Signify, Caravan's $250 million deal could create largest network of value-based providers

Digital health startup Signify Health will pay $250 million to acquire consultancy Caravan Health, creating one of the largest networks of value-based care providers in the nation.

The deal, which is subject to regulatory approval, will consist of $190 million in cash and $60 million in common stock for Caravan, which focuses on helping accountable care organizations achieve greater savings, often through consolidation. Caravan could also nab an additional $50 million through the merger based on its future performance, although Signify was unable to comment on how it would define success in this area.

The merger adds more than 200 health systems and 100 federally qualified health centers to Signify's current network of more than 3,000 contracted providers. The companies expect the acquisition to close during the first quarter of this year.

"There actually is no one that we know of that has this combined portfolio," said Francois de Brantes, senior vice president of commercial business development at Signify Health. "It really creates a much wider platform to support both payers and providers on their move towards different forms of value based payment."

Five-year-old Signify works with providers to improve a patient's care through bundled payment programs, thereby increasing their reimbursement. Their tech platform identifies preventive and social determinants of health needs for individual patients, reminding doctors to perform the necessary ultrasounds, referrals and more for bundled pregnancy models, for example. The startup also works with commercial, Medicaid and Medicare Advantage payers to structure risk-based or shared savings programs with health systems. Signify also provides home visit consultations, an area it has been called out for allegedly helping Medicare Advantage payers artificially inflate risk-scores. The company said it strongly disagrees with this accusation.

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"We know that the path to affordability is by improving outcomes, like increasing visits for patients who have chronic conditions is a good thing, not a bad thing," de Brantes said. "That means getting better care, and that better care translates into just healthier patients who don't go to the hospital. This combination gives us the ability to do that at an even greater scale than we could have before."

The combined company will work with payers and providers to advance adoption of value-based payment models, promoting advanced primary care payments, specialty care bundles and total cost of care contracts. The businesses have placed a strong focus on increasing provider participation in commercial risk-based care programs. De Brantes said valued-based payments have the ability to eliminate disparities in access, and inequities in coverage, by promoting comprehensiveness in care. The combined company will manage approximately $10 billion in total medical spend.

"The episode contracts are really like peeling back the onion," de Brantes said. "The second or third layer of the onion becomes something that, if you can really get providers to focus on optimizing those episodes, they de facto optimize the total cost of care. That's the piece that's really exciting about what we can do now for the providers who are already participating in Caravan's ACOs."

The announcement comes just a year after Signify entered the public markets in a $564 million offering. Its stock price has fallen 56% to $13.87 since its IPO. The company was unable to comment on why it believes its share price has dropped. But the fall mirrors that of other value-based startups, particularly those that focus on Medicare Advantage, that entered the public market in 2021 with hot valuations but whose stock price has since cooled.