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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

Hello, providers who need better workflow tools. Is it ChatGPT you're looking for? The answer could soon be yes, per a William Blair analyst report today.

Driving the news: Doximity (DOCS), a professional social network for clinicians, last week launched a beta ChatGPT site trained on health care-specific language, Erin writes.

Details: The tool, docsGPT, works with Doximity’s free fax service and was announced last week during the company's third-quarter earnings call. 

Already, docsGPT has assembled a repository of nearly ready-to-use medical prompts, William Blair analyst Ryan Daniels and research associates Jared Haase and Jack Melick write in the note.

Providers can, for example, select a prompt like “Cigna Rx Denial Appeal” and fill it out with relevant patient history details, they write.

The result is a surprisingly complete letter to the insurer that urges them to reconsider their decision and approve the prescription, and which can then be sent to the payer electronically (and not over traditional fax!).

Flashback: Doximity engineers started work on the tool late last year in collaboration with physicians, CEO Jeffrey Tangney said during earnings last week.

Context: Health care workflow automation tech is prized in today’s market amid tight budgets and an ongoing health care worker labor crisis.

“Technology is a powerful enabler in a challenging macro environment, where we see labor challenges, supply side constraints and inefficiencies across the provider universe, which have all been exacerbated by COVID,” THL managing director Josh Nelson previously told Axios.

Zoom out: "Our conversations with providers that have used the solution believe it could be a 'game changer' in health care," Daniels, Haase and Melick write. Other use-cases of ChatGPT in health care, they note, include:

As a digital assistant for providers to increase the efficiency of patient visits by pulling out relevant data from medical records and collecting information into useful categories.

Assisting in note prep for progress notes and discharge summaries, for example, which can then be incorporated into patients' electronic health records.

Getting pre-authorization for prescription medications and procedures and assembling certificate of medical necessity letters.

Offering care instructions for patients before and after procedures and responding to patient questions.

Creating literature on patient referrals and medications.

Writing letters on medically tailored meals (MTMs) — "for example, after developing a MTM for a diabetic patient, the solution could be asked to develop menus and grocery lists for the meals as well," they write.

Catch up quick: ChatGPT is an AI-driven chatbot based on a natural language processing model known as generative pre-trained transformer (GPT).

The tool uses deep learning techniques to spit out eerily humanlike responses to simple text prompts.

OpenAI in November released ChatGPT to the public, and Microsoft (MSFT) said this month that it would release it to help other businesses launch their own bots.

Our thought bubble: ChatGPT may help usher in the beginning of the end of health care's most despised crutch, the fax machine. 

The other side: OpenAI cautioned in November that ChatGPT was imperfect and performance varies, primarily based on how similar the text being analyzed is to the types of writing the tool was trained on.

"It has both false positives and false negatives," OpenAI head of alignment Jan Leike told Axios at the time, warning the tool should not be relied upon alone.

Another issue with the tool is that "it always returns an answer — even if portions of it may be misleading," the William Blair analysts note. 

"Thus, we emphasize the need for providers to use the tool wisely, ensuring that they review and edit the note before finalizing it (which is not dissimilar to what is required by providers when reviewing documents created by ambient documentation solutions, for example)," they continue. 

And in terms of monetization potential, "we believe it is too nascent to have concrete use-cases yet," the Blair analysts add.

Reality check: "If nothing else, [ChatGPT] could increase platform utilization, which could drive core ad revenue from pharma and/or health systems," the Blair analysts write.

1 big thing: Doximity's ChatGPT promise

Illustration of binary code surrounded by abstract shapes, red crosses, and dollar elements.

Private equity health care services had 863 deals closed or announced last year, making it “easily” the second best year ever, according to a PitchBook report, Aaron writes.

Why it's the BFD: Though much handwringing was made of quarterly trends declining throughout 2022, Q4 levels last year were still “entirely respectable by 2018-2019 standards," PitchBook says.  

