Welcome to the latest installment of Hospitalogy. On Tuesdays we dive into healthcare’s biggest stories across the industry, and today is no different. What are you giving your favorite PBM for Christmas? I’m joking – they don’t deserve anything. Maybe coal.

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Mark Cuban’s Cost Plus Drugs’ next target: Employers

On December 8, Mark Cuban Cost Plus Drugs (MCCPD) announced a partnership with EmsanaRx, a pharmacy benefit manager (PBM) created by the Purchaser Business Group on Health (PBGH) (seriously, what’s with the names guys – this isn’t a legal document). Together, MCCPD and EmsanaRx will launch an offering of MCCPD’s discounted cost-plus model targeting self-insured employers. As part of the deal, EmsanaRx, created back in October 2021 and also a public benefit corporation partnered with the Cleveland Clinic, will handle the tech and prescription fulfillment. It’ll collect a transparent 1.5% flat fee for each claim managed (AKA, passing on all rebates – upfront PBM pricing). The ultimate goal of the partnership aims to provide employers with low-priced medication through employer plans rather than going through a third party with drug discount cards. Shots fired. The new employer offering will launch in March 2023. Meanwhile, PBGH is a coalition of around 40 employers that MCCPD can potentially sell the new offering into.

Madden’s Musing: For anyone questioning how far MCCPD or other new pharmacy and drug startups grinding to provide affordable, accessible drugs can ‘move the needle’ in healthcare, I have to ask you to take a step back for a sec. What are you expecting? To see these companies immediately dominate incumbents hundreds of billions of dollars in size? This is healthcare, not SaaS. Cuban and others are paving their way into this industry, and that starts with consumer trust and generics. The move from MCCPD is significant – it’s a notable partnership outside of the existing direct-to-consumer strategy into a new venture catered to employers. If MCCPD can tap the employer market and offer the lowest cost on 1,000 drugs with transparent pricing…I mean what’s not to like from the employer side?

MCCPD is announcing a major move every month. It integrated with Rightway PBM in late September then Capital Blue Cross, a Pennsylvania Blue Plan, in October. In Q4 it’ll open its manufacturing plant, targeting injectables and other hard-to-source drugs.

Bigger Picture: Lots of activity is happening in the drug pricing space. From a policy perspective, Congress passed the Inflation Reduction Act, one of the most significant pieces of healthcare legislation in recent memory. GoodRx recently announced a partnership with Express Scripts to become the exclusive discount card provider for commercial members and adjudicate at the lowest price for generic medication. Beneficiaries get the lowest out of pocket cost, and no matter which PBM pricing they use, all spending applies to their deductible.

I expect to see more moves happening as MCCPD and other competitive forces shape change. Next stop: brand-name drugs, a much tougher task.

TL;DR: MCCPD operates a generic drug model with fixed, transparent markups direct to consumer. It is extending this model to the employer sponsored health insurance market through a partnership with EmsanaRx, which will also offer a fixed PBM markup but pass on all rebates beyond the 1.5% upcharge.

  • For musings on the pharmaceutical industry, I recommend following Casey Langwith!

Healthcare workforce dynamics entering 2023 – Nurses get pay day

To bring down high-dollar contract labor and travel nursing costs, hospitals are making major concessions to bring nurses home to full-time positions, with the ultimate goal of boosting retention. Amidst unprecedented staffing shortages and workforce burnout throughout 2022, strikes have been a major theme for the year and the clinical workforce holds the bargaining chip entering 2023. As a result, nurses are getting big pay days. A few examples across the nation:

  • Kaiser Permanente averted a 21,000-nurse strike, offering a 22.5% salary increase over 4 years among other provisions to its nursing base.
  • The Minnesota’s Nurses Association, representing 15,000 nurses, ratified a new 3-year contract that calls for an 18% increase over the contract’s timeframe – the largest won contract for the MNA in two decades!
  • HCA Healthcare is providing its nurses with semi-annual payment updates based on local market analytics and is also heavily investing in its Galen College of Nursing program along with increased benefits.
  • Ascension’s Borgess Hospital tentatively agreed to a 20.5% year-one raise to 300 or so nurses with the Michigan Nurses Association, a union representing 13,000 nurses.

