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The Justice Department’s lawsuit to block Optum's planned acquisition of Change Healthcare is “completely backwards," and the acquirer intends to defend its case vigorously, an Optum official tells Sarah.

Driving the news: More than a year after the $13 billion deal was proposed, regulators on Thursday concluded that the combination with the health care technology company is anti-competitive in nature, because Optum sits under UnitedHealth Group. 

"The department is speculating to what might happen without looking at the past," the Optum official says, calling two key theories in the complaint "deeply flawed."

Zoom in: The two anti-competitive effects, per the complaint:

United, via Change, would gain unfair access to a vast amount of its rival health insurers’ competitively sensitive data. 

United would also keep Change’s collection of software and services, now available to various health care players, for itself — along with access to any future innovation.

Specifically, Change's EDI clearinghouse and claims editing technology in United's hands "is likely to significantly lessen competition" with other payers and providers, the complaint says. 

What they're saying: The Optum official says the complaint ignores the fact that Optum, for more than a decade, has had access to third party commercially sensitive information, similar to what it could be getting as a result of the transaction. 

"We have built a fiercely multi-payer platform at Optum successfully over the years because we've been able to safeguard data."

Change, under Optum, would continue to benefit the entire market, the Optum official adds. 

"The whole thesis behind this transaction, and frankly the whole reason Optum exists, is to make the entire health care system more seamless and work better for everyone.” 

Yes, but: Regulators suggest the deal would rid United of its only “major rival” for first-pass claims editing technology, giving United a monopoly share in the market.

Axios reported in January that Change is working with Barclays on a sale process for ClaimsXten, its claims editing and payment integrity software business. 

The Optum official declined to comment on how the lawsuit impacts that divestiture process, or its current status, but says that it “was a fix for the one market overlap issue that the department identified.”

"Change has had some discussions with potential buyers, but has not entered into a purchase agreement," the complaint states, referring to ClaimsXten.

What’s next: Timing remains TBD, but Optum plans to fight, which means the parties will be soon heading to court.

1 big thing: Optum plans to fight DOJ

Illustration of a caduceus with a gavel in the center. 

Warburg Pincus is turning to the private credit market to back its £1.9 billion ($2.3 billion) carve out of Informa's pharma intelligence arm, Bloomberg writes. 

Why it matters: Direct lending is increasingly rivaling the syndicated loan market as buyout firms look to "diversify and capture higher yields," and this marks yet another proof point, according to Bloomberg.

Catch up quick: Earlier this month, Warburg unveiled its plans to buy Informa's collection of clinical trial-centric brands, some more data-related (and presumably more valuable), and others more content-focused. 

Goldman Sachs is advising the sellers, sources told Sarah previously, adding that EBITDA for the unit lies at some £80 million. That implies a multiple of EBITDA approaching 24x. 

Details: Blackstone's private credit arm led the financing, joined by Goldman Sachs Asset Management and Golub Capital.

Sources tell the news outlet that the unit will be leveraged by up to 8.9x times — a multiple at which bank funding is difficult to access. 

"Though a rarity, private credit funds are prepared to lend up to double-digit debt multiples, if the business is in a resilient industry like software or health care," Bloomberg says.

What's next: A pipeline of $1 billion-plus deals in pharma services land is poised to hit the market this year, which means more big equity checks, and perhaps more for the private debt market. 

There will likely be a "more measured pace" of companies hitting the market, one industry banker tells Sarah, after some sellers learned last year that too much of the same thing up for sale at once isn't always a good thing. 

PRIVATE CREDIT WRAP: Leverage Creeps Higher on Software Deals

2. The BFD: The rise of direct lending

Venture capitalists are amping up their bets in sleep and movement tracking, according to a new PitchBook report.

Why it matters: Startups and tech giants have been working on fitness and sleep devices for roughly the past decade, and today, affluent consumers have their pick of Oura rings, Whoop bands, Apple Watches and Google Nests.

Flashback: Wearables have been popular for ages, but Amazon and Google began investing in bedside sleep trackers last year.

Last July, Amazon was given the federal green light to use radar for sleep tracking.

And last March, Google unveiled sleep sensing in the latest iteration of its Nest device.

Driving the news: In recent years, more of the devices have incorporated artificial intelligence and machine learning for better accuracy and new features, according to the PitchBook report.

Plus, new products have emerged that intervene to help while people are sleeping, as opposed to those that simply prepare people for rest, the authors of the report write.

And clinicians tell Erin they're increasingly open to taking a look at the data from their patients' devices, whether to help identify an overall pattern or emphasize a certain issue.

By the numbers: The PitchBook researchers peg the market for at-home connected fitness devices and sleep-sensing technology at:

$1.1 billion for virtual fitness and movement-tracking.

Between the sheets: More attention is being paid today on tools designed to improve people's sleep while they're at rest. Some examples of such tools include:

Light therapy, with a focus on the use of red light to boost sleep quality.

Technology designed to regulate the ambient temperature, such as Google's Nest, which auto-adjusts based on user's patterns. 

Yes, but: Both sectors face current headwinds, the PitchBook researchers note.

For sleep tech, the main challenge is distribution: "Devices are often expensive, unproven, and not covered by insurance, so it remains difficult to generate widespread adoption," they write.

For fitness tracking, it's the pressure placed on the sector by the recent reopening of IRL gyms and studios after quarantines proved a boon.

What's next: The PitchBook researchers predict that digital health companies will begin applying their fitness and movement-sensing tech to complementary use-cases such as:

Posture sensing for physical rehabilitation and fitness training.

Gesture tracking for controlling devices and appliances.

3. Tracking, tracking 1-2-3

Illustration of a brain wearing a sleeping eye mask.

• Scope Security, a New York-based health systems security startup, raised $20m in Series A funding led by Thrive Capital, with SV Angel, Martin Ventures, Sound Ventures, Crossbeam and Free Solo also participating. www.scopesecurity.com

4. Deals o' the day

Brightline named Kate Weeks engineering manager from Annkissam, where she was a field solutions architect.

Deloitte named Jay Bhatt executive director of its U.S. Center for Health Solutions and its Health Equity Institute. Bhatt is currently a member of UnidosUS' board, a Presidential Leadership Scholar and a staff physician at Family Christian Health Center and was previously the medical director of Medical Home Network.

One Medical named Tricia Flynn regional vice president of sales, focused on the U.S. Northeast. Flynn was previously an account executive at Amazon Care.

The Center for Digital Health Innovation at UCSF named Nirali Oza clinical service designer and researcher from the Design Institute for Health, where she was a design fellow.

Waymark named Henning Chiv product lead from Bind Benefits, where he was a claims product lead.

5. It's personnel

Happy Friday, Health Tech readers. You made it through a rough week.

Situational awareness: We're here to keep you up to speed on all things health care, but recognize these are harrowing times. Keep up to date on the latest from Axios.

🛍️ One last thing: We have our first Pro Insights events next week, and Axios' retail maven Richard Collings will be interviewing Forerunner Ventures' founder Kirsten Green on March 3. Sign up for Retail Deals by EOD Monday to gain access to this great event!

Thanks for reading Axios Pro Health Tech! Please ask your friends, colleagues, and family members to sign up. 

February 25, 2022

1 big thing: Optum plans to fight DOJ