Babylon Health dials back some services in the UK

UK health tech startup, Babylon Health is pulling in its horns in its home market, blaming challenging global and macroeconomic conditions for the termination of a couple of multi-year contracts it had inked with two NHS Trusts in England in recent years — including one from the start of 2020 that had been trumpeted as a ten-year partnership with the Royal Wolverhampton NHS Trust (RWT).

Another contract, with University Hospitals Birmingham (UHB) NHS Foundation Trust which dates back to 2019, is also being ended — in that case at the request of the Trust itself — with the service slated to terminate in October.

Both NHS Trusts were contacted for comment. The contract terminations were reported earlier by the Health Service Journal.

At the time the Wolverhampton tie-up was announced (January 2020), Babylon suggested its digital health services would be touching as many as 300,000 patients across the city (although it’s not clear how many actually used its digital-first services). Last year, in an apparent expansion of the arrangement, it signed up around 7,000 patients to what was billed as “an integrated digital care service”, focused on its Babylon 360 service — targeting a potential reach of 55,000 patients at nine GP practices.

Speaking in a telephone interview with TechCrunch, Babylon Health’s general manager for the UK, Tim Rideout, fleshed out the company’s reasons for pulling the plug on what it had thought would be both a a long term and wide-ranging partnership with the Trust, using digital tools to try to better integrate primary and secondary healthcare delivery to improve access, boost care quality and — the hope was — drive efficiency savings.

But he said the economics did not pan out as Babylon had hoped.

Not economically sustainable

“We entered into an agreement with [the Trust] that would start with improving performance of primary care as a way of reducing secondary care costs — because, effectively, if you’re got a really good primary care service the evidence is really good that downstream costs reduce.

“But — I think you’ll see this across the NHS with a lot of different private companies now — the economics of the contract were really tight because of the funding pressures that the NHS is under. And those funding pressures have just grown since we entered into the partnership. And then, for us, capital is becoming more expensive. It’s becoming more expensive to raise capital for development — so you have those two things coming together.

“So we reviewed the position a few months ago and what we concluded was it just wasn’t economically viable for us to continue with the partnership,” he said, adding: “The work that was required to develop the service in a way that integrated with their key operating systems, we just wouldn’t be able to make that economically work. So we reached an agreement with RWT that we would cease the partnership.”

The ending of the contract with the RWT won’t mean the service is withdrawn immediately, per Rideout — who said Babylon will work with the Trust to continue to serve the ~7,000 patients signed up to the Babylon 360 service until it finds a new digital provider for them to transition to.

“NHS finances are — every day — becoming more challenging,” he added when pressed on why Babylon is ending provision of a service it only launched a year ago. “The government pay award that’s been announced for clinical staff is only going to be part-funded by the Treasury so the NHS itself is going to have to find a chunk of money to fund it. And, for us, capital has become much more expensive since that launch.

“In the original context we were prepared to play the long game and try and make it work — but the way things are now, the cost of capital now, the pressures on NHS funding, we just concluded we wouldn’t find a way of making it work economically.”

As regards UHB, Rideout said the Trust gave Babylon notice last month that it plans to end the ‘virtual’ A&E contract the pair had signed back in 2019, which saw Babylon offering AI-based triage as a first port of call for patients with an urgent healthcare need, with the goal for the Trust of reducing unnecessary visits to A&E.

In that case, he pointed to an NHS decision to prioritize a 111 urgent help service to explain the Trust’s decision to shutter the contract for Babylon’s AI-based triage. (The NHS 111 service offers a web-based symptom checker or lets patients ring a phone number to speak to a fully trained (human) adviser about their urgent medical concern.)

“It’s been superseded with what the NHS is doing with 111,” he said, adding: “It’s really down to an issue of deployment — they’re deploying it in a way that’s very similar to what we did with Birmingham for Ask A&E… So we decided not to develop that product any more for the UK market.”

Outside the UK, the Saudi-backed health tech has some 24 million users of its AI-based symptom checker chatbot — and Rideout said it will continue development of the product globally.

GP At Hand

He also said Babylon is not calling time on its other (loss-making) digital healthcare offering in the UK market, aka its “GP at Hand” telehealth-first primary care service — which has registered around 115,000 patients, the majority in and around London — with Rideout saying it will continue to operate that for the foreseeable future.

“Our primary engagement with the NHS is running GP At Hand and we’re absolutely committed to maintaining the GP At Hand service in London,” he told us.

But he confirmed an earlier report in the Telegraph that it will not look to expand service provision in the UK — again blaming the economic downturn but also pointing to particular challenges for Babylon’s approach being economically viable within the context of the NHS funding model.

“We’re committed to running it as is in London but we’re not going to expand it,” he confirmed of GP At Hand in the UK.

“If you look at the percentage of GDP that’s spend on healthcare, in the run up to 2010 that was increasing — getting towards Western averages — and then since 2010 it’s diminished… So year-on-year the levels of UK funding compare, every year, less favorably with some of those other countries,” he added. “The payer systems are [also] very different. I think the UK system has innate economic challenges hard-wired into it.”

Last month Babylon announced it planned to cut costs by $100M in Q3 — by reducing what a spokeswoman referred to as “non-core activities” — targeting multi-million dollar losses ($402.5M in 2021) which have outstripped its annual revenue ($323M in 2021), although the latter metric was up 4x last year.

