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Hospitalogists,
Happy Friday! It’s holiday season. I bet you guys are all thrilled to be reading Hospitalogy news and analysis rather than cozying up by the fire with your family drinking spiked hot chocolate. Right?
One quick note: I made a snafu on Tuesday’s newsletter and need to make it right. I included the wrong link to Navina’s promotion of their webinar discussing AI and primary care. Navina has been an awesome sponsor for Hospitalogy and they are doing some interesting things in building thoughtful AI products to make a significant impact on PCPs, including sharing insights.
After a tumultuous run which included making major investments into healthcare delivery assets (most notably VillageMD), Sycamore Partners is reportedly taking Walgreens private as scooped by the Wall Street Journal.
In November, Walgreens parted ways with VillageMD CEO Tim Barry.
It has been a tough few years for the beleaguered retail pharmacy player, and Walgreens has been brought to its knees in 2024. The knockout punch was coming. How did we get here?
Walgreens has been hit hard by uncontrollable secular shifts in consumer behavior. Amazon and others are eating Walgreens’ retail lunch.
The retail side of Walgreens' business is stagnant and oversaturated with stores, as more consumers shift to online shopping. This challenge is two-pronged. The pharmacy business traditionally operated like a "gas station" model—drawing foot traffic that would lead to retail sales. But as patients increasingly choose online prescription refill services for convenience, fewer people are visiting physical pharmacy stores, resulting in decreased retail shopping at these locations.
So when retail sales sagged, Walgreens needed to make a move in a big way. The big plan involved embarking on an ambitious business transformation journey into healthcare delivery .
This journey jump-started in 2021 with VillageMD as Walgreens cobbled together the below healthcare footprint to sell a healthcare transformation story, including diving into value-based care headfirst.
Execution, however, didn’t go as planned. As Hospitalogists reading this breakdown know, healthcare is hard. Primary care is hard. Value-based care is hard. This dynamic isn’t unique to Walgreens and VillageMD, either.
Unfortunately this assemblage of assets no longer seems to be industry leading.
Plain and simple, Walgreens overpaid for what it got in a low-interest rate environment. In its 2024 full year earnings release Walgreens incurred an $8.6B net loss on $12.7B in goodwill impairment charges (meaning they overpaid for these companies and the current earnings/economics could not support the acquired valuation, more or less). VillageMD performance weighed down the healthcare story given acute pressures in Medicare Advantage and changes to risk adjustment, along with significant capital and timeline required to build out an appropriate risk-bearing primary care player.
Unfortunately, unlike CVS, Walgreens lacks some of the most important assets to execute on the strategy (at least so far) to make the flywheel…fly - the PBM and the health insurance plan (side note that CVS isn’t doing particularly well either but for its own reasons).
Despite its own struggles, CVS holds a believable narrative to tell investors. From Q3:
But I digress. This is Walgreens’ share performance since acquiring a majority stake in VillageMD for $5.2B in late 2021, then proceeding to attach Summit Health for $9B in late 2022. At its peak, Walgreens held a $100B+ market cap in 2015.
Today it sits at $8B:
In Walgreens, Sycamore is acquiring a struggling giant, but with a vast revenue base and operating footprint - $147.7B in revenue. While not being an accountant, the impairment charges are largely addressed in 2024, so Sycamore probably thinks there’s significant value to unlock over time as a private company - and tax savings to boot. I’m inclined to agree. Walgreens holds some bright spots.
Without being under the pressure of quarterly investors, Walgreens will have more freedom to reduce its debt load and continue billions of dollars in cost-cutting initiatives (1,200+ store closures in the coming years, capex reductions, working capital reductions). Expect to see Walgreens continue this trajectory but also focus on growing service lines like specialty pharmacy - probably its best acquisition to date.
Aya Healthcare to Acquire Cross Country Healthcare
This transaction caught my eye this week in a healthcare travel nursing and staffing consolidation play - Aya Healthcare is acquiring Cross Country Healthcare for $18.61 / share, a 67% premium to its closing price. The purchase price values CCRN at $615M.
