January 3, 2020

The Weekly Gist: 2020 Special Edition

by Chas Roades and Lisa Bielamowicz MD

Welcome to 2020! We hope you had a relaxing and enjoyable holiday break, and you’re ready to meet the new year with renewed energy! We’re not quite ready to get back to business as usual—we’ll return next Friday with our usual roundup of news and comment from the world of healthcare. Until then, here’s our second annual review of the year behind and thoughts on the year ahead. We’ll be discussing our predictions and perspectives on a special edition of our daily podcast next Tuesday, January 7th—be sure to listen!

THE YEAR BEHIND—THE YEAR AHEAD

Five themes from the headlines of 2019, and what we expect for 2020.

Opening the “Overton window” for a public option

In 2019, Democrats took control of the House and hit the Presidential campaign trail with a new rallying cry on healthcare: Medicare for All (M4A). Having successfully fended off Republican attempts to “repeal and replace” the Affordable Care Act (ACA), Democrats were able to shift the narrative back to coverage expansion, embracing a sweeping new vision for overhauling American healthcare. The most ardent supporter of M4A on the campaign trail, unsurprisingly, was Sen. Bernie Sanders (I-VT), who famously “wrote the damn bill” that many of his Democratic rivals supported in principle. As Sen. Elizabeth Warren (D-MA), Sanders’s closest competitor on the liberal flank of the party, rose to front-runner status across the summer, more moderate Presidential candidates began to raise serious questions about the cost and details of M4A, and in particular the wisdom of eliminating private insurance altogether. By the end of the year, Warren’s polling numbers had fallen, taking a notable turn downward after she revealed detailed plans for paying for M4A, while the fortunes of former Vice President Joe Biden and former South Bend, IN mayor Pete Buttigieg were on the rise. Both Biden and Buttigieg, along with other Democratic moderates, favored the introduction of a “public option” rather than full-scale M4A, allowing “those who want it” to opt into a government-run insurance alternative.

Of course, the prospects for any of these proposals hinge on the Democrats’ ability to win the White House and the Senate in November—still a lifetime away in the current political context. But what’s notable is that support for the public option has become a moderate position among Democrats. It’s worth recalling that despite supporting the idea during his 2008 campaign, President Obama eventually downplayed his support for the public option, and the idea was excluded from the final version of the ACA that passed in 2010. Meanwhile, single-payer proposals like M4A were never seriously considered in the drafting of the 2010 law. Just a decade later, we’ve seen a shift in the so-called “Overton window”—the range of policy ideas considered mainstream. By devoting most of 2019 to a noisy debate over M4A, Democrats have made it possible—indeed, likely—that some form of public option or Medicare buy-in could be adopted in the next few years. For an early preview of how that debate could ultimately unfold, look no further than Colorado, where the Democratic governor plans to make passage of a public option a priority in the upcoming session of the state’s general assembly. Washington State provides another recent case study, having enacted its own version of a public option in 2019. For providers, the key question will be the payment level proposed as part of any public option—the Washington version caps reimbursement at 160 percent of Medicare rates, while the Colorado proposal envisions setting rates on a case-by-case basis. For insurers, the question will be how limited a public option might be—will it be offered universally, or just to the uninsured or those in the individual insurance market? A widely available, government regulated (or sponsored) public option could draw significant business away from incumbent carriers. Expect to hear vocal opposition from providers and insurers as the debate over the public option—now a moderate proposal—unfolds across 2020 and beyond.

