What do you get when you combine a company with a commodity business model, that out of desperation massively overpays for another company that has a commodity business model? $10 billion in writeoffs if you are Teladoc. Teladoc arranges virtual patient visits. Livongo did some goofy care and disease management model. Neither company had any prospects of significant profitability because anyone can do what they claim to do. Teladoc's purchase of Livongo was beyond stupid and investors are paying the price. There are a lot of dumb people in business and finance.
The "stupid" model for health care venture capital investing is alive and well. Everside health, which operates primary care clinics and has grown by acquiring other failing health care businesses, some persuades investors to dump another $164 million into the company.
Apparently not even a cute name can save you if you have a stupid business. I constantly bemoan the mis-application of capital and health care is Exhibit A. Olive, another company whose function you would struggle to explain, raised a crapload of money and now has to lay off 450 employees due to lack of a real value to customers. Why did you ever hire that many staff?
Amazon has been a very successful retail company, but not very profitable. It has continued to push to expand to new markets, including health care. It announced yesterday that it is buying a company with a number of primary care clinics, One Medical, for around $4 billion. I think Amazon also hopes to use its relationship as a retail channel with thousands of small companies to help them provide health benefits to employees and apparently sees ownership of a primary care company as part of that strategy. We will see, historically outsiders who come into health care do terribly.
Three large employers thought they would change health care by creating a company called Haven. It went nowhere, after a lot of money down the tubes. One was JP Morgan, which then created a division called Morgan Health. Morgan Health has been investing in firms it thinks can control health care costs. The latest is $30 million for Centivo, which helps employers run self-funded plans. I hate to break it to JP Morgan but their health investments look as much like bad ideas as Haven was.
Nomi Health, which offers provider network and analytic services for self-funded groups, is acquiring two more companies--Everyone Health and Sano Surgery, which will expand its provider contracts.
Contract Research Organization ClinChoice has added a fresh $150 million in capital. The new funds will be used for further expansion by the Asia focused company.
Over the last two decades the pharmacy benefit manager industry got very large, very consolidated and engaged in abusive and deceptive pricing practices. Ultimate payers generally don't trust the current mix of PBMs so we are seeing a new wave of entrants promising a different, more transparent business model. Capital Rx is building new claims and other software to support PBMs and has added a fresh $106 million in financing.
Even after the crash in health care IPOs, there is still too much capital sloshing around and looking for a place to be wasted. Aledade raised an astounding $125 million to support its business of helping independent physician practices enter into "value-based" purchasing arrangements with payers. This firm has raised over $4oo billion in capital and is valued at billions of dollars, all for providing a commodity service in a declining market--the independent physician. Where has it all gone and how will investors ever see a return on it? The greater fool theory is the big hope in most cases. The fools were the public for a few years, but that is over now until the memory of these debacles fades, which it usually does pretty quickly.
One big problem is health care is getting all the different medical records and administrative systems in use to talk to each other and share data effectively. A company called Moxe has raised a fresh $30 million in financing to continue advancing a solution for that issue.
In a return to the early 20th century, over the last couple of decades employers have added onsite medical resources in an effort to lower costs and improve employee health and productivity. Companies providing these onsite medical clinics have raised a lot of capital and one, Hint Health has just raised an additional $45 million in new financing to expand its footprint.
Sidekick Health welcomes new investors, who pumped $55 million into "digital therapeutics", another over-hyped supposedly disruptive health care trend. This involves the typical phone apps, etc. that will instantly make you lose weight, get exercise, manage your blood pressure and blood sugar, etc. The investors who get stuck holding the bag will have a digit for you.
A company called Hello Heart raises a fresh $70 million in capital for yet another app that supposedly helps improve management of cardiac health. I despair about the sanity of venture capital and private equity investors, they just seem to keep making the same mistake of funding companies that don't really do anything clinically worthwhile, but then I remember THEY ARE PLAYING WITH OTHER PEOPLE'S MONEY and they are really good at the greater fool theory--they dump bad investments on some other chump before the problem becomes apparent--see Teladoc, e.g.
Having private investors own health care facilities isn't all bad. They may jack prices up mercilessly, but they don't appear to hurt outcomes for care and may even improve them, according to this study in JAMA. Mortality relatingt to hospitalizations for heart attacks was lower following an acquisition of a hospital by private equity, but there were no changes in spending or quality for other conditions studied.
You may recall how I mock some of the insane IPO valuations and acquisition activity in health care. Here is an example of why. TelaDoc, a large telehealth provider which went public at an absurd valuation, and then wasted huge amounts of money on acquisitions that made no sense, like Livongo, a supposed disruptive care management company, is taking a $6.8 billion impairment charge to write down the value of those acquisitions. The stock price, already socked over the last few months, sunk to an even more depressed, and for shareholders, depressing, level, but at least it is getting closer to its actual value as a company, which might be zero. Don't ever buy hype, especially in health care.
The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry. Mr. Roche is available to assist health care companies through consulting arrangements through Roche Consulting, LLC and may be reached at khroche@healthy-skeptic.com.
The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry. Mr. Roche is available to assist health care companies through consulting arrangements through Roche Consulting, LLC and may be reached at khroche@healthy-skeptic.com.