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Our Take: Elevance partners with private investment firm on new payer-agnostic advanced primary care business

Apr 22, 2024

Elevance Health announced Monday that it will collaborate with Clayton, Dubilier & Rice (CD&R), a private investment firm, to create a payer-agnostic advanced primary care and physician-enablement business that Elevance can market to various payers through its Carelon subsidiary.

The partnership will bring together Carelon’s care delivery and enablement capabilities with two primary care companies in CD&R’s portfolio: apree health and Millennium Physician Group.

Elevance said in the announcement the new health care venture will support stronger patient-provider relationships with data-driven insights, care coordination and referral management, and integrated health coaching. According to Elevance’s estimates, the combined company will serve nearly 1 million consumers.

Carelon Health has at least 30 clinics offering advanced primary care in Arizona, California, Iowa, Nevada, North Carolina, Tennessee, Texas, Virginia, and Washington, D.C.

apree health, formed in 2022 when Vera Whole Health merged with Castlight Health, offers digital navigation and clinical advocacy services. Millennium Physician Group’s value-based primary care platform serves nearly 900 health care providers across approximately 300 locations in the Southeast.

While specific terms of the agreement were not disclosed, Elevance said its investment would primarily be through a combination of cash and the company’s equity interest in certain Carelon Health assets.

The agreement is subject to regulatory approval.

Elevance released its quarterly earnings report on Thursday, revealing a profit of $2.2 billion for the first quarter — a 12.9% increase compared with the same period a year ago. Carelon had total operating revenue of $12.1 billion for the quarter, up 5.2% from the first quarter of 2023.

In contrast, UnitedHealth Group (UHG) posted a $1.4 billion loss for the quarter, primarily associated with the company’s sale of its Brazil operations and the cyberattack on Change Healthcare in February.

Nevertheless, UHG’s reported revenue for the quarter, $99.8 billion, was nearly $8 billion more than for the same quarter of 2023.

UHG noted that so far it had provided more than $6 billion in advance funding and interest-free loans to support providers in response to the cyberattack and estimated that the business disruption impact resulting from the cyberattack would be $0.30 to $0.40 per share for the full year.

Our Take: Elevance has considerable ground to cover if it hopes to catch up with the likes of UnitedHealth, CVS, and Humana, who’ve been rapidly expanding their primary care provider networks in recent years.

While UnitedHealth and CVS Health have spent billions of dollars in the last few years to grow their primary care networks, Humana chose a strategy similar to the Elevance is taking, growing its network of senior-focused CenterWell primary care clinics through a partnership with PE firm Welsh, Carson, Anderson & Stowe (WCAS).

As of the end of January, Humana had nearly 300 CenterWell and Conviva Care clinics across 15 states. The Louisville, Ky.-based insurer said it planned to add another 30 to 50 new centers to its network this year.

Though new CenterWell clinics are co-funded through the Humana-WCAS joint venture, Humana has the option to buy out WCAS’ stake in the clinic and has exercised that option for at least one cohort of 20 clinics so far.

Until a couple of years ago, Elevance, then known as Anthem, was predominantly a health insurer, operating Blues-affiliated plans in more than a dozen states as well as Medicare and Medicaid plans through its Wellpoint subsidiary.

Carelon started out as CareMore Health System in Los Angeles in the early ‘90s, evolving into a Medicare Advantage plan by 2003. After being acquired by a pair of private equity firms in 2006, CareMore introduced special needs plans for patients with chronic diseases and expanded into other states. Wellpoint acquired CareMore in 2011.

For the sake of brevity, we’ll skip ahead to 2022, when Anthem rebranded as Elevance Health. At that time, Anthem/Elevance introduced Carelon as an umbrella brand for its health care services (which also include pharmacy and medical benefits management, IT and business operations services, research, and other services).

This seems to be when Anthem/Elevance became serious about transitioning from a large managed care company and health insurer to, well, something more.

In February 2023, Elevance Health finalized the acquisition of BioPlus, an independent specialty pharmacy that Elevance integrated into CarelonRx, the PBM within Carelon. The plan, Elevance said at the time, was to expand BioPlus’ service models across more complex disease treatment areas.

Last month Elevance completed the acquisition of Paragon Healthcare, an infusion services and drug therapy company with more than 40 ambulatory infusion centers across eight states. Elevance said it planned to expand Paragon’s geographical footprint and operations while enhancing its therapeutic coverage. Like BioPlus, Paragon Healthcare operates under CarelonRx.

Also last month, Elevance agreed to buy Kroger’s specialty pharmacy business through CarelonRx. That transaction is expected to close in the second half of this year.

Though Elevance didn’t provide financial details about its agreement with CD&R, Gail Boudreaux, Elevance’s CEO, said during the earnings call on Thursday that “in time, Elevance Health will have full ownership of what we expect will be a leading platform for value-based care delivery and physician enablement at scale across commercial group, ACA, Medicare, and Medicaid health plans.”

Mark Kaye, Elevance’s chief financial officer, said later in the call that Elevance will hold “a significant minority position in the combined business with a clear path to first majority and then full ownership in approximately five years.”

The new business is expected to have approximately $4 billion in annualized revenue, according to Kaye.

Health Care Rounds #166: ChatGPT, MD — A conversation about AI with Dr. Robert Pearl

Ever wonder why prescription drugs cost so much? In this episode of Health Care Rounds, Alison Lum (VP of Pharmacy Services, Blue Shield of California) joins John to peel back the layers of the complex world of pharmaceutical pricing and sheds light on the misleading list prices, opaque rebates, and tangled web of stakeholders that contribute to skyrocketing medication costs. Listen here or wherever you get your podcasts. Now available on YouTube.

