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Behind the Headlines

Unpacking the forces driving healthcare's biggest stories.

1. UHS to acquire behavioral health provider Talkspace.

On Monday, for-profit health system Universal Health Services (UHS) announced a definitive agreement to acquire Talkspace, a virtual behavioral healthcare company, for $835M.
UHS’ behavioral health division, which includes over 300 inpatient facilities, is the company’s largest, but has faced slowing growth; Talkspace’s network of 6,000 virtual care providers is expected to extend UHS’s outpatient behavioral health footprint.

TrustWorks Take: This deal has an intuitive strategic sense, especially compared to the “scale for scale’s sake” horizontal mergers and “revenue diversification without solid plans for integration” vertical mergers we have grown used to in recent years. UHS is the dominant national player in inpatient behavioral healthcare, but its outpatient footprint is more limited, and there is a shortage of behavioral health providers to hire for organic growth. Talkspace, after riding the pandemic’s direct-to-consumer (D2C) virtual care wave, eventually pivoted to a profitable business-to-business model focused on employers and health plans. This model afforded Talkspace a more sustainable revenue base, but it likewise was running into limits on volume growth. By buying Talkspace, UHS greatly extends its ability to follow up with patients discharged from its inpatient facilities, along with a potential boost to inpatient referrals from patients already seeing Talkspace providers.

The COVID pandemic unlocked a latent demand for both behavioral health and virtual care, which proved to be a natural pairing in need of a business model. Consumers liked the virtual behavioral health experience, but not enough to sustain pure D2C businesses. Talkspace found success pitching itself to employers, and studies have shown that comprehensive behavioral health programs can lower costs for employers by shifting care to lower-cost settings and earlier interventions, while reducing employee burnout and improving productivity. The dilemma UHS will now face is that Talkspace’s main benefit to employers was to reduce downstream utilization at inpatient behavioral health facilities, many of which UHS operates. UHS is touting its full continuum of services with this deal, but it needs to stitch them together in a way that does not cancel out each other’s respective strengths.

2. Amazon, CVS building AI scheduling platforms.

Last week, Amazon unveiled Amazon Connect Health, a platform of agentic AI tools intended to help both patients and providers.
For patients, Amazon’s platform assists with scheduling appointments and verifying patient identity; for providers, it can generate patient health record summaries, ambient documentation, and medical coding suggestions.
CVS, which announced its Health100 consumer engagement platform last year, also shared last week that Health100 will be built in partnership with Google Cloud.
CVS plans for Health100, which will launch sometime this year, to allow patients to schedule appointments in an “open ecosystem” of providers and help manage acute and chronic conditions.

TrustWorks Take: If you strip away the buzz words in their press releases, these moves by Amazon and CVS resemble a previous cycle of “consumer engagement platform” plays, when everyone wanted to launch a mobile app that served as the front door for accessing healthcare. Agentic AI is the new and powerful tool that could make these products catch on after the previous generation of apps largely failed to, but redesigning a “smarter” front door will not change what is behind it. Patients are frustrated with the process of scheduling healthcare appointments largely because of a lack of supply. Agentic AI might navigate the limited availability better than current resources, thereby winning some customer loyalty, but the provider productivity tools may produce more patient satisfaction in the long run.

A glut of products now promise to leverage AI to unleash physician productivity, so there is no reason to think Amazon’s suite of tools will be a gamechanger. But regardless of which companies “win” this market, the evidence is mounting that AI scribes are marginally improving physician productivity today, both in terms of documentation time and visit throughput. Physicians spending less time on documentation and more time seeing patients, which C-suites hope will translate to a more engaged physician workforce along with increased revenues. In contrast to the AI applications focused on better capturing customers, which tend to be zero-sum battles over market share, these productivity-boosting AI applications are the ones with the best shot of meaningfully changing the economics of care delivery. At some point, however, the cost savings of AI will also have to come from reduced labor spending, and health systems have never been cutthroat about firing people.

3. ACA subsidy expiration could cost HCA $600-900M.

Speaking last week at the TD Cowen Health Care Conference, HCA Healthcare CFO Mike Marks talked through how the for-profit health system was responding to the projected $600M to 900M earnings hit incurred this year by the expiration of the enhanced Affordable Care Act (ACA) exchange subsidies.
HCA expects its “resiliency program” will generate $400M in additional earnings to offset the exchange hit, through a combination of revenue, throughput, and cost-control initiatives, which have benefited from a “stable operating environment from labor."

