Issue 064.

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Digital health research from Brian Dolan.

Welcome to E&O.

Last week I wrote about Hinge Health’s plan to evolve into a virtual clinic and Livongo’s diabetes prevention ramp up. Here’s what’s happening this week:

• Three important posts below: 1) thoughts on the Teladongo merger. 2) a preview of the (many) digital health-related CPT codes the AMA editorial panel could greenlight this year. 3) breaking news that Proteus got zero bites at auction, so Otsuka will likely snag the assets for that low-low stalking horse bid.
• CMS says virtual DPP still a no-go: In-person diabetes prevention programs (DPP) participating in the Medicare version of the program can offer virtual classes during the pandemic, but virtual DPP providers are still not allowed to participate in the Medicare program: “The MDPP expanded model was certified to provide in-person services and does not include a ‘virtual only’ option… We do not believe it is appropriate to permit virtual-only suppliers to furnish MDPP services when the proposed Emergency Policy is in effect. Given the difficulty of predicting when the COVID-19 PHE or any applicable 1135 waiver event will end, MDPP suppliers must remain prepared to resume delivery of MDPP services in-person when the proposed Emergency Policy is no longer in effect…”
• On-demand mental healthcare provider Ginger raised a $50 million Series D round led by Advance Venture Partners and Bessemer Venture Partners with participation from Cigna Venture Partners and its existing investors. The company tells me its revenues are up 3x in the last 12 months, and it now counts more than 200 employers as clients.
• Meanwhile… Cerner and LRVHealth invested $6 million Xealth, which already has a relationship with Epic.
• SaMD over-the-air update: France’s Withings quietly sold 1,000 units of its ScanWatch smartwatch in the EU this week in a limited test run. The device will offer ECG recording and AFib detection, blood oxygen readings, and sleep apnea detection, but some of those features will be made available in future firmware updates once they each get a CE Mark. Amazing that a firmware update can add a regulated medical device to a smartwatch, isn’t it?
• And… BehaVR is partnering with Sunovion Pharmaceuticals on a virtual reality-based digital therapeutic for social anxiety disorder (SAD) that it expects will launch in the US market in 2022.
• In Japan… Sunovion’s parent company, Sumitomo Dainippon Pharma is partnering with Save Medical to co-develop a diabetes-focused digital therapeutic they expect to secure regulatory clearance in Japan by year-end 2022.
• Also in Japan… Akili’s partner for the Japanese market, Shionogi is studying Akili’s ADHD digital therapeutic in a Phase II study with children aged 6 to 17. Shionogi calls the DTx SDT-001.
• One more thing… An analysis published in Nature finds that US health systems made 184 investments in 105 companies from 2011 to 2019. They were more likely to invest in companies that focused on workflow, on-demand health services, and data infrastructure/interoperability compared to other investors.

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Mega-merger mania: Nine considerations for the $18.5 billion Teladoc-Livongo deal

No doubt you have already heard that Teladoc has agreed to acqui-merge with Livongo in a $18.5 billion deal the companies hope to close by year-end.

Teladoc CEO Jason Gorevic will lead the combined entity, which will be named Teladoc Health.

What follows is an attempt to succinctly round up some of the more interesting details, analyses, ramifications, questions, and reporting on the deal so far. Many of the links below are to Twitter-based analyses I agree with or think are worth considering:

1. That valuation though… The deal values Livongo at $18.5 billion. The transaction will be a combination of stock and cash, but it puts a $158.98 price tag on each share of Livongo. While that is slightly higher than the $149.89 share price Livongo posted the morning of the merger announcement, it is more than double Livongo’s share price from a month ago. It’s more than 4x what it was a year ago. The pandemic has driven up the valuation of both companies in recent months, and this exit took full advantage. An analyst at Guggenheim told CNBC the valuation is 19 times Teladongo’s estimated 2021 revenue.

2. The Teladoc <–> Livongo virtuous cycle. In their investor presentation, Teladongo shared plans to create (or acquire?) new programs for chronic kidney disease, congestive heart failure, COPD, and MSK. Along with Livongo’s existing chronic condition programs, the merged company is positioning itself to be both a virtual acute care provider and a comprehensive chronic care management program provider. Teladoc’s acute visits will refer people to Livongo’s programs. Participants in Livongo’s programs will likely have some kind of one-click access to talk to a doc via Teladoc as needed. This brings down customer acquisition costs.

3. Integration woes? The section above is nice in theory and all, but acquisitions are hard and giant mergers like this are even harder. While these companies are complementary in many ways that also means they are different in just as many ways. I’m curious to see how long the C-suite at Livongo sticks around after this deal is finalized in Q4. So far, there has been no mention of Livongo executives aside from Livongo founder and chairman Glen Tullman committing to a board seat.

4. Brick and mortar — partner or build? The size of this deal points to ambitions beyond virtual care. On Twitter a few people have begun debating whether Teladongo will consider building their own brick and mortar clinics or partner with a big name that already has those, like Wal-Mart.

5. Becoming a virtual, in-network provider? While Teladoc is primarily PMPM and Livongo has historically billed its clients primarily based on enrollment, one prediction I like is that the merged entity may begin to operate and bill more like a traditional, in-network provider.

6. Optum/United vs Teladongo: One emerging face-off I’ve been tracking closely here at E&O is Optum/United’s rise as a more formidable competitor to the larger digital health companies selling chronic condition management programs into employers. This $18.5 billion merger has to be a catalyst for Optum to move even faster to build or acquire its way into a digital health market leader position. While companies like Teladoc and Livongo have seen their valuations rise during the pandemic, most payers have seen their cash reserves fill up.