The new healthcare populism takes hold

Healthcare wasn’t just a centerpiece of the Democratic presidential debates in 2019, it became a regulatory focus for the Trump administration, as well as a key area of Congressional activity. The President released an executive order mandating more transparency into hospital pricing over the summer, resulting in a sweeping new rule requiring hospitals to publish the secretly negotiated rates they charge insurers for services. In addition, the administration finalized a rule requiring pharmaceutical companies to disclose the prices of their drugs as part of their television advertisements, although that rule was held to be invalid in a court ruling. And at the end of the year, the Trump team outlined a new proposal to allow states, wholesalers and pharmacies to import less expensive drugs from Canada. Meanwhile, Congress neared bipartisan agreement on a measure to clamp down on “surprise billing”, in which consumers are charged out-of-network rates when treated by certain specialists at in-network hospitals. And it considered proposals to control drug spending in the Medicare program, although the year drew to an end without final legislative action on either surprise billing or drug spending. Nevertheless, what all of this activity from the executive and legislative branches had in common was a focus on out-of-pocket spending by consumers, reflecting a broad shift toward a more populist framing of the healthcare cost problem. Reflecting the concerns of voters, many of whom now shoulder deductibles and coinsurance burdens amounting to several thousands of dollars per year, this re-orientation of the healthcare debate to focus on “kitchen-table spending” issues, rather than the more abstract concern of rising federal and state budget deficits driven by healthcare spending, is sure to continue as the 2020 election nears. We’d expect even more scrutiny on the price consumers pay for care, and ever more aggressive attempts to address those prices—or at least to be seen trying to address them—as the coming year unfolds.


FIRST INTERMISSION

A 2019 Weekly Gist word cloud

Over the course of 2019, we published 44 editions of the Weekly Gist, totaling more than 150,000 words. (Hey, we said we’d give you the gist, we never promised to be brief!) For fun, we ran all those words through an online word cloud generator and came up with the below depiction of the terms we used most often. It only felt like we were talking about CVS all the time, or that we’d gotten obsessed with M4A. Turns out patients, doctors, hospitals, and insurers got most of our attention. And, of course, “healthcare.” That’s one word, not two.


Hospital consolidation on the wane

As regulatory and press scrutiny on healthcare consolidation mounted, the hospital industry finished 2019 without a single large health system merger coming to fruition. Several proposed health system combinations which would have created regional powerhouses (Baylor Scott & White Health and Memorial Hermann, Sanford Health and UnityPoint Health, Marshfield Clinic and Gundersen Health System) were called off. Regardless of the public reasons given for the breakups, signs point to concerns about cultural fit, and questions about whether the systems were willing to make the tradeoffs necessary to capture promised operational and cost savings. Health system boards in particular have become skittish about whether mergers will deliver benefits worth trading off local control. And many regional systems, especially those with strong market presence who have made progress in value-based care, are questioning whether they need a partner—and doubting that their larger peers bring expertise that will improve performance. Looking ahead, the pressure to consolidate is unlikely to abate, given the continued moves of Optum, CVS and other vertically-integrated disruptors. Look for more health systems to explore novel partnerships across industry lines, like John Muir Health’s partnership with Optum, in pursuit of cost savings and access to capital. And expect new combinations to be held to a higher standard for delivering cost and operational gains on an accelerated timeline by purchasers, regulators, and internal stakeholders.

Private equity drives greater “physician disintegration”

Just a few years ago, health system employment seemed the inevitable future for many independent physician practices. But last year saw new fault lines forming in physician relationships. Two North Carolina health systems saw large factions of employed physicians leave their medical groups and “return independent”, a possible harbinger of a growing wave of physician secession. Disruptors like Aledade and Privia look to aggregate independent primary care physicians—and disgruntled employed doctors—by providing a platform for care management, contracting and infrastructure support. And physician aggregators continue to roll up specialist practices, moving beyond diagnostics and hospital-based physicians to create single-specialty “supergroups” of surgeons, and even office-based specialists like dermatology and allergy medicine—conglomerates of hundreds of doctors with massive negotiating power. The common thread: a wave of private equity and venture capital investment pushing physician practice valuations to unseen levels, with specialists looking to sell and employed doctors questioning whether they left money on the table. But private equity investors have little interest in being long-term owners of physician practices. Ultimately, they’ll look for an exit, and it’s not immediately clear who’ll provide it. Insurers have a clear desire to own primary care but have shown little interest in buying specialty practices so far. For health systems, the watchword is caution. Given the high prices being paid and dollars flowing from outside sources, it’s possible we’re in a “specialty care bubble”—and those who buy now will be doing so at the top of the market.