Seemingly, the efficiency reductions have included some jobs cuts, as Bloomberg reported last month — although Rideout said layoffs in the UK cuts were limited. “We have reduced the staff numbers by a bit but not by a lot,” he said, saying this process of “tightening up” staffing only  affected non-clinical, non-front line employees.

Babylon’s decision to pull the plug on its service provision in Wolverhampton appears to fall into this cost savings bucket — with Rideout saying it would “definitely” have continued with the partnership if the economics had worked out.

But he suggested the ending of the UHB deal was more a case of changing NHS priorities. “Simply the market changed and with the development of 111 we wouldn’t have continued to develop the symptom checker, simply because the NHS had access to its own free good,” he said on that.

Babylon has faced a bumpy ride since it went public, via SPAC, last October — losing more than 90% of its market cap, with shares cratering in value from trading around $10 to less than $1.

Turning years of hype-heavy claims about its AI-fuelled health tech and digital-first approach as a winning formula for transformative disruption of traditional healthcare provision into an actually profitable and sustainable healthcare service delivery business — i.e. that can survive and thrive in harsh economic realities — remains Babylon’s key conundrum.

Very evidently, its model does not work everywhere. The broader question is whether it can find a service combination (and market configuration) that lives up to billing for patients’ health and delivers Babylon profitability. It’s certainly not there yet.

(Here’s some snap analysis of Babylon’s financials — courtesy of TechCrunch+‘s excellent EiC, Alex Wilhelm: “With Q1 2022 revenues of $266.5M, why is Babylon trading at such a low valuation? Its model is delivering huge growth – the company expects $1BN in revenue this year or more – but at a level of profitability that makes it hard to understand when it will be able to cover its own costs. For example, in the first quarter Babylon’s revenue was stacked against a combined $271.5M worth of costs related to insurance claims, and care delivery. By our eye that makes the company effectively gross-margin negative. Given a general market tilt away from unprofitably growing companies towards those closer to self-sufficiency, Babylon has found itself operating in an effectively 2021 manner in 2022. If its cost-saving plan can help it right its income statement this year, perhaps it can recover some of its value. But it has a long way to go.”)

“What we’re trying to do is be even better at prioritization — be, kind of, ruthless at focusing on the things where we can make a real difference,” is how Rideout sums up the company’s challenge.

Despite a pressing need to shrink its own costs, it seems notable that Babylon is sticking by the loss-making GP At Hand service in the UK — at least for now.

Possibly that’s a vanity play — given the service won it high profile publicity in its home market when the (now former) health secretary, Matt Hancock, signed up as a patient. (And Rideout is quick to point out it’s the fastest growing GP practice in the UK, while also touting high patient satisfaction rates.) But shuttering such a flagship service in the middle of a UK primary care access crisis would generate the polar opposite of good PR for Babylon. So maybe it’s keen to avoid its brand taking that kind of hit.

In the meanwhile, it is lobbying for the government to change the NHS payment framework to better incentivize private providers. And, clearly, it has more leverage on that front if it’s actually operating a patient-facing service.

“We think the service we run — well, we know it, because the evidence tells us — that the model we run saves money downstream,” said Rideout of GP At Hand. “Some peer reviewed work we had done shows that our patients use secondary care between 18% and 35% less than a similar cohort of patients in the NHS. So we know our model works but frankly the [NHS] framework doesn’t adequately fund it. But we’re not alone in that — a lot of private companies have had to make decisions about what they do or don’t do in the NHS because of the economics.

“We see across the whole of the system primary care is under significant pressure — so… [really the question is] what are government going to do about making these services sustainable?”

Asked about the scale of Babylon’s GP At Hand losses in the UK, and whether it can actually sustain them for the long haul, he told us: “We do a lot of economic modelling and we can sustain the position — so we’re prepared to continue to provide the service with the level of challenge it presents but what we can’t do is expand it. And ideally we would… So if we were incentivized we would expand and everyone would win — the service would save money and patients would have great access to primary care but the economics just don’t allow us to do that.”

“The UK market is really important to Babylon. GP At Hand is really important to Babylon. And our intention is to continue to develop it and at the point which the economics are right we will go back to expanding it,” he added.

In recent years Babylon has been increasingly focused elsewhere — on the US market — where healthcare privately delivered.

Rideout’s comments suggest the US insurance-based healthcare model is a better fit for Babylon, enabling it to achieve the kind of deeper integrations it apparently requires to stand up CEO Ali Parsa’s claims that its AI-driven tech is able to generate cost reductions of 70%. (Although he denied it’s lobbying for the UK to abandon publicly funded healthcare and switch to a US-style insurance model.)

“In the US we’re serving the whole population and their whole needs so — effectively — because we’re able to support patients in staying healthy and get treatment sooner what our model demonstrates is their downstream costs were saved so the model is absolutely economically viable when you look at the whole patient journey and the whole population. The problem for us in the UK is we receive the money for primary care — we’re not managing the whole budget — so we don’t benefit from the savings that make the whole model viable,” he said.

“We’re continuing to look at developing the UK market. What we have to do is find a way of making it work within the economic frameworks that are established and lobbying for changes to those frameworks. We’re continuing to make GP At Hand as efficient as it can be. At the point at which it stops losing money we would be able to expand it again — so I think at the moment what you’re seeing Babylon do is regroup, focus on key priorities and then go forward — and that includes the UK.”

“It’s not about private or public [funded healthcare], it’s about the way the economics are structured in funding primary care services and funding services in real terms. There needs to be incentives for services such as ourselves to help the whole system save money,” he added. “At the moment the system isn’t geared up for that.”

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