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Hospitalogists, As is customary fashion, it’s the end of the month, and so you’re getting an absolute doozy of a send related to all of the top news, analysis, and resources you may have missed during the month of September. Buckle up! Also - for hospital and health system VPs and up - applications for my Hospitalogy AI Retreat one month and one day from today are still live - apply here or respond to this email to inquire about information related to the application/invite only event. Was this email forwarded to you? Subscribe Here
Sponsored by Lumeris The more I cover the $50B Rural Health Transformation (RHT) Program, the more I come back to this thought: if you built primary care from scratch for someone two hours from the nearest clinic, you wouldn't start with an exam room. You'd start with Primary Care as a Service (PCaaS). Tom, Lumeris' AI-enabled PCaaS platform, directly aligns with RHT's goals. Tom works 24/7 to proactively identify patient needs, close care gaps, and follow up between visits, expanding access and helping reduce avoidable ED and inpatient use. Plus, the PCaaS model is scalable, sustainable infrastructure that states can embed into their Medicaid programs, health systems, and communities to outlast the RHT funding window. Contact Lumeris to learn more about transforming rural health with Tom.
Hospitalogy HeadlinesThe stuff I’m tracking from the month and need-to-know for Hospitalogists nationwide (I’m sick of the bot wars already and it’s been like 6 months) Of course, everyone has been talking about the BCBS report on what they characterize as AI-enabled RCM upcoding, finding that hospitals that have adopted such tools have increased costs by $942M for studied codes across the enterprise.  This is also in the midst of Texas opening a prior authorization and denials probe into BCBS Texas. In general, payors are fighting a losing battle in the public eye on usage of AI, and providers would simply tell you “we’re just capturing the diagnoses already there that our physicians and clinicians would have otherwise missed. In fact, most physicians under-code and under-optimize their billing so this new reality should in fact have been the norm all along” Responses to this dynamic will, of course, be more audits and bots fighting one another until all of the alpha gets captured by transactional cost at which point we might all hopefully agree on a reasonable objective layer or other solution to step in and reduce the administrative friction. Perhaps in the context of ambient documentation capture, the de-identified transcript itself could be used as a source of truth rather than the EHR to validate diagnoses. In capitalism, stakeholders optimize and solve for the incentive the system creates. If we want to fix obvious points of friction like these, then we either need to dismantle the entirety of the billing apparatus we’ve created, or get much more aggressive on policy and regulatory fixes. This is in the midst of BCBS being accused of downcoding elsewhere and investigations into denial practices, as well as upcoding audits among other payors, and finally, problems with WISeR implementation by CMS. Also, 2 things can be true: (1) hospitals and health systems, much like their payor counterparts, maximize for the highest possible billable amount, which incentivizes upcoding - whether you’re doing it in risk adjustment for MA or finding every potential diagnosis from a transcript. (2) ambulatory outpatient migration is causing hospitals and health systems to care for and steer more medically complex, higher acuity patients into the inpatient setting. General case mix index for most large health systems have been increasing for years. Caused by upcoding, or by general patient acuity, or both? Guess we’ll see. Either way, it’s a fight to the last breath, funded by patients and employers, and creating hundreds of billions in administrative waste that benefits nobody.
The mass of men lead lives of quiet desperation: This fate is what investor Matt Holt is trying to avoid as he and his team at Thoreau embark on a new $500M initiative in launching a frontier AI lab for heatlhcare - Ortet, which is a pretty sick name, not gonna lie. Between investing in Ensemble and a $100M investment to Penelope (payor integrity and other related infrastructure), Thoreau has been busy as they clearly see our healthcare system at a pivotal juncture, and are deploying capital as such. Cigna Investor Day Highlights: Cigna leveraged its investor day this year to present a company that is becoming more concentrated in complex care, specialty, and integrated employer health services, while simultaneously trying to reinvent its PBM model around transparency and fee-based economics amidst ‘near term headwinds.’ Their macro view, interestingly, is that the current healthcare trajectory is “unsustainable” due to affordability pressure, rising consumer expectations, and the growing concentration of costs in chronic and complex conditions. (Investor day slides here). Lots of good strategic nuggets in that 100+ slide prez. Someone here get back to me with how many times the deck uses the word “complex” and that’s your answer for Cigna’s growth strategy for the foreseeable future. Complex drug innovation. Complex drug utilization. Complex conditions. Complex care. C O M P L E X I T Y. Live edit: holy cannoli I just ran the search myself and they used the word 75 times and ‘complexity’ 3 times. Other notable investor days from the month include Omada’s (slides here) with a big selling point for employers and a bull case for the company being the vast whitespace of GLP-1s:
..and Oscar Health (slides here) who painted quite the rosy picture for the individual market at a time when many are bearish and highlighting Lucie’s capabilities and growth vector opportunities as a consumer marketplace. I like the contrarianism and am a fan of both of these organizations. Side note, Oscar largely ditched the purple branding in its presentation and while I understand the warm undertones of the new presentation, I kind of loved the stark purple. But this is coming from a guy who loves the vibrant orange and blue colors of Hospitalogy.
