The ABIG Update by Santiago O’Neil

TL;DR - Healthcare faces competing realities. There are billion-dollar AI investments despite a state prescription bot suspension; federal program expansion amid state regulatory defeats; and record IPOs while long-term care hospitals close. The disconnect between Wall Street optimism and Main Street struggles reveals an industry splitting into innovation haves and infrastructure have-nots.

AI in Medtech

⏹️ Implementation Reality Check

Healthcare AI's spring reckoning arrived with a cascade of evidence that implementation promises remain far ahead of practical results. Utah's Medical Licensing Board demanded immediate suspension of the state's pioneering Doctronic prescription renewal program, with 11 physicians arguing the state "potentially places Utah citizens at risk" by proceeding without medical board consultation. The first-in-nation program allows AI to autonomously renew prescriptions for 191 medications, but critics worry patients continuing refills without assessment may remain on "outdated or suboptimal therapy for months or years".

Meanwhile, the Peterson Health Tech Institute revealed why AI administrative tools aren't delivering promised savings, finding that while AI enables expedited prior authorizations at reduced costs for individual organizations, there's no evidence it "translates to lower average cost per claim". Instead, the technology is creating "bot wars" between payers and providers, with increased system activity and higher overall costs.

Health plans respond with "across-the-board downcoding and other reimbursement reductions" that may "disproportionately harm providers that have not adopted AI tools".

Yet investment optimism persists: Amazon launched Bio Discovery, an AI drug discovery platform that gives researchers access to biological foundation models trained on vast biological datasets to evaluate and accelerate antibody therapy development. The platform compressed work that previously required 18 months to produce 300 candidate molecules into "a few weeks" in collaboration with Memorial Sloan Kettering.

The contrast highlights healthcare AI's central paradox: while computational breakthroughs accelerate research timelines, deployment in clinical practice repeatedly encounters implementation obstacles that vendors underestimated and regulators struggle to address.

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Government Affairs

🦍 Federal Authority Expansion

Washington's spring regulatory agenda showcased federal agencies' preference for centralized program control over state-level innovation. CMS dramatically expanded federal reach through massive program scaling, accepting more than 150 providers and digital health companies for the ACCESS payment experiment targeting chronic conditions like diabetes, chronic kidney disease, hypertension, anxiety and depression. The 10-year model starting in early July offers recurring monthly payments for using digital health technologies, with participating companies including weight management company Noom, Alphabet-backed Verily and wearable maker Whoop.

Most accepted organizations have not previously served Medicare beneficiaries and will bring additional technology-supported care options, representing a significant federal expansion into digital health reimbursement. Federal payment control deepened through Medicare's proposed 2.4% hospital pay increase, which will send approximately $1.4 billion more to acute care hospitals while introducing the first mandatory nationwide episode-based payment model covering knee, hip and ankle replacements starting October 2027. The bundled payment expansion marks the first mandatory nationwide test of an episode-based payment model, demonstrating federal willingness to impose value-based care requirements.

This federal expansion contrasts sharply with state regulatory failures, as PBM oversight laws face systematic court defeats. A federal appeals court ruled against Tennessee over PBM pharmacy partnership requirements, following similar rulings in Iowa and Oklahoma that courts found preempted by federal ERISA law. Legal expert Marcia Wagner notes "There is no clear path for states" as federal preemption systematically blocks state-level PBM regulation. The pattern reveals Washington's calculated approach: expanding federal program scope while legal precedent constrains state innovation, consolidating healthcare policy authority at the federal level.

Market Movements

🪓 The Great Healthcare Divide

Spring earnings painted healthcare's starkest contradiction yet: while long-term care hospitals face an extinction event, cutting-edge medical companies printed money at unprecedented rates. More than 25% of long-term care hospitals have closed over the past 10 years, with Medicare policies shortchanging facilities that only give full payments for patients who've spent at least three days in an ICU or been on a ventilator for at least 96 hours. The infrastructure crumbles while innovation soars.

Pain Points vs. Profit Centers: HCA Healthcare absorbed a $150M Q1 hit from ACA subsidy expiration, in line with expectations that it will lose $600M to $900M this year as premiums more than doubled on average for subsidized beneficiaries. Contrast that carnage with UnitedHealth's guidance boost: the insurer raised adjusted earnings outlook from greater than $17.75 to greater than $18.25 per share after getting a better handle on medical costs and seeing early signs of improved alignment between pricing and medical cost trends. Same industry, different planets.

Where Money Flows: Innovation segments attracted stupid money. Kailera Therapeutics shattered biotech IPO records with a $625 million raise selling 39 million shares at $16 apiece, pricing at the high end of the $14 to $16 range for their obesity drug pipeline. Medical device darling Edwards Lifesciences raised 2026 guidance to 9% to 11% sales growth, up from 8% to 10%, driven by 14.4% TAVR growth as heart patients are being referred for valve replacement sooner. Meanwhile, hospitals caring for the sickest Americans face challenges discharging patients who need long-term intensive care, caught in a system that rewards procedures while starving recovery infrastructure.

The market's message: healthcare's future belongs to those who can price discriminate, not those stuck serving everyone who walks through the door.

It’s Too Good to Miss: B4 You Go

Dr. Adam Brown and Dr. Lara Zibners talk with Meroka CEO Alex Barrett about building a "third exit path" for retiring physicians that bypasses private equity. The key insight: CMS reimbursement has been flat since 2002 while practice costs have surged, making independent medicine quietly unsustainable. Worth the listen if you're tracking healthcare's consolidation crisis.

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