December 3, 2021

The Weekly Gist: The AH-muh-cron Edition

by Chas Roades and Lisa Bielamowicz MD

Uh oh. Just as we were starting to get nervous about the nascent winter uptick in COVID cases driven by the Delta variant and the return of cold weather, here comes a whole new thing to worry about. Of course, it’s too early to say exactly how dangerous the new Omicron variant might be, but as we write this from 37,000 feet, winging our way to an executive retreat, we’re feeling more than a little déjà vu from 2020. One thing is already clear: the new variant is causing all sorts of pronunciation problems. We’ve heard “Omnicron,” “Oh-my-cron,” and, predictably, “Obamacron.” Plus, “The Omicron Variant” makes it sound like we’re living in a Robert Ludlum novel, compared to the less scary-sounding Delta variant, which might have been something you picked up at a frat party in college, earning you a trip to student health. Fingers crossed that an awkward moniker is the worst we’ll have to deal with from this unwelcome new addition.


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

Supreme Court hears 340B rate cut case

Earlier this week, the American Hospital Association (AHA) made its case before the US Supreme Court, in opposition to Medicare reimbursement cuts to hospitals that participate in the 340B Drug Pricing Program. The program allows hospitals that serve low-income patients to purchase outpatient drugs at a discount. In the graphic below, we look at what’s at stake for hospitals in the case. Beginning in 2018, Medicare cut reimbursement for 340B-eligible drugs purchased by most hospitals by 28.5 percentage points, amounting to roughly $1.6B annually—which was a significant hit to hospitals’ 340B revenue. As we recently discussed, that revenue has become essential for many hospitals’ financial sustainability. However, the true impact on hospital bottom lines is more nuanced, as the savings from 340B rate cuts are being redistributed to all hospitals that participate in the Outpatient Prospective Payment System (OPPS), regardless of their 340B status, via a 3.2 percent payment bump for non-drug Part B services. While the cut negatively impacts those with large 340B programs—generally larger hospitals located in urban areas—the resulting redistribution actually provides a net benefit to about four in five hospitals.

Although 340B program revenues are at stake, the broader legal question before the Court centers on the level of authority federal agencies like the Centers for Medicare & Medicaid Services (CMS) have to create regulations to interpret ambiguous laws. (If the justices rule against CMS, it will overturn a key legal doctrine known as the Chevron Defense, which compels courts to defer to an agency’s interpretation of unclear statutes.) A ruling isn’t expected until next spring, but regardless of the outcome, the 340B program faces other threats, chiefly from several lawsuits involving large pharmaceutical manufacturers’ moves to restrict discounted product sales to contract pharmacies. Undoubtedly, the ongoing scrutiny of the 340B program will continue to raise questions about whether there are better ways to subsidize the operations of hospitals serving low-income patients and ensure that underserved patients have access to lifesaving treatments.


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

Strategic misalignment at the heart of a governance issue

In our work with health systems, physician groups, and other organizations over the years, we’ve often been asked to facilitate board-level discussions about governance—resolving board conflicts, navigating difficult decisions, evaluating board composition. A recent discussion again highlighted one of our main observations in working with boards: governance problems are often strategy problems in disguise. Working with a system that has grown through acquisition over the years, and whose board includes members from several of the “legacy” hospitals which had merged into the system over time, we were asked to help facilitate a dialogue about investment priorities across the component parts of the system. At the root of the issue: each of the “representatives” of the subsidiary entities were pushing to have their own investment needs take precedence. On the face of it, that’s a governance problem: boards shouldn’t be constituent assemblies, with each member representing the interests of a sub-unit. Rather, they should act with one purpose: to advance the interests of the whole. But that misalignment turned out to be a symptom of a larger problem: there was no consensus at the board level about what the strategic direction of the combined system should be, and what role each component part played in that direction. That’s a strategy problem, masquerading as a governance issue. Identifying the strategic issue allowed the board to reframe the dialogue around vision, which then unblocked the subsequent decisions about investments. Good strategy and good governance go hand in hand.


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On last Monday’s episode, we heard from Dr. Gary Kerr, Chief Pharmacy Officer of Baystate Health, about the impact of Medicare cuts to 340B drug payments, and manufacturers’ moves to limit discounts for the system’s specialty pharmacy program.

As the Omicron variant spreads across the globe, countries are scrambling to stave off another surge. Like the US, the UK is turning to booster shots. Today’s episode brings us a first-hand report from London on how Britain is dealing with its latest COVID surge.

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That’s all for this week. Thanks for taking time to read this abbreviated edition of the Weekly Gist—we’re so grateful for your engagement, and we hope you’ll get in touch with your feedback and suggestions. Don’t forget to share this with a friend or colleague, and encourage them to subscribe, and to listen to our daily podcast. Big things ahead for 2022—now’s a great time to sign up!

As always, please let us know if we can be of assistance in your work. You’re making healthcare better—we want to help!

Best regards,

Chas Roades
Co-Founder and CEO

Lisa Bielamowicz, MD
Co-Founder and President