthcare here, were misaligned.

In Cerebral’s case, the firm aggressively pushed controlled substances (adderall) to increase patient retention and pump growth numbers. In Purdue Pharma and McKinsey’s case, it was driving sales of addictive AF opioids and push pill prescriptions. In Adeptus’ case, it was exploiting surprise and balance billing and hitting patients with huge out of network costs.

Venture capitalists and executives backing Cerebral deserve to be held accountable instead of getting to silently distance themselves from their bullshit. Pushing out Robertson as a likely scapegoat while selling secondaries along the way is extraordinarily cowardly – if that’s how it went down.

Sitting on the board while quietly distancing away from your funded startup signals to me that as an investor, you bailed on your founder when things look down, OR you profited off a company that was accused of having a negative impact on patients. But we don’t have that side of the coin at all, and we weren’t in that boardroom. So please enlighten us.

Bottom line: Cerebral’s investors deserve severe scrutiny and should be held accountable at some level.

Own up to what you did (or didn’t!!) do. I get it. Mistakes happen in VC. You’re not expected to be perfect. But you do owe patients, providers, and employees an explanation if their livelihoods and financial states change as a result of your actions. Because right now, I wouldn’t say the optics look too great. That nigiri does, though.

Finally, I want to be clear: This is NOT a slam piece on venture capital. In general, VCs fill a very unique need – especially in healthcare, where there are a lot of things that need fixing and a lot of capital and time needed to do so. Let’s fix what’s broken.

I’m rooting for Cerebral and its backers. A lot of patients have had a lot of positive things to say about their experience with the firm, and it has done a ton to expand access to mental health during the pandemic. I’m rooting for digital health & VC, and I’m rooting for some fairness and accountability that employees, patients, and providers deserve.

In general, VCs are well-intentioned with the goal of improving the patient experience while being rewarded for taking on investment risk. But we can’t allow bad actors to flourish. By doing so, we regress on positive changes and a better regulatory environment for mental health access when those services are very much needed. I hope that the bad actors don’t crowd out the best players and scare off investment dollars from the space, because the need is there – and that goes for all of healthcare.

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For all the health tech founders out there, just make sure you align with the right VC partner along the way.


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Centura Health and Accountability.

Let’s move on to the next accountability lesson, class! This week, Centura Health, a JOA in the Midwest between CommonSpirit Health and AdventHealth, lost an 8-year long, arduous, strenuous Colorado Supreme Court battle with…little ‘ole Lisa French.

What did French do to deserve an 8-year long court case, you ask? She went to the hospital for a spinal fusion surgery. At the time, she was told that her insurance was in network and expected to be billed around $1,300.

French had the procedure done in 2014 and went on her merry way. Or so she thought.

As it turns out, an employee misread French’s insurance card, so Centura charged her for the full hospital chargemaster cost (which is increasingly detached from price reality) of a spinal fusion. The final bill sat at over $300k (!!!)

Insurance covered $74k, which is actually above average reimbursement for that procedure at that hospital (mixing in Medicare and Medicaid), but Centura continued to pursue the other $230k, which is when the litigation began and ultimately ended with French’s victory.

Madden’s Musing: Listen, I get it. Operating a rural health system in the general Midwest is difficult. You don’t have a ton of patients like those in dense urban areas, and it’s hard to attract clinical talent to your footprint.

But how do we let something like this drag on for 8 years? Did Centura just book the $230k as 2,920 days AR outstanding? Was leadership aware of what was going on? “Hey guys, the $74k we got wasn’t enough. Let’s spend that $74k on legal fees over the next 8 years and go for the other $230k here.” Are we thinking about the cost effectiveness of this strategy here?

Let’s look at the broader optics here though for Centura. While the system is suing a patient into oblivion, leadership is focused on acquisitions, announcing a 2-hospital purchase in May for $135 million. Then, this article dropped from Health Leaders diving into Centura’s plans to grow to a $7 billion health system, and that they’ve identified “about a billion dollars in growth through acquisitions.

I’ve lived in the business side of healthcare my entire career, and I understand why hospitals – especially rural hospital systems – have to be on top of their billing and pursue acquisitions to expand into new markets with more patients. But there’s something to be said about the use of capital here, even if the legal fees are small dollars in the grand scheme of things.