Bigger picture: If you’ve been keeping up with hospital earnings calls, the rhetoric is “we have contract labor under control and it continues to improve each quarter.” As large publicly traded hospitals have focused on nursing talent and retention, the travel nursing environment has hit a low point, but there are still opportunities. This transaction to scoop up Cross Country Healthcare is a good pickup for Aya in a “buy the dip” type of play.
3. COMMUNITY UPDATE
The latest from inside my community of healthcare thinkers
If you've missed my membership announcements in 2024, I recently revamped my community offering - including new pricing tiers and better benefits.
If you work in corporate development or strategy at a health system, you will get a lot of value out of the Hospitalogy+ membership. The brainstorming roundtables, original content, expert sessions, and conversations all revolve around the latest developments affecting health system performance and transformation.
It's free to apply to and check out - only pay if you want to (though it's a great value!). Apply to join here!
MA Market Dynamics: The AMA’s report highlights persistent challenges in market competition, while improved Medicare Advantage star ratings benefit UnitedHealth and Centene after their recent court victory. Meanwhile CMS unveiled its proposed rule for Medicare Advantage and Part D, including a provision for MLR calculation reform that would affect provider bonus payouts as part of that equation.
Trump picks Andrew Ferguson for FTC chair:President-elect Donald Trump has chosen Andrew Ferguson to replace Lina Khan as chair of the Federal Trade Commission. Ferguson is expected to be corporate-friendly and will serve as an M&A unlock for healthcare dealmaking.
Post-Acute Labor Woes: The nursing home sector faces uncertain staffing mandates and the industry is pushing back.
340B Rebates and Drug Accessibility:Sanofi’s plan to implement a rebate model could reshape drug access programs, particularly for high-cost specialty medications. Meanwhile, Minnesota’s 340B report pioneers financial disclosure, setting a precedent for transparency in drug pricing programs.
Acadia Healthcare faces methadone clinic fraud allegations:Acadia Healthcare allegedly falsified records at its methadone clinics and admitted unqualified patients, according to an investigation.
Emory Healthcare launches population health initiative:Emory Healthcare and Guidehealth collaborate to expand primary care access across Georgia. I've had a chance to sit down with Guidehealth CEO Sanjay Doddamani and his excitement and passion around what they're building - including AI integration - is palpable. Plus, they're HQ'd in Dallas, which already sets them apart.
Kindbody - sale or not? Kindbody is reportedly considering a sale - fielding proposals from investors - after a funding round allegedly fell through the cracks earlier in 2024. Kindbody has since denied the rumor. “In the attempted funding round this summer, the company was in talks for a pre-money valuation of $600 million, according to a letter sent to potential investors. More recently, its estimated value has dropped to $400 million, according to people familiar with the negotiations.”
MSK and Chronic Care Solutions:Hinge Health joined Amazon Health Services, signaling deeper integration of digital MSK care into its searchable employer benefit platform.
Ro expands access to Zepbound weight-loss drug:Ro is collaborating with Eli Lilly to integrate directly with their consumer platform for streamlined access to Zepbound.
Longitude Health’s Population Play: New health system nonprofit innovation consortium Longitude Health announced the formation of Longitude PHM, a population health initiative focused on value-based specialty care within health systems.
RadNet’s DeepHealth subsidiary has expanded FDA clearance for its SmartMammo AI breast cancer screening tool.
Healthcare M&A
VitalCaring and 43% of Profits: VitalCaring’s legal troubles are big-time, stemming from April Anthony purportedly working on a separate home health company while still being employed at Encompass. The court has mandated VitalCaring distribute 43% (!!!!) of ALL FUTURE earnings to Encompass as retribution. Pretty insane.
Duly Health and Surgery Partners collaborate on ambulatory care:Duly Health and Care announced a partnership with Surgery Partners for outpatient ambulatory surgery centers in Illinois.
Expanding Specialty Platforms:Orthopedic Care Partners secured a $185M investment, highlighting private equity’s continued appetite for multi-state platforms. Additionally, Kian Capital Partners and RF Investment Partners launched a nationwide medically-focused optometry platform called US VisionMed Partners.