Healthcare disruption gets serious

If there were any outstanding questions about whether the “mega-mergers” of 2018 would actually impact healthcare market dynamics, the moves of CVS Health and UnitedHealth Group this year showed how quickly these healthcare giants could integrate services to create new care and product offerings. CVS opened its first three HeathHUB pilot store locations less than three months after finalizing their merger with Aetna. Across the past year, the company announced plans to expand HealthHUBs to 1,500 stores nationwide, changed benefits to allow Aetna enrollees free use of CVS care sites, and launched new consumer offerings in dialysis and post-surgical care management. UnitedHealth Group’s Optum division announced plans to grow revenue from delivering care from $16B today to $100B by 2028—and revealed it would be arming its 50,000 owned and affiliated physicians with data from its OptumInsight data analytics business. And waiting in the wings is Walmart, which launched a new comprehensive clinic model. The Dallas, GA-based clinic is part of the company’s new Walmart Health platform, which has the goal of “becoming America’s Neighborhood Health Destination”.

Looking ahead, it’s unlikely the deal-making is done. For Optum to reach its $100B goal, the company will need to expand its care delivery portfolio, now centered in primary care, urgent care and ambulatory surgery, to include other services (could Walgreens be an acquisition target?). When the time is right, Walmart will almost certainly look to acquire an insurer, in order to capture the cost savings from its lower-cost care delivery models. Disruptors will look to shape their own provider networks: Optum’s built around their owned physicians, and CVS and Walmart creating new primary care offerings that may disintermediate doctors altogether. All will look to profit by reducing high-cost hospital and specialty care—forcing traditional providers to either compete directly or find ways to partner with this new class of “frenemies”.


SECOND INTERMISSION

A 2019 Weekly Gist playlist

We probably get as many comments on our “extra” section each week as we do about our healthcare content. Turns out we’re not the only ones with strong opinions about music, movies, and television! To be honest, it’s the most fun section to write each week, and often the most difficult. (Probably because we’re no experts on the subject.) As we turn the page on 2019, we thought it would be fun to put together a Spotify playlist of some of the music we reviewed last year, and some other tracks that didn’t quite make the cut. Hope you enjoy it!


BEYOND THE HORIZON

Three broader questions we’ll be thinking about in the year to come.

Is healthcare “doing digital” or “being digital”?

The old healthcare neighborhood is being transformed by new digital settlers—a growing number of consumers whose primary way of interacting with the service economy is using digital tools, and a legion of venture-funded startups and behemoth disruptors who see healthcare as the next venue for their digital businesses. For long-time residents who’ve lived in the neighborhood for decades or longer, all of this can seem daunting, and traditionally “analog” organizations—among them physician practices, hospitals, and insurers—have been scrambling to renovate their old residences. Having spent much of the past decade installing the digital plumbing systems needed to keep pace—electronic health records, data warehouses, analytics tools—the attention of many provider systems has now turned to other architectural features: namely “digital front doors” (access, telemedicine, scheduling), and “digital back doors” (billing, collections, transition management). A larger question looms for incumbents, however: are we going to live our lives differently in these new digital homes, or will the business of healthcare continue to get done the old way, just with a new, digital facade? A member executive described this distinction to us last year as the difference between “doing” digital and “being” digital, and that struck us as precisely right. For all the billions of dollars spent, the armies of consultants and scores of digital initiatives, it’s still not clear that incumbents will be able to fundamentally reimagine how care is delivered and paid for. We’ll be looking for innovations that don’t just augment traditional care delivery but supplant them entirely—our own version of a digital “neighborhood watch”.

How should we transform medical education?

