Where one of UnitedHealths first tech start-up acquisitions is today – CNBC

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In this weekly series, CNBC takes a look at companies that made the inaugural Disruptor 50 list, 10 years later.

In 2010, Grant Verstandig founded Audax Health with a vision of putting more power in the hands of the health-care consumer and creating a digital interface to encourage and incentivize better health behaviors.

Like many entrepreneurs, Verstandig was inspired by personal experience, and frustration, with the health industry — a knee injury from his career as a college athlete had led to multiple surgeries. And he had some influential backers with deep experience in the health and consumer industries, including former Aetna CEO Jack Rowe and former Apple and PepsiCo president CEO Jack Sculley. Partnerships with big insurers, including Cigna, and consumer wearable companies, including Fitbit, spoke to the promise that a new era of digital health-care could result not only in better health outcomes, but lower costs for a national health-care sector that Warren Buffett has referred to as a “tapeworm” on the economy.

“All of health care has been built around the transaction model, but the reality is if we can find ways to engage people earlier, everyone can win from that,” Verstandig told CNBC in 2013.

Insurers were able to roll out digital tools through employers and Audax Health get paid for subscriptions on a per member basis in a business model that the founder told CNBC was, “threatening in some cases the same people we are working with.”

This disruptive theme led to Audax Health making the inaugural CNBC Disruptor 50 list in 2013.

The business was strong, and Verstandig believed an IPO was likely in the future for the company because being acquired by one of the existing stakeholders, in his view at that time, might compromise its level of trust among consumers. But a year later, the health-care industry had seen enough to decide it needed to lean into this idea and make it work within the existing business model: UnitedHealth acquired a majority stake in Audax Health in 2014, and Verstandig became chief digital officer at the major health insurance company, a position he only left in the fourth quarter of 2021. During his time at UnitedHealth, Audax was rolled up into a brand called Rally Health, a digital business wholly acquired by UnitedHealth in 2017.

Today, UnitedHealth has a major technology arm known as Optum, pushing all of its efforts forward at the intersection of technology and health, and while the Rally brand still exists, the evolution of digital health efforts has changed in important ways.

“The integration of Audax into Optum’s digital platform, which now serves more than 127 million people, continues to help us deliver new solutions that can make health care more precise, more effective and more equitable,” Phil McKoy, Optum’s chief information officer, said in an email statement to CNBC.

The field of digital health is consolidating, in moves that include other previous CNBC Disruptor 50 companies, and while consumer-facing technology like the original Audax model is still a key link within evolving health business, it isn’t as likely to stand alone as a solution. Incentivization or gamification is less a company or a business model in health care today than a feature integrated into treatment platforms, according to Megan Zweig, chief strategy officer at Rock Health, a health venture investor and consultant. Behavioral interfaces have a role to play in getting a patient to take a medication, and are being increasingly seen in software-based therapeutic plans, but Audax’s absorption by Rally and UnitedHealth speaks to a trend that has evolved over the past decade, with user interfaces having to be in the service of “something broader,” Zweig said.

The original CNBC disruptors: Where are they now?

At United, the model is continuing to evolve.

Scott Fidel, a health-care analyst at Stephens who has covered UnitedHealth for two decades, remembers the Audax acquisition and wondering at the time whether tech investments could drive real improvements in the system. He says there are encouraging signs a decade later, such as a rate of health-care inflation that has come down in recent years relative to core inflation and could, at least partially, reflect the value of technology in achieving better health outcomes and lower costs.

And without a doubt, the use of technology on increasing scale has become key to a significant shift by the health-care incumbents to a valued-based care model rather than the fee-for-service model which dominated historically. Value-based care, a “pay for performance” model under which insurers and other payers provide more real-time data and analytics to providers, in turn requires providers to be more accountable for costs and patient outcomes. If they can deliver costs below a determined level, they may receive bonus payment, or financial penalties when the care falls short. Having access to real-time data is critical to making this model work, and United, through Optum and its Optum Care business, is one of the largest players in this shift, with over 2 million members covered fully through this type of arrangement. Meanwhile, Optum’s Insights database includes data from 270 million discrete individuals that can be run through machine learning and turned into actionable information for providers.

“The measurement of the data and having clinical metrics and outcomes data, is critical,” Fidel said, and the health-care industry has been investing billions in developing the measurement tools.

Fidel says there are signs from United’s financial performance that the investments in technology are having some positive impact. While the company’s overall spending level hasn’t grown massively — from ranging from $2 billion in recent years to $2.5 billion — revenue has jumped from $157 billion in 2015 to $288 billion in 2021, while earnings per share has just about tripled. There are many factors that go into that, including M&A, and it is impossible to strip out the contribution from technology precisely (United does not report it as a line-item), but it is fair to assume that technology is a contributing factor.

That is even if the role of the consumer-facing tools are receiving less emphasis. Fidel said UnitedHealth management still talks about Rally any time they are discussing technology. “They still provide a moment to highlight Rally and other consumer engagement and behavioral engagement tools. It is still very much part of the strategy,” he said.

But the big realization in recent years has been that tools for the providers are essential to change behaviors in the health-care system. There is a need to push both patient and provider along together, and companies can’t lean too hard on one without the other.

“Rally is very still very prominently mentioned,” Fidel said, “consistently highlighted as a potential killer app in digital consumer tools.”

But those tools are peripheral relative to the broader theme of getting providers into the value-based care model and having the provider influencing the patient based on data.

UnitedHealth has been a leader among its peers in investing in entrepreneurial ideas, and its acquisitions have forced others to pay attention, but these start-up deals come in waves, and the buzz associated with certain ideas does fluctuate over time. A decade ago, the consumer was a big focus, and many start-ups emerged around this disruptive theme. That buzz has faded. But it doesn’t mean the tools go away or lack value today. “It’s just more of the established legacy architecture as the system continues to evolve,” Fidel said.

Ten years ago, wellness and population health start-ups were attracting high multiples. Right now, the mega theme and buzz have moved more to bigger ideas, including value-based care, but the investments from those prior cycles support this shift, even if the Audaxes of the world are no longer “the tip of the spear,” Fidel said. 

Zweig said digital tools continue to find new uses in health care, and one that has seen a high level of funding in recent years is focused on supporting research and development and drug discovery, including digital tools for clinical trial recruitment and management. “There are lots of changes happening, transformation in clinical trials and virtual trials and lots of investments there,” she said. 

Indeed, when Verstandig left UnitedHealth at the end of 2021 and returned to venture investing in disruptive ideas full time as co-founder of Red Cell Partners, one of the companies his VC firm first invested in is Zephyr AI, a machine learning start-up focused on drug discovery. Former Aetna CEO Jack Rowe remains a key advisor to both Red Cell Partners and its portfolio companies. And Verstandig is still talking in terms of disrupting a frustrating, costly health-care industry, and including the consumer in his vision, even if it’s through a different business model today.

“We live in a modern world, but very little about our current healthcare system is innovative,” Verstandig, now executive chairman of Zephyr AI’s board of directors, said in a release this week announcing a new CEO at the company. “Zephyr AI believes that machine learning is a necessary component for the future, offering an ability to improve our struggling system in significant ways, by driving down the cost of important trials, easing burdens for doctors, and quickly bringing personalized healthcare information directly to the patient. This disruption will effectively lead to better outcomes for the patient, the provider and the community.”

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