This was an interesting little tidbit and change I wanted to note for you guys - Encompass Health announced a new sort of hub and spoke IRF micro hospital model, what the company is calling a ‘small format’ inpatient rehab hospital, 24 beds probably located closer to households. Then alongside this project, Encompass is also replacing its existing 60-bed IRF on the existing Woodlands campus. Nothing crazy but a notable change in strategy nonetheless, an extension of what is already considered an extension of the acute care hospital. Epic is using Mythos to fix cybersecurity issues, then saying all of the patches / security issues were delaying products, then backtracking and saying it’s not delaying any of the roadmaps. (In all seriousness though, cybersecurity is sure to be an evergreen and continually present theme from now into eternity in healthcare, especially with savvier AI-enabled hacks Russian mobsters out there) Oregon is going headfirst into developing a universal healthcare, single payor plan for the state - on the heels of its most stringent corporate practice of medicine laws and coinciding with the Stop Corporate Takeovers Physicians Act of 2026 (by the way, who is selling the physician practice AND who is cutting professional physician reimbursement year over year causing consolidation in the first place? Asking for a friend), lots of stuff happening in that state from a healthcare perspective. It’ll be interesting to see the implications especially if this goes through, whether people start to blame lawmakers for healthcare issues rather than private insurance companies, who long have been the scapegoat for healthcare issues. Hospital margins slide to 1.4% across Kaufman Hall’s flash report as charity care jumps 14% in July. M&A Corner:Minnesota M&A Boatrace: The latest in hospital consolidation is happening (and continues to happen) in Minnesota as Essentia and HealthPartners announced their intent to merge across contiguous geographies in the greater Twin Cities area. “The combined organization will include 22 hospitals, more than 135 clinics and 6,000 clinicians, creating one of the region's largest nonprofit health systems and extending access to high-quality care across Minnesota and the upper Midwest.” Off the top of my head, there has been a ton of activity in the Minnesota market lately: 2 years post-IPO, Waystar is considering going private which makes sense given the private equity feeding frenzy (I mean, see above) in rev cycle and Waystar’s prowess in the space. Waystar’s enterprise value sits at around $6.1B as of this writing and 11x forward EBITDA. It’s down 23% year to date. Wake County commissioners approved the WakeMed-Atrium deal, sending the proposal to state & fed officials for ultimate approval J&J in talks to sell its DePuy Synthes ortho business (knee and hips) to Apollo for ~$20B. Who names this stuff by the way? Intermountain closed the deal to acquire 2 Idaho hospitals for $797M, buying out Surgery Partners at a deal valued at $1.15B. Ardent is divesting its St. Francis hospital to UK (Kansas) Health, absolving itself from the 10-year JV. Optum is also divesting and reshaping its portfolio, selling interest in some of its Florida footprint to TPG. After opportunistically acquiring Alegeus in the benefits space and ramping up OptumInsight, Optum Health is simultaneously downscaling and right-sizing its portfolio after years of blank-check provider growth. Meanwhile, distributors continue to dole out blank check valuations for provider and clinical research adjacent assets. McKesson acquired Precision Medicine Group for $2.25B and also acquired Spectrum Vision Partners from Blue Sea Capital Ascension divests Mercy Care plan to Aetna Sword acquires Headspace in an all-cash $300M deal. Prisma Health acquires 36 urgent care centers from Novant in South Carolina Cerebral is allegedly on the market, according to Axios. Yes - that Cerebral.