Bottom line: The dynamics we’ve seen in 2022 are the reason why staffing agencies are seeing massive investment. There is a ton of room for improvement and financial gain for finding permanent placements for nurses, but also still quite a lucrative travel nursing operation that isn’t going away.

Nurses and clinical personnel are not only getting massive raises but also are receiving perks like the creation of new nurse-led task forces, workplace violence prevention provisions, mandatory minimum staffing ratios, tuition reimbursement, sign-on bonuses, and future hiring promises from health systems. On the hospital side, we’re likely going to see a tale of two systems. Efficient operators like HCA and Tenet are tired of paying travel staffing firms crazy sums to manage their census and are increasing investing in permanent nurses + retention programs to reduce travel spend. On the other hand, nonprofit health systems may continue to see margins erode if current utilization and labor trends continue into 2023.

Market Movers

Partnerships and Strategy Updates:

  • Oscar issued a statement on its open enrollment growth in Florida, stating its intention to remain around the 1 million member mark for its state footprint. The decision makes business sense, although I don’t think I’ve EVER read a press release about limiting growth! (Read more)
  • Bright Health received a notice of non-compliance from the New York Stock Exchange related to its share price under $1.00 for an extended period of time (Read more)
  • Quest Diagnostics entered into a partnership with Northern Light Health in Maine to acquire NLH’s outreach labs business. (Read more)
  • This was an interesting discussion from Steward Health Care’s CEO Ralph de la Torre on the current state of value-based care models in health systems. (Read more)
  • This was a nice read on Oak Street Health’s clinical care model and how it’s intertwining tech Canopy platform and patient care. (Read more)
  • Oma Fertility chose Alto Pharmacy as its pharmacy partner for fertility medication. (Read more)
  • Carle Health partnered with Health Catalyst in a multi-year deal to enhance its data analytics capabilities. (Read more)

Finance and M&A Updates:

  • Amgen agreed to buy Horizon Therapeutics in a deal valued at $27.8B. The purchase gives Amgen access to at least a couple of rare disease drugs – orphans – in Horizon’s portfolio including Tepezza (thyroid eye disease) and Krystexxa (gout). (Read more)
  • The University of Michigan Health System announced the acquisition of Lansing-based Sparrow Health to create a $7B system with more than 200 clinical sites. UM will also invest $800M into Sparrow. (Read more)
  • PwC’s latest healthcare M&A analysis dropped this week. Among other notable observations, industry-wide EV / EBITDA multiples have dropped by 1.5x, from 15.9x at the end of December 2021 to 14.4x today. (Read more)
  • Medical Specialists of the Palm Beaches, a 25+ clinic multispecialty practice in Florida, received an equity investment from Ascend Capital Partners. (Read more)
  • Clovis Oncology filed for chapter 11 bankruptcy. (Read more)
  • Prime Therapeutics closed its $1.4B acquisition of MagellanRx from Centene. (Read more)

Digital Health and Startup Updates:

  • Orthopedic specialty care provider Commons Clinic raised $11M. Ortho is a hot hot hot space. Commons is aiming to be a major player in 5-8 major markets over the next decade. (Paywall – Axios) (website)
  • Interwell Health seems to have launched an management services organization (MSO) / enablement platform for physicians in the kidney space. (Read more)
  • SaVia Health, which offers a support tool for clinical care teams, announced $8.5M in seed funding on December 12. (Read more)
  • One of the world’s forefront global cancer centers Gustave Roussy has chosen Synapse Medicine as its leading medication reconciliation platform. (Read more)*
  • Mental health provider Brightside Health announced a new program called Crisis Care, a telehealth product designed for treating individuals with elevated suicide risk. (Read more)
  • Hartford HealthCare announced a partnership with VC firm Connecticut Innovations in yet another think-tank collaboration between health system and venture capital. (Read more)
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Policy and Payment Updates:

