April 6, 2018

The Weekly Gist: The “ACOs Aren’t Working” Edition

by Chas Roades and Lisa Bielamowicz MD

Hello from breezy Washington, DC, where yesterday was officially “peak Cherry Blossom” day. Those from out of town planning a late visit to see the lovely trees around the Tidal Basin be warned: the blossoms peaked just in time for 40 mph wind gusts. Our weird Washington winter has spilled into spring…

Meanwhile, we’ve been keeping busy here at Gist Healthcare, puzzling through the implications of America’s largest employer making a big move toward healthcare, helping clients understand where the ACO movement goes from here, and marveling at Jamie Dimon’s cutting-edge insights on how to fix what ails American healthcare (spoiler alert: the solution is Big Data and bipartisan commissions).

On with the show!


THIS WEEK IN HEALTHCARE

What happened in healthcare this week—and what we think about it.

Taking aim at consolidation in California

California’s Attorney General filed an antitrust suit against Sutter Health, which operates 24 hospitals and owns a wide array of surgery centers, clinics, and other delivery assets in Northern California. The suit alleges that Sutter engaged in anti-competitive behavior, with restrictive commercial contracting practices and “punitively” high rates for its services. Healthcare market concentration has long been a concern of regulators in California, and this latest suit is likely to intensify scrutiny of M&A activity there and around the nation. Notably, it may spark heightened antitrust activism at the state level, at a time when the federal antitrust enforcement agencies are in transition. We wrote about hospital consolidation and mega-mergers recently, and whatever the merits of the California suit, our larger point stands—high prices are a feature, not a bug, in health system consolidation. In fact, most multi-hospital systems came together precisely for this reason: to exercise negotiating leverage against consolidating insurance companies. Playground-logic scale—getting bigger in order to beat up on the other guy—is endemic in American healthcare, and it doesn’t create value.

Physicians opt-out of system integration

Atrium Health (formerly Carolinas HealthCare) has agreed to part ways with Mecklenburg Medical Group (MMG), a large multispecialty group practice that has been part of the system since 1993. 92 of the group’s 104 doctors sued to break away from the system, citing system moves to alter staffing, realign specialists, mandate in-network referrals and potentially change physician compensation. Doctors accused Atrium of repeatedly complaining of losing millions of dollars annually on MMG doctors, despite having “a bloated management infrastructure”.

This split highlights the challenges of vertical integration between health systems and large physician groups. Atrium’s moves toward improving network integrity, centralizing staffing and aligning physician compensation surely hold promise in making care more coordinated and affordable. But from the physician point of view, each could be also seen as an intrusion on the autonomy of practice. In their quarter-century as Atrium employees, MMG physicians maintained key elements of their own brand and structure. True integration requires physicians to cede some aspects of their practice once considered sacrosanct. Systems who believe that integrated care creates value for patients will have to navigate uncomfortable boundaries of physician practice and, working with physician leaders, clearly define what it means to be a “member” of the integrated group.

Making air conditioners a covered Medicare benefit

This week, Medicare announced that it plans to broaden the definition of “health-related benefits” for Medicare Advantage plans, making it possible for insurers to pay for such services as transportation, air conditioners, and healthy groceries for MA enrollees. Advocates of the move argue that plans will now be able to address some of the underlying drivers of poor health, potentially enabling a reduction in overall spending on healthcare services for at-risk seniors. Critics say it also allows plans to add benefits like gym memberships that preferentially target healthier patients.

Notably, the new policy comes on the heels of recent news that retailers CVS and Walmart are planning aggressive moves into the MA space, and this may make those strategies even more attractive. Creating more alignment between traditional healthcare services and social care investments will be a critical element of capturing the promise of population health management, and the new CMS policy signals an important step forward on that front.


GRAPHIC OF THE WEEK

A key insight or teaching point from our work with clients, illustrated in infographic form.

Consumers will control more of their own spending in healthcare, choosing where to spend their dollars in a high-deductible, HSA-driven world and potentially able to choose among a broader array of networks in a defined-contribution framework.  As this shift occurs it will be important to understand how consumers make these choices. Price will clearly be the largest driver of choice at both the point of coverage and the point of care. Importantly, however, consumers will weigh price against the benefits available—clinical reputation, care quality, convenience, and so forth. Providers will need to work hard to earn consumer choice at the point of care by ensuring that costs are competitive and consumer benefits are commensurate with price. And they’ll have to work to bring cost down in order to be included in networks at the “wholesale” level as well.


THIS WEEK AT GIST—ON THE BLOG

What we’ve been writing about this week on the Gist Blog.

ACOs Still Aren’t Saving Money for Medicare
The ACO program has yet to generate net savings for Medicare and is unlikely to do so until a majority of participants take on downside risk

What Yelp Tells Us About How Consumers Shop for Care
As consumers bear more of the cost of care, and have more choices of where to receive it, they are increasingly relying on ratings sites like Yelp—and revealing a wider set of decision criteria than before


BINGE WATCH ALERT

We would’ve worked harder, but we watched this instead.

