Interest in Signify Health shows ‘home is the next clinical battlefront’
Medicare Advantage carriers’ interest in purchasing the nation’s largest home risk-assessment provider underscores the importance home visits play in maximizing the companies’ payments.
CVS Health, UnitedHealth Group and Option Care Health, along with Amazon, are reportedly bidding for Signify Health, a digital health company that specializes in at-home healthcare evaluations. UnitedHealth has submitted the top bid at more than $30 a share, with Amazon’s offer close behind, unidentified sources told Bloomberg News. Signify’s board is scheduled to meet Monday to discuss the bids, and final bids are due Sept. 6, the news outlet reported.
Shares of Signify opened at $29.71 Monday, up nearly 40% from Friday’s close of $21.20 a share. Shares closed at $27.99.
“The home is the next clinical battlefront—who’s going to own it, and who’s going to play in it,” said Tom Kiesau, who leads the digital transformation practice at the Chartis Group, a healthcare consulting firm
Signify, Amazon, UnitedHealth Group, Option Care Health and CVS Health declined to comment.
Under the Medicare Advantage program, the Centers for Medicare and Medicaid Services pays insurers a flat fee to cover patients based on their medical condition, which insurers measure through risk codes. Signify Health is the largest U.S. health risk assessment provider and generated 84% of its $246.2 million in revenue from home services during the second quarter. The three largest Medicare Advantage carriers—UnitedHealthcare, CVS Health’s Aetna and Humana—are Signify Health’s biggest customers, according to Cowen, a healthcare consultancy.
UnitedHealthcare, the largest Medicare Advantage carrier with 6.9 million members, “certainly would not want Medicare Advantage competitor CVS having clinical data for UnitedHealthcare’s Medicare Advantage patients,” Cowen healthcare analyst Gary Taylor wrote in a research note Monday. CVS Health’s Aetna is the third-largest Medicare Advantage insurer with 3.2 million members.
A UnitedHealth Group deal for Signify Health could pose antitrust concerns because the two companies lead the health risk assessment market, the Cowen analysts wrote. Signify will perform 2.4 million home visits this year, and UnitedHealth Group 2 million, according to Cowen.
Home-based assessments are not without controversy.
Health risk assessments “may be particularly vulnerable to misuse by Medicare Advantage companies” since they are often performed by health insurance companies or by vendors that insurers hire, according to a report published last year by the Health and Human Services Department’s Office of the Inspector General. Federal auditors last year accused UnitedHealthcare of overstating patients’ health conditions to inflate payments by $3.7 billion in 2016.
UnitedHealthcare disputed the findings.
Federal auditors are also investigating Aetna for inflating Medicare Advantage risk codes.
Last month, Amazon’s lofty ambitions for its role in the U.S. healthcare industry took a step forward with the announcement of its planned $3.9 billion acquisition of One Medical, a publicly traded, membership-based primary-care practice offering virtual and brick-and-mortar services to commercially insured and Medicare patients. One Medical’s $2.1 billion acquisition of Iora Health in June 2021 added 31,000 Medicare Advantage and ACO Reach patients to the company’s membership rolls.
“Amazon is arguably the most deep pocketed of possible acquirers in the healthcare space, and their involvement could push acquisition prices higher and/or create a more competitive bidding environment,” Credit Suisse analyst A.J. Rice wrote in an analyst note Monday. “Given the general focus on ‘Big Tech’ amongst antitrust regulators, this transaction could come under scrutiny as well, even without there being market overlap in the traditional sense.”
For a technology company moving into healthcare, acquiring Signify Health could strengthen relationships with healthcare organizations in the company’s customer base, said Nathan Ray, a partner in consultancy West Monroe’s healthcare and life sciences practice.
For insurers, an acquisition could expand their clinical care offerings. UnitedHealth Group in March announced a $5.4 billion plan to acquire home health and hospice provider LHC Group. Aetna partnered with Landmark Health in September 2020 to offer New York members home care services.
“M&A can be very fluid,” CVS Health CEO Karen Lynch said during the company’s second-quarter earnings call. “You don’t necessarily design exactly how these deals go and what gets announced. We are committed to extending our health services in categories, and we are very encouraged and confident that we’ll take the next step on this journey by the end of this year.”
Offering treatment in residents’ homes serves as a cheaper alternative to hospital-based care. Acquiring a care delivery provider also offers health insurance companies a new revenue stream that is not limited under federal medical loss ratio requirements. If insurers can refer members to home health professionals owned by the same parent company, they can essentially pay themselves for providing the care, further sidestepping MLR requirements.
Signify Health could be a “nice Lego in a number of groups’ different strategies,” Ray said.
Signify plans to lay off 500 workers beginning Oct. 1. The company said the layoffs were connected to its decision to exit the episodes-of-care business, in which it partnered with payers to participate in value-based care programs. Signify Health reported a $490 million net loss during the second quarter, driven by $519.9 million the company spent to exit this line of business.
UnitedHealth Group and Humana, the second largest Medicare Advantage insurer with 5.1 million members, could decline to work with Signify Health if CVS Health or another competitor acquires it, according to Cowen.
Reporter Ginger Christ contributed to this story.