With the “Big Six Payors” earnings now in the rearview, I wanted to provide my usual quick review of the largest takeaways as companies (pharma, med device, digital health) begin positioning themselves to do business with UNH, Elevance, Centene, Cigna, CVS, and Humana. Many of these companies today treat these businesses as standalone entities rather than as a suite that operates in tandem with one another. That being said, below are the largest trends that I see emerging from the Q2 calls and financial reports.**
AI Growing Up in Healthcare
The broader discussions around AI have centered on the capital expenditures required to develop models and the return on investment associated with large versus smaller models. However, healthcare discussions have taken a different turn, with a multitude of applications and a focus on “where do we start?” This has sparked considerable concern within the industry, as early discussions were centered on Machine Learning, with the intention of moving towards AGI. Early efforts have been categorized into patient interface, clinician augmentation, and administrative streamlining.
During this earnings cycle, we began to see more substantial discussions around AI strategy in healthcare, with the “Big Six Payors” having access to some of the largest healthcare data sets available. UnitedHealth Group kicked off earnings season and offered significant insights into their AI efforts, particularly the financial gains observed within OptumHealth. It’s evident that Andrew Witty understands both the topic and the potential to drive future revenue at UNH. Based on his comments, I believe UNH will use OptumInsight to sell AI solutions to regional payors, helping smaller players achieve similar efficiencies. This could be a valuable addition to their Optum services business, which has been driving their top-line growth over the past several years.
From a strategic perspective, this begins to show how these large payors plan to monetize AI beyond driving operational savings in the health insurance segment. I expect more of these calls to start discussing cost savings driven by AI, and I anticipate that large healthcare services units will begin developing larger in-house tools at scale to help smaller payors drive revenue. AI is the Kardashian of global commerce—ubiquitous and attention-grabbing—but healthcare, with its inefficiencies and massive data generation, is a particularly fertile ground for AI.
Save the PDP!!
After the Q1 earnings period, there were numerous discussions about the long-term viability of Part D plans. Given the premium increases expected from the closure of the “donut hole” by the Inflation Reduction Act, set to take effect in 2025, many plans were predicting that the bundling of Medicare Advantage plans would be far more valuable to beneficiaries than Fee-For-Service Medicare. In this earnings cycle, discussions by the “Big Six Payors” began to reveal that the government was concerned that elevated premiums would drive more people into Medicare Advantage, as was discussed in Q1. As a result, CMS has released subsidies to offset the increase in Part D premiums in an attempt to slow the anticipated growth of MAPD, which has seen 5-11% growth over the past decade.
I found this dynamic fascinating and one that manufacturers should closely follow as the IRA scales beyond year one. What challenges or potential challenges could premium subsidies increasing or decreasing year over year present to drug manufacturers or beneficiaries? Will the PDP begin to be tailored like a SNP based on historical pharmacy benefit claims? The future remains uncertain, but typically, such uncertainty in legislation can cause year-over-year friction that will be worth watching as we head into 2025.
Biosimilars!!! Well, That Escalated Quickly
Last fall, CVS began to discuss their larger strategic goals with Humira biosimilars when they introduced Cordavis. Today, this has become a significant discussion point in many earnings calls, as the biosimilar market is expected to reach $30 billion by the end of 2025 and up to $100 billion by the end of the decade. The Q2 earnings reports began to position the major players—Cigna/Evernorth, UNH/Optum, and CVS/Cordavis—as they move their members or downstream customers onto their lower-cost Humira biosimilars, generating savings for their customers along with top-line revenue.
I think in the next several quarters, we’ll begin to see updates on what percentage of members have shifted to their lower-cost Humira, along with plans for the Stelara biosimilar in 2026. This is a very interesting market that aligns closely with the specialty drug space, which has already been a major battleground as the “Big Six Payors” compete for specialty drug dollars and rebates. For stakeholders wanting to partner in this space, it’s important to focus on driving better clinical outcomes, adherence, and cost savings in the $350 billion-a-year specialty market. Going forward, I see the biosimilar and specialty markets as essentially one and the same.
Predictions for the Back Half of 2024 and Into 2025
Looking over my predictions for the close of 2024, many have been spot on, and I’ll continue to support most of the positions I outlined in December. Here are some additional thoughts as we head into the latter half of the year:
1. AI Acquisition: I believe we are about to see an increase in AI healthcare acquisitions by the “Big Six Payors” as they look to stay ahead of the AI curve through acquisition. This should help them avoid FTC scrutiny since AI isn’t a core business for many of these plans. This strategy could become a strong flywheel for these companies to drive efficiency, lower Opex, facilitate value-based care, and sell SaaS services to smaller payors that lack access to AI at scale. I’m not very optimistic that these companies have the internal talent to develop high-value AI tools, so I expect them to acquire.
2. Hospital and Provider Network Bankruptcies: Steward Health has been in the
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