Notable Investment News & FundingTransformation Capital closed its latest Fund IV at $850M, exceeding its target in an oversubscribed raise. Shout out to the Boston-based team. It brings Tcap to $2.5B AUM across 4 funds with notable investments like Judi Health, Sword, Datavant, SmarterDx, and others. EliseAI raises $350M at a $4B valuation with $200M in ARR Rightway’s $155M Series E at a $1.8B valuation for next-gen PBM stuff. Oura reportedly pulls plans to IPO (originally planning to raise up to $2.2B, S-1 filed here) amidst uncertain market conditions. News flash: market conditions are always uncertain. Oura also teamed up with Counsel Health and joined ACCESS Affordability and solving for it is a huge theme this year among venture. Thatch raised $108M at a $1B valuation. Angle Health raised $600M at a $2.7B valuation (with a good investment thesis breakdown from Town Hall Ventures here). Thyme Care raised $125M in a Series E at a $2B valuation. And all of a sudden as I’m writing this there are an extraordinary number of newly minted health tech unicorns this year. That AI multiple expansion, I suppose. Forus announced a $150M Series C at a $3B valuation. Heidi almost made it to unicorn land, raising $100M in a Series C along with $240M from General Catalyst’s CVF. Shout out to Heidi. Scrappy as hell. Oh, and don’t forget about OpenEvidence’s $250M raise at a reported $15B valuation, after reportedly looking to raise at a $20B valuation earlier this year. By the way, which would you prefer - 2 Doximity’s, 1 Heidi, and 1 Abridge, or 1 OpenEvidence?
Devoted’s $1.2B Series G (Series G!! What’s up with that?) at a $25B valuation. (Can we stop putting fundraising news behind paywalls?)
Quick Hits:Anthropic releases IPO plans, aiming for a valuation around $2T, losing $42B in 2025 with plans to spend over $500B on ‘cloud, compute, and infrastructure obligations’ Conifer laid off 1k employees as part of its rift with CommonSpirit and what I’m sure is larger restructuring Several large payors move onto a unified credentialing program via CertifyOS ARPA-H selects UpDoc to lead the new autonomous clinical effort known as ADVOCATE. Eli Lilly’s retatrutide trial saw people with Type 2 diabetes lose up to 23% of their body weight CMS cancels 315k enrollments covering over 760k individuals as fraud waste and abuse efforts continue to ramp. Association for Direct Care Launches to lower healthcare costs and expand direct contracting HCA flags elective surgery ‘slowdown’ as coverage erodes ChatGPT moves inside the EHR (read-only) Froedtert along with 4 other systems are suing CVS over 340B losses. Quorum Health flipped 11 hospitals into a nonprofit entity Bipartisan backlash over Oracle’s $27B EHR debacle with the VA
Sponsored by Prosper AI A booked appointment and a financially cleared visit are two different things. Most voice AI vendors only solve for the front desk, not revenue.
Prosper AI works both sides: patient scheduling and reminders, plus the payer-facing grind (benefits verification, prior auth follow-up, claim status, and billing outreach). Practice leaders: If you’re considering voice AI, read Prosper AI’s vendor-neutral evaluation guide (no form fill), which includes questions to ask before buying.
Hospitalogy Top Reads and ResourcesThis month’s must-read is VMG Health’s series on the future of the physician practice management (PPM) space and M&A considerations, including their thesis that PE-backed entities may find it more palatable - and more liquid - to sell PPMs not as national platforms but rather regional platforms, taking a hit on multiples but finding more buyers in regional health systems as sponsor-to-sponsor and vertical integrated players like Optum take a back seat in the space. (Part 1) (Part 2) (Part 3) (Part 4) The Great Health Plan Replacement. Employers are Shopping for a New Health Plan - Julie Yoo (and as if on cue…Included Health launches Included Health Plans) Health Affairs analysis of state directed payments (paywalled) Mapping the provider tax on states - KFF What happens when labor stops being healthcare's binding constraint? Read my latest article to see how Lumeris's Tom is reshaping the future of primary care and why access is the next battleground for AI.* Two standout healthcare takeaways from McKinsey Technology Trends Outlook 2026: AI can propose drug candidates far faster than wet-lab validation, trials, and regulators can absorb them, and physical AI is expected to reach hospitals after it proves out in manufacturing and logistics.
HATCo places its technology bets. Urgent care utilization trends - a return to pre-pandemic levels. Urgent care loyalty also does not translate into downstream services, per Trilliant.
*This resource is brought to you by one of my brand partners who help make this newsletter possible!
Thanks for the read! Let me know what you thought by replying back to this email. — Blake |