Google is releasing open foundation models - Health AI Developer Foundations (HAI-DEF) which is a public resource to help builders develop applications in certain specialties like radiology.
Medical Home Network and Instacart are partnering to tackle food insecurity with innovative delivery models.
JOBS in HEALTHCARE
Third Way Health, a tech-enabled provider enablement solution, seeks a Director of Account Management to support and grow relationships with medical practice clients. As a key leader in our fast-paced startup, you'll oversee account retention, manage an Account Manager, and build a scalable Account Management function. If you excel in forging client partnerships and driving growth in a dynamic environment, please apply here.
MATTER is hiring a Marketing Manager, seeking a generalist who can run their own programs from writing, creative, strategy and more
Recent Fundraising Announcements
Redesign Healthraises a whopping $175 million to scale its healthcare venture building efforts.
Capstan Medicalgarners $110M for their robotic-enabled heart valve repair tech.
Cleerlyraises $106 million led by Insight Partners, boosting its efforts to innovate in heart health diagnostics.
Rock Dental Brandsbrings in $90M to continue their growth spurt and added a new Chief Development Officer to the team.
Qi BioDesignsecures $75M for their genome editing technology.
Beta Bionicsannounces the closing of a $60 million Series E financing, pushing forward in developing bionic pancreas systems.
Converge Bioraises $55M to expedite drug discovery and development with GenAI.
Soda Healthcloses an oversubscribed $50M Series B led by General Catalyst (here’s their investment thesis) to scale its Smart Benefits Operating System. Benefits administration in general is a hot space entering 2025.
Cala Healthraises $50M to expand wearable tremor therapy. Shaking up the treatment scene!
PhotoPharmasecures $46M and inks a manufacturing partnership with Gentex.
Sirona Medicalsecures $42M in Series C financing to enhance customer success with its cloud-native Unify platform.
TailorMedsecures $40 million to expand the largest affordability network into a comprehensive platform, transforming patient access to care nationwide.
Hyro AIraises a $35M Series B round to enhance its AI-driven communication platforms. I’ve had the chance to connect in the past with Hyro’s founder Israel Krush, and they are a no-nonsense, no-frills company striving to build good patient-facing AI contact products for health systems and provider organizations. Cool to chat and about, and this space is filling up quickly.
Sagesecures $35 million in Series B funding to transform senior living operations across the US and beyond.
Sollis Health completes a series B funding round of $33M led by Foresite Capital to support growing demand for personalized, high-touch healthcare.
Morgan Health announces a $25M investment in Merative to strengthen access to coordinated care for children with neurodevelopmental conditions.
Roonraises $15M to replace "Dr. Google" with real doctors sharing videos about illness treatments.
Practice Bettersecures $13M to scale its health practice management offering.
Felloraises $10.4M, tackling the loneliness epidemic with a peer support platform.
StretchDollarraises $6M to assist Oscar Health with its ICHRA-focused services. Like I said, benefits.
ThoroughCaresecures $5 Million in Series A funding from Empactful Capital to push the boundaries of patient care.
Tuva Healthraises $5M seed funding for its first-of-its-kind open-source platform.
Cofactor AIsecures $4M funding to combat claims denials, bringing AI into the fray.
HOSPITALOGY TOP HEALTHCARE HOLIDAY READS
I loved Kevin Wang's piece on MVO vs. MVP where he discusses the concepts of Minimum Viable Product (MVP) and Minimum Viable Offering (MVO) in product development.
ProPublica’s look at a small-town oncology feud is a gripping story of how individual choices can impact a whole community and exposes poor incentive alignment on multiple levels - physician compensation and productivity, health system profits and oversight, health insurance inability to recognize overbilling or fraudulent behavior, and more.
This McKinsey article is a smart guide on turning healthcare’s challenges into opportunities.
Rock Health’s analysis maps where healthcare innovation is heading along their innovation maturity curve.
This GoodRx tracker on weight-loss drugs is a neat, data-filled window into real-world trends. Relatedly, the KFF explainer on obesity drug coverage is a solid overview on how policy shifts could impact future obesity care.
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