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Clayton, Dubilier & Rice is acquiring a majority stake in Humana's (NYSE: HUM) hospice arm in a deal valued at $3.4 billion.

Why it matters: The deal comes just weeks after Optum’s $5.4 billion wager for LHC Group, providing further proof that at-home health care as an end-market, and its providers, play a crucial role in the push towards value-based care, beyond being patients’ preferred setting. 

What they're saying: CD&R’s Ravi Sachdev tells Sarah that the partnership presents an opportunity to think creatively about how to leverage both Humana’s vast network of managed lives and CD&R's primary care portfolio (agilon health and Millennium Physician Group).

“We’re trying to innovate across that ecosystem and we're trying to get hospice more connected into primary care," Sachdev says. "Home health providers, hospice providers, nephrologists, oncologists — they have a meaningful role to play in the acceleration to value." 

Value-based care tends to be siloed, CD&R operating partner Dr. Anand Shah adds: “This really speaks to integration and really being able to provide much more coordinated care for patients across the country.” 

Details: Humana will divest a 60% stake in what is the nation’s largest hospice platform (retaining 40%), raking in about $2.8 billion in cash proceeds.

The $3.4 billion enterprise value represents 12x the division's forecasted adjusted EBITDA for 2022. That implies about $283 million in estimated EBITDA for the year.

Be smart: Hospice benefits are currently only covered by FFS Medicare, but CMS is also formally testing a Medicare Advantage pilot program known as the Value-Based Insurance Design (VBID) model.

Through the VBID model, the agency today is actively collecting data and monitoring opportunities to improve care in MA. That could directionally point to the agency ultimately expanding hospice benefits for MA beneficiaries.

The U.S. has arguably reached a tipping point in terms of MA adoption, which is now approaching 50% for eligible seniors. 

Catch up fast: Sarah wrote in January that the health insurance giant had kicked off a private equity-focused divestiture process for the unit via Goldman Sachs after discussions with strategics did not lead to a deal last year. 

Humana in 2021 bought the 60% of Kindred at Home it didn't already own, which included Kindred’s home health, hospice and community care businesses.

The deal put an $8.1 billion valuation on Kindred at Home and provided an exit for its former JV partners — TPG and Welsh, Carson, Anderson & Stowe.

Humana at that time declared its intentions to ultimately divest the hospice and community care businesses.

What’s next: Upon completion, CD&R and Humana have an opportunity to expand the platform's offerings around clinical programs that improve hospice care for patients. 

More broadly, expect more M&A and incumbent participation around in-home care, including both the large insurance companies and retail pharmacies. 

Amid the maturation of the home care industry, including a better ability to manage patients with technology in the home, “demands on the [home care] provider are going to continue to go up, and that’s going to drive continued consolidation,” Sachdev says.

1 big thing: CD&R's $3.4B hospice deal

Illustration of a house broken into mismatched puzzle pieces.

Mendel, which uses AI to analyze clinical data, collected $40 million in an Oak HC/FT-led Series B round, the company tells Axios exclusively.

Why it's the BFD: Abstracting useful insights from unstructured medical data is challenging and time-consuming. With artificial intelligence and natural language processing (NLP), Mendel aims to provide analytics-ready data to other data companies, and ultimately various health care stakeholders.

What they're saying: “In health care, you’ll find decisions are being made in a very subjective manner. What we do at Mendel is make medicine objective,” says CEO Karim Galil. “The only way you can do that is if you’re able to learn the journey of every patient at scale.”

Of note: Mendel says the cash infusion will allow it to build out its bench of engineers to meet surging demand (and ultimately fuel wider adoption).

Details: The funding pushes Mendel’s post-money valuation north of $120 million, a source tells Axios, reflecting the highest-ever valuation for any startup in clinical NLP.

Existing investor DCM, who led its $18 million Series A funding, also participated in the round.

San Jose, Calif.-based Mendel wasn’t in fundraising mode, but Oak HC/FT approached the company eager to invest and preempted the round, Galil notes.

How it works: Clients come to Mendel with unstructured clinical data, which it analyzes to then spit out contextual meanings.

“Mendel is basically a machine that knows how to read medicine like physicians,” Galil says.

Done manually, it typically takes almost five years to abstract 2 million patient lives. Mendel says its technology can do the same work in less than 24 hours.

State of play: Some 95% of companies work with structured data — offering a pixelated picture of the patient, Galil says. Others extract a preprogrammed list of things, like specific symptoms, from unstructured clinical data.

Mendel, in contrast, extracts everything and lets its customers build on top of that information infrastructure. “It’s counterintuitive. If we know what we need to extract, why are we doing it?”

Between the lines: The CEO says he is trying to do to health care what Stripe and Twilio did to fintech.

“What they did was they offered advanced tech in a box — enabling others to build applications that they wouldn’t have done in the past.”

“The immediate goal: To make other data companies better, then we are going to move more to the end-user — pharma, payors and provider.”

Flashback: When COVID hit, Mendel was running out of money and had about 30 days of runway, forcing it to commercialize because nobody wanted to invest in a company with IP only, Galil says.

Fast-forward: Mendel went from five employees to 25 over from start to finish in 2021, and has since doubled to around 50 today.

The bottom line: “The success of Mendel is going to be enabling the next 50 or 100 big companies that are going to change medicine," Galil says. "That’s the mission — to enable others.”

2. The BFD: $40M for clinical AI startup

Illustration of a sack of money with a medical cross symbol on it.

NexHealth, a patient experience startup, raised $125m in Series C funding, bringing its valuation to $1b. Josh Buckley of Buckley Ventures and LGF3 led the funding, joined by Mantis VC, Lattice, Loom and Ramp. http://axios.link/ahUm

AMLo Biosciences, a U.K.-based medical device company focused on skin cancer, raised $3.2m. http://axios.link/U3aT

Source Health, which helps digital health companies scale, raised $3m in seed funding led by First Round with support from Box Group and others. http://axios.link/BJ6j

GTCR partnered with Kelly McCrann to form Avryo Health Services, which will seek to acquire companies in the multisite health care services industry, with a focus on utilizing new technologies.

Blackrock Neurotech, a developer of implantable brain-computer interface tech, acquired MindX, a spatial computing software firm. Blackrock founders include Peter Thiel; MindX founders include Julia Brown. http://axios.link/GNsB

3. Deals o' the day

Maven Clinic named Siddharth Bhatia VP of product from 98point6, where he was director of product and Terri Baker regional VP of payer growth from Blue Shield of California, where she was a director.

Mindbloom named Vanila Singh, former CMO of the U.S. Department of Health and Human Services, and Benjamin Weinstein and Alok Madan, both from Houston Methodist Hospital, to its medical advisory board.

Headspace Health named Hiba Sher Khan to its international advisory board. Khan is currently an advisor to FemTech Lab and Nabla.

BenchSci named Jean-Michel Lemieux, the former CTO of Shopify, to its advisory board.

4. It's Personnel

🌮 Situational awareness: Erin's back from Mexico and craving all of the tacos. 

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

April 21, 2022

1 big thing: CD&R's $3.4B hospice deal