Netflix launched Wild Wild Country this week, a new documentary mini-series that looks back at events surrounding the conflict between a large, utopian cult and a small town in Oregon in the 1980s. Gist readers of a certain age will remember seeing news reports about the Rajneeshees, and the bioterror attack they perpetrated (which remains the largest in American history). This six-episode series is fascinating, and well worth a weekend watch. Unless you have chores to do.


THIS WEEK AT GIST—ON THE ROAD

What we learned this week from our work in the real world.

Moving to value in the commercial market

Lisa:
ACOs who’ve had success in the Medicare Shared Savings Program often hit a roadblock when trying to move their commercial contracts toward total-cost risk. Given the difficulty of changing health system financial and care models for just a fraction of patients, finding risk partnerships in the commercial market is critical. I’ve been advising a risk-ready health system who has found a large commercial payer that’s eager to partner. Getting into the specifics of the partnership highlights just how many differences there are between taking risk in the Medicare and commercial populations: attribution, cost targets, patient care patterns, and care management infrastructure can vary considerably. I’ll have more lessons-learned for commercial risk agreements in a coming blog post.

Mulling the prospects for single payer

Chas:
Not long ago, I had the opportunity to moderate an Economic Summit on healthcare issues in Southern California, sponsored by MemorialCare. The discussion was wide-ranging and spirited—as you’d expect in a forum hosted by MemorialCare’s CEO Barry Arbuckle and including the always-brilliant economist Paul Keckley. Representatives from the physician and business communities were also present. Interestingly, one of the main topics of discussion was the ongoing debate over single-payer healthcare in California. There was some disagreement over the likelihood of ever moving to single payer, but I was struck by how seriously participants were taking the proposal. The longer progress lags on making healthcare more affordable, the more alluring radical solutions like single payer become.


WHAT WE’RE READING

Stuff we read this week that made us think.

Shining a (new) light on pharmaceutical company influence

major new project launched by the incredible team at Kaiser Health News (KHN) this week pulls together data from 12,000 donations made by pharmaceutical companies. The first reporting from the project highlights the fact that 14 large pharma companies contributed $116M to patient advocacy groups—organizations that work on behalf of specific patient populations, such as asthmatics or diabetics—while spending only $63M on lobbying in the same year. The report raises questions about the role of these patient advocacy groups as a means for pharmaceutical companies to influence legislation and regulatory decisions, while skirting public reporting requirements for lobbying activity. It’s going to be fascinating to watch the response to this new project unfold, and to see where the data takes the KHN team next. To quote Supreme Court justice Louis Brandeis, “sunlight is said to be the best of disinfectants”—and this analysis is the latest demonstration of the need for greater transparency in healthcare.

Don’t expect ACOs to reduce Medicare spending anytime soon

study from Avalere made news this week for concluding that the Medicare Shared Savings Program (MSSP) failed to generate net savings for CMS, and the program is over $2B short of the savings projected by the CBO at its inception. The fact that ACOs are not saving money for Medicare is not news—anyone who has monitored MSSP performance shouldn’t find this study a surprise.

A quick spin through past years’ MSSP results shows that the program has yet to generate net savings. As we detail on the Gist Blog this week, upside-only risk simply does not provide a strong enough incentive to change care models, and it’s highly unlikely that the program will produce savings without stronger incentives to move a majority of ACOs to downside risk.

Diapers hurt the “bottom line” of many Americans

A baby can use 3,000 diapers in their first year of life. At a cost of $100 a month, a third of families can’t afford to buy them for their newborns. Fantastic reporting in the Tampa Bay Times shows how this expense, often unexpected by new parents, can stress families and crowd out other necessities like food, transportation and medicine. While a diaper can be purchased for a dime in many parts of Latin America, there has been almost no effort to bring a cheaper US product to market. Instead, a vast amount of R&D investment has been made in developing “eco-friendly features” and “absorbent technology”—largely targeting high-end consumers. We’ve long recognized the impact that food banks can have on a patient’s health and well-being. For many young families, “diaper banks” may be another important way to help stretch household budgets across a long list of necessities.


GIST IN THE NEWS

We said it, they quoted it.

“Hospitals Fear Competitive Threat From Potential Walmart-Humana Deal”
Wall Street Journal; April 1, 2018.

“Walmart is ‘a huge presence in a lot of people’s lives’ and has price-conscious consumers who trust the company’s brand, said Lisa Bielamowicz, president of health-care consultancy Gist Healthcare Inc.. A competitively priced health-care option would be attractive to some patients, she said.”

“Walmart, Humana Move Closer as Separate Upheavals Threaten”
Bloomberg; April 2, 2018.

“‘Obviously a lot of things have to go right for this vision to come to fruition, but if they can pull it off it will be an absolute game-changer in health care,’ Chas Roades, the co-founder of consulting firm Gist Healthcare, said.”


That’s a wrap from here. Thanks again for taking time to read the Weekly Gist—we hope you’re enjoying reading it as much as we’re enjoying putting it together for you. Please forward it along to a colleague if you’d like, and if someone’s sent this along to you, please subscribe! Also, don’t forget to catch us over on the Gist Blog, and send us your feedback on what you’d like to see us focus on in coming weeks.

Most importantly, please do let us know if there’s anything we can do to be of assistance in your work; our email addresses are below. You’re making healthcare better—we want to help!

Best regards,

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

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