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Costs, Data, and Other Updates:

  • HealthLeaders published the top 5 reasons payors don’t automate prior authorization from AHIP. Translation: “Let’s deflect so that we can retain premium dollars for longer.” Jokes below aside, lots of improvement needed in this space and the costliness of EHRs in general. (Read more):
    1. Provider does not use EHR enabled for electronic PA (71%) – number one hit single*: “it’s the provider’s fault”*
    2. Costly/burdensome for providers to buy/upgrade EHR for electronic PA (71%) – dang, if only there were some way to help ‘em out with that? Side note – bullish on enablement platforms?
    3. Lack of interoperability between EHR vendors (62%) – number two hit single “it’s not our fault”
    4. Costly/burdensome for payers to enable PA rules and information to be delivered electronically (43%) – welp, our current system is pretty costly and burdensome too, guys
    5. Lack of electronic PA solutions on market (19%) – I guess massive managed care behemoths can’t google search?
  • Remember that widespread CommonSpirit data breach first reported back in October? According to regulators it affected the patient health information of more than 623,000 people. It’s a sad state of affairs that healthcare organizations need to invest so heavily into cybersecurity. It also drastically, negatively affects my e-mail open rates! (Read more)
  • This was a hard to read report on Prospect Medical Holdings and the financial engineering involved with one of its hospitals: “In 2018, company owners took out a $1.12 billion loan, using proceeds to pay themselves and their private equity shareholders a $457 million dividend, according to the company’s financial statements, obtained by Neronha’s office in the course of the investigation.” We ought to take a hard look at the ‘ole sale-leaseback arrangement in healthcare. It’s a great way to unlock capital and equity, but it’s also too easy to exploit. “The company’s financial statements revealed that to pay back that $1.12 billion loan, Prospect Medical sold the land and the buildings from hospitals they owned in California, Connecticut and Pennsylvania to a real estate investment trust for $1.386 billion.” (Read more)

Miscellaneous Maddenings

  • Scientists made a huge breakthrough related to a net energy gain in a nuclear fusion reaction for the first time ever. LIMITLESS energy? (Read more)
  • Days after criticizing Qatar, soccer writer Grant Wahl tragically died in the aftermath of the Netherlands-Argentina game. Really wild story, but no foul play is suspected…(Read more)
  • It looks like Mike Leach is in critical condition and/or will pass away soon. Tragic loss of one of the staples of college football. Crazy. (Read more)
  • FTX Sam Bankman-Fried was finally arrested and charged with fraud! (Read more)

Hospitalogy Top Reads

  • Healthcare Huddle, Hospitalogy’s brother newsletter, was nominated in Medpage Today’s Readers’ Choice Awards for 2022! If you have a sec, I would greatly appreciate you voting for Healthcare Huddle under number 6 in this survey! Jared deserves a ton of credit for writing Healthcare Huddle full time while in medical school.
  • Business Insider published two great pieces this week. The first is on the Bright Health collapse (Read more). The second covers pharmacy startup Medly and how it crashed, laying off 1,100 of 1,900 employees. (Read more). Both are paywalled but highly recommend a read here as they’re great case studies.
  • a16z published an essay on consumer health and emerging areas of opportunity. (Read more)
  • Christina Farr and a consortium of writers on Second Opinion penned a piece on the state of tech-enabled services and how services, over time (OVER TIME) achieve profitability. (Read more)
  • I’ve had some folks recently ask where you can access an archive of Hospitalogy content. Everything I write gets posted here!

Join 12,300+ executives and investors from leading healthcare organizations including HCA, Optum, and Tenet, nonprofit health systems including Providence, Ascension, and Atrium, as well as leading digital health firms like Tia, Carbon Health, and Aledade by subscribing here!

Blake Madden
Blake Madden
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