Good morning,

In case you missed it: last week I dove into the synthetic data space and how it’s a game changer for healthcare. I also highlighted a pretty interesting startup leading the way in the space – Syntegra. You can read it here!

Hospitalogy drops in your e-mails every Tuesday (news roundup) and Thursday (deep dive). Let’s get after it. Closing in on 10k!

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Judge blocks DOJ’s request to stop UnitedHealth Group – Change Healthcare deal

A federal judge denied the DOJ’s request to stop UnitedHealthcare from buying Change Healthcare late yesterday, signifying the end of the antitrust trial and allowing UHG to move forward in acquiring Change Healthcare into Optum. UnitedHealth Group wins again! $CHNG closed up 6% in after hours trading.

Background: The transaction, announced in January 2021 and valued at $13 billion, was challenged by the DOJ after the big boi AHA and others voiced some concern over the deal.

Optum extended the merger agreement in April (with a $650M termination fee). The antitrust trial took place in early August and lasted two weeks, so healthcare reporters everywhere had been expecting a decision any day.

  • Main arguments: The DOJ argued that since Change Healthcare works as a claims clearinghouse for rival health insurers, the Change acquisition would give UHG unfettered access to proprietary competitor info along with a near monopoly (75% market share) on the claims editing market. Opponents also claim that the forced divestitures aren’t enough and that the transaction is a significant consolidation in areas with very few players. Seems reasonable.
  • UHG argued that the DOJ assertion is nonsense, stringent firewalls are in place between Optum and United, and that integrating Change into Optum would lower costs all around, including creating a more streamlined process for payors and providers that would ultimately benefit patients.
change healthcare financial breakdown unitedhealth group hospitalogy

Madden’s Musing: I’m still wondering why the court briefs were sealed. But regardless, assuming no hiccups from this point, Optum will finally get to integrate Change Healthcare into its OptumInsight (analytics, rev cycle, & data platform) arm, which did $12.2B in revenue in 2021 and ~$12.9B in the last twelve months ended June 30, 2022.

Change Healthcare generated around $3.5B in revenue in its FYE March 2022 (seen above) but part of that will get divested as the judge ordered UHG to sell Change’s ClaimsXten biz to TPG Capital for around $2.2B.

It goes to show just how tough it is to prevent megamergers on this level by insurance giants. Change Healthcare processes $1.5T (yes, with a T) claims through 15B transactions with 6,000 hospitals and 1,000,000 physicians. Given that OptumInsight is one of the largest providers of healthcare IT services in hospitals nationwide, the Optum-Change combination creates a formidable, pretty much untouchable, entrenched incumbent. Every other health insurer would have to work through Change/Insight once the deal is closed.

United continues to successfully execute on its strategy to focus on Optum as its growth engine for decades to come as it quietly acquires physician groups across the country. It’s building an untouchable empire.


Ascension Loses $1.8B in 2022

Top-5 nonprofit health system Ascension released its full year (MH paywall) 2022 financial and operating results on September 14th, and the trend of hospital losses marches on. Common themes continue to plague even the largest operator financial and operating performance.

Investment losses aside, Ascension’s operating margin totaled ($879M) while its total net margin dropped to ($1.84B). Operating EBITDA dropped to $671M, or 2.4%. Ignore the percentage

Ascension FYE 2022 financial results operating metrics hospitalogy

Madden’s Musing: I’m not sure if we’ve seen a more perfect storm of events putting intense pressure on hospitals in 2022. Increased expenses and labor shortages are tightening margins and increasing length of stay, hurting financial performance. These dynamics coupled with the deteriorated state of the market are leading to bond rating downgrades, increasing future borrowing costs for hospitals in a rising interest rate environment.

Although hospitals should see some return to operating normalcy in Q4 in a mostly ‘Rona-free arena, the environment will continue to be challenging should we see sustained inflation, poor market performance, and labor issues.

Hospitals will continue to wear the ‘recession-resistant’ crown for a bit longer, as 2023 will likely see some reprieve from above average payor rate lifts and ACA subsidies will bolster insured coverage, but chinks in the armor are emerging.

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Market Movers

Business and Strategy:

  • In what might be the largest nurses strike ever, 15,000 nurses in the Minnesota Nurses Association Union are striking, asking for better staffing ratios and a 30% raise over 3 years. The MNA cited the hospital CEO-to-nurse pay ratio disparity as one datapoint in favor of striking and pay raises. The union has negotiated with 16 local hospitals for 5 months and highlights ongoing labor issues. Signs of the times.
  • The Advocate-Aurora and Atrium $27B hospital mega-merger (which I wrote about here alongside fellow healthcare compatriot Daran Gaus) is somewhat in jeopardy after the Illinois health board voted to delay the approval of the merger after some confusion over corporate governance structure.
  • Transcarent launched a new pharmacy benefit offering for its self-insured employers and health systems with an emphasis on drug pricing transparency. It’ll face an uphill battle against the likes of CVS, OptumRx, and Express Scripts. If you’re interested, I also wrote a thread on PBMs here.
  • In conjunction with its joint venture with Welsh Carson, Humana is purchasing MA-focused senior primary care clinics from the PE firm for between $450M – $550M, continuing the trend of payors building out robust primary care services. Humana expects to have around 250 clinics by the end of 2022. Check out its full investor day press release here.
  • Care platform (you know I love em) Aledade posted some impressive results across its ACOs – every single Aledade-affiliated ACO earned a quality score above 90%, and the platform has saved Medicare more than $1.2B in spending over the past 8 years. Can’t think of a better win-win than this business model. Well done, Aledade.
  • UChicago Medicine is acquiring 4 hospitals from AdventHealth that used to be part of the JOA – Amita Health – between AdventHealth and Ascension until very recently. The acquisition is part of a larger affiliation between UChicago and AdventHealth in which the two Chicago operators will enable consumers to seamlessly access primary, specialty and subspecialty medical care across both organizations. UChicago has been aggressively expanding lately.
  • MA player Alignment Healthcare priced a secondary offering of 9M shares at $14.75, raising up to $133M
  • Providence is planning a $712M expansion across a multitude of services in Southern California, including primary care, imaging, specialty care, an ASC, and 100 more beds on one of its fast-growing campuses.
  • McKesson is acquiring Rx Savings Solutions, a company focused on prescription price transparency, for up to $875M.
  • JenCare appointed former Co-CEO and UnitedHealthcare exec Steve Nelson as its new CEO. Keep in mind that Humana is reportedly in talks to buy the joint venture operation between ChenMed and the large payor. The JV operates 30 senior-focused clinics across 6 states.
  • Employers are bracing for massive healthcare cost increases for 2023. Pretty alarming. It makes you wonder when – or if – there’s a breaking point or point of no return for healthcare costs. I think we’ll all be glad to see inflation return to normal hopefully soon.
  • Frontier Direct Care partnered with Flume Health to launch a new health plan in South Texas.
  • Redesign Health, a startup that helps build other healthcare startups (very meta) raised $65M at a ~$1.7B valuation

Regulations and Rates:

  • The Biden Administration released a roadmap to work on expanding access and integration of behavioral healthcare in the U.S.
  • Centene will settle a Texas Medicaid drug pricing case for $166M.
  • The pandemic is over,” Biden said in a “60 Minutes” interview that aired Sunday night. “We still have a problem with Covid. We’re still doing a lot of work on it. But the pandemic is over.” – this type of rhetoric makes me wonder how much longer the public health emergency will persist, which would tighten up quite a few healthcare regulations and put into jeopardy up to ~14M folks on Medicaid. ACA subsidies will help.
  • Congress is asking HHS for a federal investigation into HCA as a result of its ED and admissions practices, accusing the hospital operator of admitting people who don’t necessarily need ER care.


  • There’s an ADHD shortage in the U.S. Apparently Teva and other pharmaceutical manufacturers can’t keep up with all of the virtual mental health players dispensing and prescribing Adderall like candy. Even more alarming – some people are going to the streets / black market to find Adderrall, some of which is laced with fentanyl. Scary.
  • Physician burnout is at an all-time high.
  • Clarify Health published an alarming report on pediatric mental health in America. Mental health services utilization is increasing rapidly.

Miscellaneous Maddenings

  • Crazy stuff going on this week yall…I’ll start with the leg-lengthening procedure that some upper class folks are paying upwards of $75k-$150k for. Basically they get their femurs BROKEN, and a screw gets inserted that slowly expands over time to make you 3 to 6 inches taller. I mean, is this really worth it? Surely in the long term this is detrimental to your health. Makes me squeamish. I’ll stick with my 5’9 stature although…6’0 is now within my reach!!
  • In other news you truly can’t make up, the Beyond Meat COO was arrested outside of the Arkansas stadium after…biting a man’s nose. There’s a vegan / meat eating joke in there somewhere, but what the heck is going on yall?
  • Dabo Swinney was absolutely CHOPPING down the Hill – I mean, I hope I still have chops like that when I hit 52.

Hospitalogy Top Reads

  • Here’s a great read from Vickram Pradhan on why he thinks healthcare’s labor challenges are here to stay and why staffing shortages are a pull-forward for the industry, which (in my mind) is a primary thesis for why staffing firms and startups are doing so well / raising so much in recent memory.
  • KHN dropped another piece on private equity activity in ophthalmology. I’ve written in the past on why private equity targets physician practices for investment – you can read that breakdown here. Still, more than ever, there’s a need for patients to be made aware of their available care options.
  • This was a nice, deep, in-depth read from STAT on the dialysis landscape and how payment models should change in the coming years to promote equity and at-home care.

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Blake Madden
Blake Madden
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