TrustWorks Take: HCA’s laser focus on efficiency allows it to continue growing despite policy headwinds. Last year, HCA kept its labor cost growth to 5.4 percent while growing its revenue 7.1 percent. This “resilience program” was already in the works and, under better circumstances, would instead be framed as a “growth accelerator.” HCA’s response to good news and bad news will always be the same: improve throughput and lower unit costs.

What is more notable here is the size of the bad news. HCA’s projection of up to $900M in lost earnings this year, which equals about three percent of enhanced subsidies’ $30B annual cost, comes from two sources. The first, and more obvious, is the impact of people getting priced out of their ACA plan, not finding employer coverage, and becoming uninsured. HCA is also watching for the impact of bronze shifting, or people switching to plans with lower premiums and less coverage, on utilization. HCA is sufficiently large and sophisticated to track these changes as they play out across the year, but all providers will be feeling their impacts on utilization whether or not they can measure them directly.

Beyond the Whiteboard

Visualizing key trends from the healthcare industry

Medicare’s Value Problem
As part of its 2021 Innovation Center Strategy Refresh, the Centers for Medicare and Medicaid Services (CMS) set a goal of having 100 percent of traditional Medicare (TM) beneficiaries in an accountable care “relationship” by 2030. At the time, about 13M beneficiaries were connected to an accountable care organization (ACO). Five years later, that figure has only risen to 14.3M, a paltry growth rate leaving about 60 percent of TM’s 34.7M enrollees still outside of ACOs. A new CMS program, dubbed “LEAD,” will replace ACO REACH, the second largest Medicare ACO program, at the end of this year, but tweaks and improvements are do not change the prognosis that CMS is very unlikely to achieve its 100-percent ACO participation goal.

Slow participation growth masks a deeper problem for Medicare ACOs. In 2024, the Medicare Shared Savings Program (MSSP), CMS’s largest ACO program with over 10M assigned beneficiaries, generated a total of $4.1B in earned savings. That same year, inclusive of TM and MA, Medicare spent $1.2T, meaning the MSSP saved less than half a percent of Medicare’s total budget. Even if 100 percent of TM beneficiaries were enrolled in the MSSP, that would amount to savings of around one percent at current efficiencies, a rounding error in total Medicare spend. A gap that vast demands a multitude of explanations (e.g. rebasing benchmarks penalizing success, a focus on primary care avoiding the real cost centers, and slow-walking downside risk and mandatory participation), many of which CMS has identified, but the agency has given no indication of recognizing how deeply inadequate this push toward value has been. Another decade at this growth rate will not move the needle, and it should not take another ten years of paltry results under a slightly different model to recognize that.

Dialing In

Sharing insights from our work with clients

Humbly Successful Health Systems
Our work takes us to health systems large and small, thriving and struggling, in boon times and bad times. In the wake of COVID’s disruptions to volumes and labor costs, the industry as a whole took on an attitude of existential threat, defined by a “deteriorating” outlook from ratings agencies that led many to conclude that elevated labor costs would continue to swallow tepid revenue growth, preventing margin improvement. Then, dating back to perhaps late 2024, a new narrative started to emerge, shared only quietly and almost embarrassedly: a small but non-negligible number of health systems were doing quite well, posting five to ten percent margins with solid volume growth. This secretly successful few did not want to publicize their results in a tone-deaf way. We noticed they shared some common characteristics, such as regional dominance in high-growth (usually in the South and Southwest) markets, breadth and depth in their markets, and lower regulatory burdens, so we figured this was an example of a “K-shaped recovery,” where the rich get richer and the poor continue to decline.

Revisiting those whispered conversations now, it appears that the best-positioned health systems were the fastest to recover, but the “K-shape” was not quite accurate, as recovery was not reserved only for the most fortunate. The secret is out that many health systems are posting healthy, mid-single-digit margins and while there are significant structural crises facing certain kinds of systems, like rural healthcare providers, the median health system is not yet facing an existential threat. This could be considered cause to celebrate, but it is not a time to rest on one’s laurels and coast. The cross-subsidy business model, in which high-margin procedures performed on commercial patients cover the system’s losses on other payers and service lines, is still existentially threatened. The systems that use this time to gain efficiencies, deploy capital and technology with a long-term vision, and prepare themselves for a lower-reimbursed and outpatient-focused future will be the ones to retain healthy margins in the coming decade.

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