By the numbers: There were 1,013 PE-led health care deals completed in 2021, so 2022 is a distant second.

That's up from 729 in 2020, 600 in 2019 and 550 in 2018. 

The average LBO purchase price multiple for health care services deals in 2022 was around 12x, a 2x higher turn than the average purchase price multiple across sectors. 

The new issue spread for health care service loans was greater than 400 in 2022, a slight increase from 2021, when it was roughly 400. 

The last time it was closer to 500 was in 2012.

Zoom in: Value-based care enablers have “plenty of runway and are not directly competing for either patients or providers — at least for the time being,” the report says.

As a result, a crop of new entrants has emerged with investment from both VC and PE investors, including Enlace Health, Pearl, UpStream, On Belay Health Solutions, and, most recently, Rise Health. 

This second wave of VBC enablers will be likely candidates for PE buyouts as they mature. 

💭 Aaron's thought bubble: Moves from Amazon, CVS and Walgreens to own value-based care providers will certainly propel sponsor-led activity in the ongoing land grab. 

What they're saying: "We also expect to see enabler consolidation begin within the next five years or so as certain markets become more competitive and CMS tightens the belt on MA plans, currently the largest revenue drivers," the report says.

VBC enablers will see opportunities to scale via partnering with health systems, though the organizational idiosyncrasies of health systems may present a growth challenge, the report says. 

Be smart: The entire market boomed in 2021, with deals done at extraordinarily high valuations. What happens to assets caught on the wrong side of the investment cycle?

"It really depends on the firm. When I think about selling an asset I ask myself where my portfolio is — is it seasoned or not?" says one partner at a private equity firm. 

Investment theses that focus on moving care to lower-cost settings will be more immune to boom-bust dynamics, he says. 

"I think it will be a slower market selling-wise, but not because the assets are bad — it has to do with the buyer's psyche," he says, noting the downmarket has many would-be buyers spooked. 

The bottom line: If macroeconomic conditions stabilize midyear, the market will likely see a rebound in deal activity in the 2H23.

2. The BFD: PE's 2022 M&A numbers clock in at number 2

Illustration of a health plus-shaped price tag with dollar signs printed on it.

ShareWell, a San Francisco-based telemental health provider focused on peer support, raised $1.3m in pre-seed funding from Quiet Capital and individual backers including Forward CEO Adrian Aoun, Twitch cofounder Kyle Vogt, former Yelp CTO Russell Simmons and former Ancestry CEO Margo Georgiadis. https://axios.link/3xeoonH

Welsh, Carson, Anderson & Stowe invested in ImageTrend, a Lakeville, Minn.-based provider of data management software to the health care and emergency response markets. www.imagetrend.com

Eureka Equity Partners invested in health care engagement agency Blueprint NYC. www.blueprintnyc.com

Viatris (Nasdaq: VTRS) is receiving private equity interest for its European consumer health assets, which could fetch around €3b, per Bloomberg. https://axios.link/3YldacK

Unmind, a British workplace wellbeing company, acquired Frankie Health, a Dublin-based employee mental health platform, for an undisclosed amount. https://unmind.com/?locale=en_us

Bellevue Life Sciences Acquisition, a biotech SPAC formed by Bellevue Capital Management, raised $60m in its IPO. https://axios.link/40N6Tbo

3. Deals o' the day

MDLive named former Beth Israel Deaconess Medical Center physician Eric Weil chief medical officer. https://mdlnext.mdlive.com/

Harbinger Health appointed Vincent Lozada CFO. https://www.harbinger-health.com/

Panoramic Ventures named former Tricentis EVP Mike Vandiver SVP of portfolio performance. https://panoramic.vc/

4. It's Personnel

⛹️‍♂️ Aaron has his first league basketball game in a few years tonight.

🙏🏻 Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Brad Bonhall. Please ask your friends and colleagues to sign up.

February 13, 2023

1 big thing: Doximity's ChatGPT promise