7. Teladoc has to part ways with Vida Health, right? One Livongo competitor that Teladoc had invested in and collaborated with prior to this merger was Vida Health. Vida offers a diabetes management program along with programs focused on many other chronic conditions. As part of an FAQ Teladongo put out the merged company explained: “In 2019, Teladoc Health participated in Vida Health’s Series C funding round. As Teladoc Health and Livongo merge, we will dedicate our innovation and commercial resources to our combined company’s integrated consumer-centered virtual care platform. Effective immediately, Teladoc Health and Livongo will have a commercial agreement in place that enables us to support service expansions for our clients.”

8. Livongo International: One of the key growth opportunities that the Teladongo team pointed to in their merger announcement was scaling Livongo into markets outside of the US. Teladoc is in 170 countries and 40 languages today. Internationalizing acute virtual visits, however, is probably a lot easier than redesigning and relaunching chronic condition management programs for 170 different countries, right?

9. The beginning of mega-merger mania? One of the biggest outcomes of this deal is likely the beginning of a series of similarly large acquisitions and roll-ups. Teladongo could have set the table for Omada and Doctor On Demand or Amwell-Ginger-Hinge or any number of combinations of the larger, more established digital health providers. These roll-ups will be fueled by PE dollars and maybe big tech.

What’s missing here? Does the Teladongo deal surprise you?

Sneak peek at the future of digital health CPT codes

It’s that time of year again where a quiet process is underway to figure out which billing codes should become a part of the American Medical Association’s CPT system. Unlike previous meetings, which may have considered one or two in the past, at the AMA’s CPT Editorial Panel meeting in October, the group will consider a lengthy list of digital health-related codes.

The codes include one tailor-made for Pear Therapeutics, another focused on remote sleep studies, still another related to remote respiratory monitoring. If they all managed to gain acceptance (unlikely), it could — in the very least — mark a new era of utilization tracking of digital health services in the US.

If you’re not familiar with the CPT system, the AMA owns a copyright on CPT codes. It also convenes various medical specialty societies to come together throughout the year to decide which new codes are needed, which codes need to be updated, and which should be removed. This explainer on CPT codes is a good resource to understand their importance, the different types of classes of codes, and more.

Below are some of the new digital health-related codes that are currently on the docket for October’s CPT Editorial Panel meeting. There are others related to Tele-ICU and AI analysis of imaging that may also be of interest. This list will likely change between now and the event. Some applicants will withdraw their codes and/or combine theirs with others on the list. (The CPT application for remote physical therapy services, for example, was also submitted for the May 2020 meeting, but then withdrawn.)

The AMA is looking for feedback on these applications from the industry, so be sure to participate. Establishing CPT codes can be — in some cases — one of the early steps toward CMS reimbursement. Comments are due by September 10, 2020. The meeting in October is virtual too, so any interested party can attend.

Remote patient education. Establish Category III code 0X14T to report virtual education to patients related to their diagnosis or upcoming procedure.

Remote patient status monitoring. Establish codes 99X15, 99X26 to report remote patient status monitoring treatment management services.

Remote respiratory status monitoring services. Establish codes 99X16, 99X17, 99X18, 99X19 to report remote respiratory status monitoring.

Remote metabolism measurement. Establish code 946XX, and revise codes 94680, 94690 to report oxygen uptake and carbon dioxide production rate.

Sleep Study-Sleep Architecture and Body Position Measurement. Establish code 958XX to report unattended sleep study with recordings of heart rate, oxygen saturation, respiratory analysis and sleep architecture.

Digital Cognitive Behavioral Therapy. Establish add-on code 96XX0 to report an online or electronic structured intensive program for reduction of substance use using a standardized cognitive behavioral therapy curriculum. (Pear Therapeutics, did you write this one?)

Remote physical therapy services. Establish codes 97XX0, 97XX1, 97XX2 to report remote physical therapy management services

Finally, there is a cryptic request to add 18 existing CPT codes to an appendix of the CPT book that can be used as a “digital medicine taxonomy” for “synchronous telemedicine”, which is a confusing combination of industry jargon. Typically “digital medicine” is asynchronous.

Read the full agenda from the AMA’s CPT Editorial Panel here. (UPDATE: This link works — AMA updated the agenda a few hours after the E&O newsletter went out Friday, so the link in the newsletter was broken since the AMA changed the URL as part of their update.)

No one bid for Proteus at auction, so Otsuka’s $15M stalking horse offer will likely win the assets

So, no one bid in the Proteus Digital Health Chapter 11 bankruptcy auction.

No “qualified bidders”, anyway.

That means that Proteus’ longtime partner, Otsuka, will likely end up acquiring the assets it specified in its $15 million “stalking horse bid”.

I say “likely” because at least one group of Proteus Digital Health’s shareholders is understandably upset with the situation:

A hearing is scheduled for Tuesday, August 11, 2020, but this looks to be the end of the Proteus Digital Health story.

Quick links: E&O research reports and databases

The links below aim to make it easier for paying subscribers to find the long-form research reports and databases on the E&O site:

Database: Rx-only Digital Therapeutics Pipeline of Pipelines (Subscribers-only Link)
Database: Digital Health PPP Loans (Open access)
The Proteus Digital Health Report (Subscribers-only Link)
The Hinge Health Report (Subscribers-only Link)
The Digital Health Enrollment Report (Subscribers-only Link)
The Omada Health Report (Subscribers-only Link)
The Google Health Report (Subscribers-only Link)
The Pear Therapeutics Report (Subscribers-only Link)
The AliveCor Report (Subscribers-only Link)
Apple’s Healthcare Work Experience (Subscribers-only Link)
Approximating Livongo’s S-1 (Subscribers-only Link)

That’s a wrap on Issue 064 of E&O.