I strongly dislike having negative stories and tone in this newsletter because I think there are a LOT of brilliant, good people in organizations across healthcare trying to drive change and make a difference in people’s lives. I definitely prefer to cover those!

But something about the timing of these articles just…got to me this week.


Market Movers

Strive Health announced a notable partnership with Bon Secours Mercy Health this week. Under the arrangement, Strive will manage BSMH’s chronic kidney disease patients through its platform and has been deploying its model through several health systems. CKD is in chronic (pun intended) need of change, so I’m excited to see how these partnerships develop

Dartmouth Health and GraniteOne called off their merger after receiving some heat from New Hampshire’s attorney general, falling in the footsteps of New Jersey-based Englewood and Hackensack Health and their also cancelled merger. Also, don’t forget about the cancelled Lifespan and Care New England merger called off in February. In case you haven’t noticed, hospital mergers are growing increasingly difficult in the current regulatory environment. Any sniff of additional market power and you’re either making major concessions or getting struck down altogether. On Thursday, I’ll be jumping headfirst into what’s going on with health system mergers these days.

Meanwhile, the RWJBarnabas Health and Saint Peter’s merger previously announced in 2020 won New Jersey’s approval and will successfully integrate pending any last-minute hiccup from the FTC.

Amwell and Transcarent separately launched new mental health services this week – Amwell’s plans include a comprehensive behavioral health program (don’t forget that they bought SilverCloud last year, and likewise, Transcarent’s launch also seems to be positioned to address a wide range of behavioral health acuity needs while slashing therapy wait-times. The virtual mental health space grows ever more crowded. I mean, we have to be nearing perfect economic competition here, no?

400-physician Private Diagnostic Clinic voted on May 13 to dissolve and join Duke Health. They had previously held out on the acquisition, even going so far as to accuse Duke of ‘taking over the practice’ in December. Welp…looks like they’ve figured it all out.

The public health emergency is expected to continue beyond July – HHS will provide states with a 60 day notice when the agency expects the PHE to end, and that obviously hasn’t happened or I would be telling you about it!

36 hospital CEOs have left their roles this year, an 80% increase year-over-year. What gives? Are they retiring? Burnt out? This has to be worse than the general Great Resignation on a proportional scale.

Tia is expanding into fertility services, an area that is typically pretty lucrative. The interesting part here is that Tia itself isn’t planning on offering egg freezing or sperm testing, separating itself from monetary conflicts of interest with patient needs. Damn, that’s awesome.

The Mayo Clinic posted a $227 million loss in Q1 and a $142 million operating profit (3.6%). The typical headwinds affected profitability here – labor and supply chain problems, while the macro environment hit Mayo’s investment portfolio.

After acquiring MeMD, a small, pretty unknown telehealth provider in 2021, Walmart is rebranding the firm to Walmart Health Virtual Care. It looks like Walmart is deploying a hybrid model here, where MeMD / Virtual care will supplement Walmart’s brick and mortar services.

Miscellaneous Maddenings

  • Congrats to JT on the PGA Championship win! He had a 1.2% chance of winning going in to Sunday. You really have to feel for Pereira. What a gut-wrenching double on 18. (Shoulda pulled 3 wood tho).
  • Is this the most cringeworthy basketball movie scene ever?
  • Speaking of basketball…well guys, it was a great run for the Mavs and we were really playing with house money at this point. I thought we’d have a better showing but the tank just ran out of gas! We’ll be back, baby.
  • Balotelli had one of the goals of the year yesterday. You kidding me?!
  • Martin Shkreli is a free man once again.

Hospitalogy Top Reads

  • This was a great overview of Transcarent and its founder Glen Tullman, and provided a nice overview of what the company is trying to do – basically disrupt commercial insurance.
  • I enjoyed this thorough analysis of the radiology physician market, including the current dynamics affecting practices and compensation.
  • Health Affairs’ write-up of advancing equity through ACO REACH (CMMI’s latest risk redesign) was very thorough and provided a solid overview of what’s going on with the program. Read part 1 here and here’s part 2.
  • Here’s a really good read on emergency medicine and private equity. It’s somewhat less of a hit piece and more of an interesting overview on the dynamics between physicians and the economics of these emergency staffing players.

If you enjoy reading Hospitalogy, I’d love your support by dropping a subscription. Sign up for Hospitalogy on Tuesdays and Thursdays here!

Blake Madden
Blake Madden
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