In the slow-moving field of academic medicine, it now feels like everyone is launching a medical school. And data confirms a recent explosion of new medical schools, with 29 launching since 2002, and perhaps a dozen or so more in the works. The sponsors are varied (community-based health systems who want an academic anchor, universities looking to add medical training), with myriad reasons cited as motivation. Health systems want to solidify physician pipeline, and aggregate the resources (research programs, call coverage support) necessary to attract premier specialists. Universities have seen their peers profit from the cash engine of a teaching hospital. Community pride and hubris is important—no significant city wants to be without a medical school. And with the American Association of Medical Colleges (AAMC) predicting a nationwide physician shortage of 122,000 by 2032, everyone can rally around the need for more doctors. But more medical schools may not actually solve the provider shortage problem. While the number of enrolled medical students has grown 52 percent since 2002, the number of residency training spots has only grown 1 percent annually over the same time period, merely shifting the clog in the training pipeline. As medical student debt rises and some programs look to eliminate tuition, many new medical schools, particularly those without public funding, are among the most expensive in the country.

Larger questions loom: do we actually need more doctors, and should we be training them and other providers in a radically different way? New medical schools claim to be advancing training by focusing on “medicine assisted by artificial intelligence and cognitive computing,” or including “dedicated innovation and research [curriculum] blocks”.  This feels like innovation around the edges of the current model, and falls short of real transformation: should we embrace an undergraduate model of medical education? Should we rethink provider supply needs across different levels of licensure, and create programs that train these providers to practice together? Established academic medical centers worry they won’t be able to support the costs of their research and teaching missions, given price pressure and shift to value-based care. The closure of Hahnemann University Hospital in Philadelphia last summer raises the question of whether launching a greater number of subscale medical schools and teaching programs provides the most effective way to train providers and deliver high-end specialty care. Getting to the right academic training and care delivery model will require community, government, academic and hospital leaders to collaborate on a long-term plan aimed at delivering greater value, scale and productivity.

Will AI solve healthcare’s “cost disease”—and do we want it to?

For decades, healthcare has lagged other segments of the economy in terms of productivity gains, a phenomenon that the late economist William Baumol dubbed the “cost disease”. Because healthcare is inherently labor intensive, and because many of the tasks involved are non-routine and specialized, total wages have risen without reflecting a broader increase in productivity relative to the rest of the economy. In recent years, however, there has been much discussion of the promise of artificial intelligence (AI), and its close cousin machine learning, to overcome healthcare’s cost disease. Perhaps we could train AI-powered robots to read diagnostic scans, deliver complex diagnoses, and perform intricate surgeries. Some of this is starting to happen, but more promising in the near-term is robotic process automation (RPA), whereby many of the back-office functions of coding, billing, record-keeping and reporting are being taken over by AI. One organization we work with has begun to implement RPA in its revenue cycle and suddenly recognized it has a major HR problem on its hands—it will soon be possible for them to eliminate a third or more of their back-office staff in key areas. Is this a good thing? Surely reducing overhead and administrative costs could allow them to lower the cost of care for patients, but job losses of that magnitude will hit their local community hard. Healthcare—the hospital sector in particular—has been one of the most reliable sources of employment growth over the past decade or more. A question soon to face policymakers: are we more interested in lower-cost care or healthcare-driven job growth, and can we have both? No easy answers, but given that healthcare organizations are the largest employers in many communities, it’s a question that merits much closer attention nationally.


That’s a wrap on 2019, and our thoughts on the year to come. It’s going to be a fun one—we’re so grateful for the opportunity to share our work with you, and we’d love to hear your feedback and guidance as well. Don’t forget to share this with a friend or colleague and encourage them to subscribe (and tune in to our daily podcast too)!

Most importantly, please let us know if there’s anything we can do to be of assistance in the year ahead. You’re making healthcare better—we want to help!

Best wishes for a very Happy New Year,

Chas Roades
Co-Founder and CEO
chas@gisthealthcare.com

Lisa Bielamowicz, MD
Co-Founder and President
lisa@gisthealthcare.com