What else you need to know

More than 20% of health care bankruptcies in 2023 were associated with private equity, according to a report by the Private Equity Stakeholder Project(PESP). In all, 80 health care companies filed for bankruptcy in 2023 — a record year for large health care bankruptcies, the report noted. Of those companies, at least 17 were owned by private equity firms. At least another 12 bankruptcies, or 15%, were filed by health care companies with venture capital backing, the nonprofit organization said. PESP is expecting another wave of PE-driven health care bankruptcies this year because, the group said, almost all of the distressed health care companies in the U.S. are owned by PE firms.

Specifically, 42 of the 45 health care companies that Moody’s Investors Service rated as B3 negative or lower (indicating they have “obligations considered speculative and subject to high credit risk”) are owned by PE firms, according to PESP. “Private equity’s excessive use of debt and aggressive financial strategies put health care companies at risk, and in turn threaten the stability of critical health care resources across the country,” PESP wrote in the report. PE-related health care bankruptcies have increased 112.5% in the last five years, PESP noted, pointing out that there were just eight such bankruptcies in 2019.

CVS Accountable Care Organization and inVio Health Network are collaborating on a new ACO through CMS’ Realizing Equity, Access, and Community Health (REACH) program. With more than 5,600 providers, Greenville, S.C.-based inVio Health Network is one of the largest physician-led, clinically integrated networks in the Southeast, according to the announcement. The organization, which is affiliated with Prisma Health, serves an estimated 60,000 Medicare beneficiaries. Dr. Bill Gerard, inVio Health Network’s CEO, said, “This new model allows us to provide enhanced resources and clinical services across our network where we will be collaborating with MinuteClinic locations across South Carolina to be part of our network’s ACO REACH program.”

A group called RansomHub has offered to sell what it claims is data stolen during the cyberattack on Change Healthcare in February, various news outlets reported, citing screenshots of the group’s dark web leak site posted on X (formerly Twitter). The data allegedly includes patients’ medical, financial, and personal information, as well as contracts, billing files, and other documents associated with multiple payers and providers. In the screenshots, RansomHub advised payers to contact the group if they want to prevent the data from being leaked or sold. Although neither company has confirmed it, Change Healthcare and/or parent company UnitedHealth Group may have already paid $22 million to a different group, ALPHV (a.k.a. BlackCat), that originally took credit for the attack. RansomHub said earlier this month that ALPHV stole their cut of the ransom.

ACOs led by independent physician groups generate “substantially” larger savings for Medicare than those led by hospitals, a report by the Congressional Budget Official (CBO) indicates. The CBO gave two possible explanations for the finding. First, it noted, independent physician groups have “clear financial incentives to reduce hospital care,” but because hospitals have larger fixed costs, if they reduce admissions they earn less revenue to cover those costs. Therefore, hospital-led ACOs have “conflicting incentives,” the authors of the report wrote. Second, hospitals have less direct control than physician groups do in terms of the types of services their patients receive. Physicians prescribe medications and handle referrals for ancillary services and specialty care. As a result, physician-led ACOs can more easily steer patients away from services that provide little or no benefit relative to cost. ACOs with a larger proportion of primary care providers, advanced primary care practices, or patient-centered medical homes are also associated with greater savings, the CBO noted, largely because PCPs play a key role in redirecting patients to care settings with lower costs.

Cerevel Therapeutics’ investigational drug tavapadon achieved primary and secondary endpoints in a Phase III trial of more than 500 patients with Parkinson’s disease, marking what industry analyst Umer Raffat called a “major surprise,” BiopharmaDive reported. Compared with a group of patients who received levodopa and placebo, the group of patients who received levodopa and tavapadon, a once-daily oral dopamine D1/D5 receptor partial agonist, experienced a clinically meaningful and statistically significant increase of 1.1 hours in total “on” time without troublesome uncontrolled, involuntary movements, according to Cerevel’s press release. Those in the tavapadon group also had a statistically significant reduction in “off” time (when symptoms return between medication doses) compared with the control group. Cerevel said the results “demonstrate tavapadon’s potential to provide the right balance of motor control, safety, and tolerability for people living with Parkinson’s disease.” AbbVie agreed to acquire Cambridge, Mass.-based Cerevel for approximately $8.7 billion late last year. The deal is expected to be completed by midyear, pending regulatory approval and other closing conditions.

CMS plans to test a mandatory episode-based alternative payment model called the Transforming Episode Accountability Model, or TEAM. The proposed model would launch on Jan. 1, 2026, and run for five years. Initially, the model would include the following surgical procedures: lower extremity joint replacements, treatments for surgical hip femur fractures, spinal fusions, coronary artery bypass grafts, and major bowel procedures. Hospitals would be chosen to participate based on selected geographic regions. The model is designed with three tracks that have varying risk levels and gives participants a year to ease into full financial risk. In addition to coordinating care for Medicare patients who undergo a procedure included in the model, participating hospitals would assume responsibility for the cost and quality of their care from the date of surgery through the first 30 days after discharge. The model also has a component to promote health equity.

What we’re reading 

Fair Allocation of GLP-1 and Dual GLP-1–GIP Receptor Agonists. NEJM, 4.17.24 (subscription or registration required)

The Role for Policy in AI-Assisted Medical Diagnosis. JAMA Forum, 4.18.24

A ‘universal human right’: Quality mental healthcare for children. McKinsey Health Institute, 4.17.24

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