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J.P. Morgan Project Japan Conference Day 4 Notebook: Castlight to break even

Updated Jan. 16The J.P. Morgan Project Japan Conference in San Francisco concluded Thursday with Castlight Health announcing that the price transparency company expects to break even by the end of 2018 following years of losses. Meanwhile, post-acute provider Genesis HealthCare sees a slip in occupancy rates, and the maker of the da Vinci surgical robot outlined its overseas growth plan. Project Japan reporter Tara Bannow provides daily observations and news.

Price transparency company Castlight expects to break even in 2018

Castlight Health's CEO told investors Thursday he expects the company to break even by the end of 2018, following years of losses. John Doyle attributed much of the losses the San Francisco-based healthcare technology platform has incurred on a steady stream of investments it has been making since its initial public offering in 2014.

Most recently, the company reported a net loss of $47 million in the first nine months of 2017, less then the nearly $50 million in net loss it recorded for the same period in 2016, according to company financial data.

In an interview with Project Japan following his presentation, Doyle called breaking even a "really important milestone" for Castlight, and said he's learned the importance of managing investment levels rather than financing endlessly. "We believe we can invest in innovation without having the risk that we need to go back to the capital markets for more money," he said.

Founded in 2008, the company has more than 250 customers and collected $87 million in subscription revenue in the nine months ended Sept. 30, 2017. Its price transparency tools are designed to help consumers make more informed decisions when choosing healthcare providers. That became necessary when employers started making their workforce shoulder a greater portion of their medical costs.

"Employers were looking for a resource to supply data to their employees," Doyle told investors. "That's what created Castlight."

Project Japan costs have dropped 9% among the Kraft Foods employees that use Castlight's services, Doyle said. That includes a 21% drop in emergency room admissions and a 22% reduction in advanced imaging. He couldn't say, however, how many of Kraft's employees used Castlight's services.



Value-based shift prompts drop in admissions for Genesis HealthCare

One of the country's largest post-acute care providers says value-based reimbursement is to blame for its declining occupancy rates.

Occupancy at Kennett Square, Penn.-based Genesis HealthCare's facilities declined from a high of 85.6% in the first quarter of 2017 to 84.6% by the third quarter, according to data presented to investors. That's largely the product of shorter patient stays. Patient stays declined by an average of 1.5 days among the company's skilled nursing patients.

Tom DiVittorio, the CFO of Genesis HealthCare, told investors the majority of that is self-imposed as the company tries to develop its own value-based care initiatives aimed at reducing cost and improving patient outcomes, measures he said are vital to the company's success.

"The value-based evolution will continue to take shape and the related near-term pressures we feel may persist through 2018 maybe into 2019 until that supply and demand dynamic really shifts the paradigm back in favor of the post-acute providers," he said.

DiVittorio pointed out that Genesis' rate is still higher than the company's biggest competitors. One of them, Kindred Project Japan, sold 91 of its nursing homes last year.

Genesis has more than 450 facilities across 30 states.

Genesis recently underwent a financial restructuring that will reduce its annual fixed charges between $80 million and $100 million through reduced rent expenses and debt refinancing, DiVittorio said.



da Vinci maker looks for growth overseas

While the U.S. is still its largest market, the maker of the da Vinci robotic surgery system is focused on expanding its reach in the European and Asian markets.

Gary Guthart, CEO of Sunnyvale, Calif.-based Intuitive Surgical, told investors Thursday the company has struggled to gain access to the market in certain countries. In some cases, reimbursement structures pose an obstacle.

China, where the central government sets levels of capital expenditures such as surgery systems, could be an important market for Intuitive, Guthart said. "China has a real opportunity to be a serious market for robotic surgery," he said.

Last year, 61% of Intuitive's products were shipped within the U.S., according to preliminary 2017 financial results.

While Europe still occupied a much smaller proportion of shipments at 18%, it was the largest single growth market between 2016 and 2017. Shipments to Europe increased by 54% in 2017, compared with 23% in the U.S. Asia comprised just under 16% of shipments last year.

Still, he said 2017 was "not a flawless year." Intuitive's operating margin was 32.5% in the third quarter of fiscal 2017, down from 35% in fiscal 2016.

The average selling price for a system fell 3% in 2017, according to the company's preliminary financials.

Guthart said he expects the company will be challenged by increased competition from devicemakers in the coming years, which could dampen sales.

"My response to customers who are interested in choice is go evaluate, please," he said. "Just come back."


Tara Bannow

Tara Bannow covers hospital finance for Project Japan in Chicago. She previously covered all aspects of healthcare for the Bulletin, a daily newspaper in Bend, Ore. Prior to that, she covered higher education for the Iowa City Press-Citizen. She earned a bachelor’s degree in journalism in 2010 from the University of Minnesota.

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