|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
Offering our advice to a superstar selection
Unless you’ve spent this week vacationing on a remote island with no internet access (and we hope you have!), you’ve likely heard that Harvard surgeon and frequent New Yorker contributor Dr. Atul Gawande was announced as CEO of the recently launched joint venture between industry giants Amazon, Berkshire Hathaway, and JPMorgan Chase to reduce employee healthcare costs. Gawande was one of a list of prominent candidates interviewed to lead the venture, which will be based in Boston and run as an independent non-profit company.
As we’ve discussed, we’ve been a little skeptical of the likely impact of the “ABC venture”, given the lack of detail on focus or structure, and muted success of previous employer coalitions—not to mention JP Morgan Chase CEO Jamie Dimon’s quick backtrack on the ambition when his banking clients expressed concern. However, the power of these three companies, combined with Gawande’s leadership, has the potential to shake up the healthcare marketplace. Here’s our list of five things to watch to see if they’re serious:
- Will the “ABC venture” quickly get specific about how they propose to impact healthcare? We know little about the focus of the venture. Is the goal to simply reduce costs or to create a better care product that drives consumer value? Are they solely focused on their employees, or healthcare consumers broadly? Is this a real area of focus for the three companies, or merely a side show?
- Can they avoid the path of previous “employer coalitions” that launched with big aspirations but have delivered little impact? Witness the Health Transformation Alliance, which includes 40 of the largest companies in America. Two years after their launch, they’ve only made it as far as creating narrow networks in three markets and signing moderately-discounted contracts with a couple of PBMs and a health plan.
- Can they move beyond the usual (and vague) goals of “population health” and “decreasing total cost”? Our discussions with employers suggest that cost drivers in the commercial population are varied and often tied to high-cost episodes and pharmaceuticals, very different from the chronic disease focus of most population health work.
- Will this be Gawande’s full-time job? Gawande will reportedly continue his work as a surgeon, Harvard faculty member, writer and leader of his start-up research firm, Ariadne Labs. There’s a real question whether he will have the bandwidth and focus to lead the growth of a new company. At minimum he’ll need a strong team with business and operations experience.
- Can they draw on the strengths of the three parent companies to create something truly unique? All three bring unique assets and capabilities that could create an unparalleled consumer-focused healthcare solution. Imagine using the technology, analytics and customer obsession of Amazon to create “Amazon Prime for Healthcare”. Berkshire’s Geico could underwrite the solution and disrupt traditional health insurers, and JPMorgan Chase could re-engineer the complex finances of healthcare.
Medicare moves one step further toward rolling back Stark rules
Hospitals have long complained that Stark regulations have hampered their ability to develop value-based care models with non-employed physician partners. This week the Center for Medicare & Medicaid Services (CMS) went one step further on previous promises to relieve provider regulatory burdens, issuing a Request for Information asking stakeholders to respond to twenty questions on how enforcement of Stark laws should change.
Stark regulations prevent doctors from referring Medicare patients to hospitals, labs, diagnostics and other facilities in which they have a financial interest, apart from a handful of specific situations. The laws have been moderately effective in preventing self-referral. Physicians can still own diagnostic services in their offices, and hospitals and doctors have used loopholes to share ownership (witness “creative” relationships like jointly-owned CT scanner suites with separate entrances for Medicare and commercial patients). Loosening Stark regulations could create needed channels for health systems to share cost savings with physicians, pay differentially for quality, and share more data on referral patterns and performance. However, Stark laws exist for a reason—and regulators must be careful to avoid avenues that allow providers to pay solely for in-network referrals. Many health system ACOs will admit that increasing “referral keepage” was a primary motive for entering the program—any new avenues for physician incentives must be directly tied to improved performance.
(An aside: some hope rolling back Stark could stem the rising tide of physician employment. We think that’s highly unlikely. The larger forces of deteriorating practice economics, rising technology needs and reporting complexity, and changing workforce demographics will continue to drive doctors to larger, integrated practice models.)
Oscar continues to scale up, expanding to six new markets
Insurance start-up Oscar announced the company will bring its consumer-focused insurance platform to six new markets for 2019. Oscar hopes to serve “hundreds of thousands” of new members, adding three new states (Florida, Arizona and Michigan) and three additional large markets in Ohio, Tennessee and Texas. With these additions, the company will offer coverage in 14 markets in nine states.
Oscar has grown rapidly—they enrolled 250,000 members in 2018, doubling their presence in the individual market—but has yet to turn a profit. Oscar’s 2017 medical loss ratio was 95%, far exceeding that of most major commercial insurers. Adding new markets quickly could easily increase costs and strain infrastructure. However, evolution in Oscar’s technology and market strategy makes us cautiously optimistic. With recent expansions, Oscar has entered into exclusive provider agreements with health systems, and in Tennessee with Humana, lessening the burden of aggregating a new network. By designing and owning the “full insurance stack” of technology, from claims processing to the consumer app, the company has a unique opportunity to scale care management and patient engagement nationally, and in turn lower their cost of care. Oscar has built a consumer-focused insurance offering that is gaining traction—with these aggressive expansions, their 2019 performance may determine whether the company can be a national player despite disparate markets and regulatory uncertainty.