Aledade Raises $260 Million to Help Doctors Change How They Practice

Aledade, a company that helps US doctors adapt their practices to new payment arrangements aimed at improving care and cutting costs, raised $260 million in venture capital to expand its network.

(Bloomberg) — Aledade, a company that helps US doctors adapt their practices to new payment arrangements aimed at improving care and cutting costs, raised $260 million in venture capital to expand its network.

The deal values the company at $3.5 billion, according to people familiar with the situation, with investors buying in on similar terms to the company’s most recent funding round last year. The investment led by Lightspeed Venture Partners along with Venrock, Avidity Partners, OMERS Growth Equity and Fidelity Management & Research Co. brings Aledade’s total fundraising to $660 million.

Annual US medical costs of $4.3 trillion dwarf those of peer developed nations, yet Americans overall have worse health and live shorter lives. Among the causes, critics say, is a system that has long compensated doctors according to the number of tests and procedures they perform, regardless of how patients fare.

Nine-year-old Aledade is among a group of industry entrants working to help primary care doctors switch to value-based care, a catchall term for efforts to reduce spending while improving patients’ health with measures like preventive care. Government health agencies — Medicare and Medicaid — are aiming to cover most patients with such payment arrangements by the end of the decade.

The company started out as an early participant in experiments in value-based care by Medicare, the program for older and disabled Americans. It has since signed agreements with large private insurers as well, including Elevance Health Inc., Humana Inc. and Cigna Group. Its network covers more than 2 million patients and manages more than $20 billion in annual health spending.

Companies that succeed in helping doctors switch to the approach “can provide a better level of service with improved outcomes that ultimately results in lower cost,” said Josh Raskin, an analyst at Nephron Research who follows the industry. “The key to success is going to be a company’s ability to demonstrate savings.”

Changing Incentives

Value-based plans often link primary care doctors’ pay to patients’ health and total medical expenses. The idea is to avert needless hospital visits and unwarranted procedures while controlling chronic illnesses like diabetes or high blood pressure. 

Those are ambitious goals, and doctors often must make up-front investments in technology and staff to achieve them. But the strategy is successful, said Aledade cofounder and Chief Executive Farzad Mostashari, a doctor and former Obama administration health official.

“Year after year after year, we’re seeing the gains continue to compound,” he said in an interview.

Aledade works with 1,500 primary care practices across the US, including 500 that joined this year. The company offers help for medical practices that want to remain independent even as physicians are scooped up by hospital systems, pharmacy chains, insurance companies and investment firms.  

Read more: Medicine’s Worst-Paying Specialty Is Luring Billions From Wall Street

It uses technology and services to help doctors understand their patient populations, identify people at greatest risk and change how they deliver care. In practice, that looks like “all the things you’d want for your mom,” Mostashari said, including greater access to doctors. While many medical practices can be hard to reach by phone, Aledade encourages patients to call their doctors before going to the emergency room or urgent care.

When Aledade saves money on care, a portion of that goes to the government program or health plan paying for it. Aledade splits the rest with its physician practices.

The investment will help Aledade expand its network and build out its technology, Mostashari said. Last year it made its first acquisitions, one of them a company that helps patients with end-of-life care planning. 

It also started a division called Care Solutions to augment services offered by primary care doctors in its network. That unit has been led by Mandy Cohen, who is President Joe Biden’s choice to succeed Rochelle Walensky as Centers for Disease Control and Prevention director.

IPO Potential

Aledade said that, along with its primary care practices, the company has saved the health-care system more than $1.7 billion to date. Its revenue was more than $475 million last year, and Mostashari said it’s growing more than 35% annually. Aledade is essentially breaking even before interest, taxes, depreciation and amortization, he said.

Some companies aiming to give doctors the tools to thrive in the new environment, including agilon health Inc. and Privia Health Group Inc., have gone public. Aledade, which has more than 1,300 employees, recently converted to a public benefit corporation, a legal designation that means management will balance shareholders’ interests with those of other stakeholders. It means Aledade must consider the interests of patients and clinicians in decision-making, a move the company said is meant to contrast with purely profit-driven health-care businesses. 

Mostashari said it allows the company to focus on its long-term vision, and he expects Aledade will remain independent. While that may involve a public stock market listing, he said, “it’s not a destination.”

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