August 25, 2023

The Weekly Gist: The Bachelorette vs. Commanders Edition

by Chas Roades and Lisa Bielamowicz MD

The television controversy that captured our attention in the DC area this week had nothing to do with Wednesday night’s airing of “The Elephant Not in the Room”, or Thursday night’s episode of “The Devil Went Down to Georgia”. Rather, it was the decision on Monday night by local ABC affiliate WJLA to preempt the airing of the season 20 finale of “The Bachelorette”. In its place, local viewers were treated to the NFL preseason game between the Washington Commanders and the Baltimore Ravens. No sane programmer would have made this trade-off in years past, given the dismal state of football in our nation’s capital. But now that we’ve finally chased Dan Snyder out of town, people are getting excited for football in DC again! In case you’re wondering, the Commanders beat the Ravens 29-28, thanks to a late field goal. And Charity ended up accepting a proposal from Dotun, a 30-year-old integrative medicine specialist. All’s well that ends well.


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

  1. Blue Shield of California ends exclusive PBM contract with CVS. Blue Shield of California announced a plan to diversify its pharmacy benefit management (PBM) contracts in a bid to improve transparency and reduce costs. Instead of relying on Woonsocket, RI-based CVS Health’s Caremark as its sole PBM, the health plan and its 4.8M members will be served by five companies, including Amazon Pharmacy for at-home deliveries, Mark Cuban Cost Plus Drugs Company (MCCPDC) for a transparent pricing model, and Prime Therapeutics for negotiations with pharmaceutical companies. Caremark will remain responsible for Blue Shield’s specialty pharmacy needs, which CVS noted in an investor filing represents over 50 percent of nationwide pharmacy benefit spending. Blue Shield intends to implement this new system by 2025, and is targeting savings of $500M annually, which translates to 10 to 15 percent of its current spending.

The Gist: Whether Blue Shield saves money with this initiative depends on the whether the benefit of competition in its PBM contracts outweighs the costs of more complex coordination between vendors. Keeping half of its business tied up with CVS through specialty pharmacy will further limit the potential impact. Nonetheless, it’s noteworthy that pharmacy disruptors like Amazon and MCCPDC have found a major health plan willing to work with them. Consumers, employers, payers without PBMs, and members of Congress are increasingly dissatisfied with the current pharmacy benefit market structure, and Blue Shield’s move could serve as a catalyst for future shakeups. 

  1. Oregon establishes nurse staffing ratios at hospitals. This month, Oregon became the fourth state to legislate minimum nurse-to-patient staffing ratios for certain hospital settings. While New York and Massachusetts only mandated staffing ratios in critical and intensive care units (ICUs), Oregon joined California by specifying ratios across all hospital settings. Starting June 2024, Oregon hospitals must maintain nurse ratios of 1:1 for emergency department trauma patients, 1:2 for ICU patients, and 1:5 for med-surg patients, which will drop to 1:4 the following year. The law also established ratios for certified nursing assistants, clarified that ratios apply during rest and meal breaks, and tasked hospitals with creating staffing committees, like those which previously governed nurse staffing levels, for food service and technical workers. Hospitals found in violation of these rules could face escalating fines of up to $5K per offense.

The Gist: While this law came out of a compromise between hospital groups and nursing unions, which agreed to support some hospital-favored bills (like one to exempt hospital labor spending from state cost control measures), it’s still a notable victory for the unions. Increased staffing levels rank consistently as one of nurses’ top demands, but hospitals have opposed similar bills in other states, pointing to the existing labor shortage, which has sharply driven up industry labor spending. With nearly two thirds of Oregon hospitals losing money on operations in 2022, the state’s hospitals will now have to find tactics to manage spending within a less-flexible staffing structure. Moreover, mandated ratios can present a roadblock to the design and implementation of labor-saving technologies and team-based staffing models. Hospitals, nurses, and their unions must partner to design new care delivery models to ensure that regulations don’t stifle the innovation needed for a long-term, sustainable workforce.

  1. Epic, Microsoft expand generative artificial intelligence (AI) partnership. On Tuesday, Verona, WI-based Epic and Redmond, WA-based Microsoft announced a suite of new AI-powered solutions available to users of Epic’s electronic health records (EHR) system. In April 2023, Epic began integrating Microsoft’s Azure OpenAI Service, which utilizes GPT-4 capabilities, into its EHR. This next phase builds on that collaboration, introducing tools that support ambient notetaking, create clinical documentation summaries, and offer medical coding suggestions, all through generative AI. Epic is rolling out these services as it debuts its revamped third-party app market, which now hosts programs developed by Microsoft-owned Nuance as well as smaller startups.

The Gist: Given the massive datasets required to train these AI programs, the competition to deploy AI-powered healthcare workforce at scale will likely be driven by the largest tech and healthcare data companies rather than smaller start-ups. Epic’s new app marketplace for third-party vendors is meant to ensure just that, by positioning it as the primary hub for many healthcare-specific AI programs in development. Health systems will race to take advantage of the cost savings unlocked by these technologies, which they will hope integrate seamlessly into their EHRs. As physicians stand to benefit from eased administrative burdens, but also have justified concerns over generative AI’s reliability, health systems should keep an open dialogue with frontline providers as they implement these new tools.   

Pluswhat we’ve been reading.

  1. Why providers are paying fees to get paid. An investigative piece published this month by ProPublica documents how it came to be that nearly 60 percent of healthcare providers report being charged fees to receive electronic payments from insurers. The fees, which can be as high as five percent of total reimbursement, were briefly forbidden by the Centers for Medicare and Medicaid Services (CMS), before the agency reversed its policy in 2018. The article follows one dogged physician’s efforts to uncover why CMS allows these fees. His voluminous stream of public records requests revealed a highly coordinated pressure campaign, mounted by the insurance industry through one particularly influential regulator-turned-lobbyist. While the American Medical Association has urged the Biden administration to protect physicians from these fees, and the Veterans Health Administration is refusing to pay them, CMS is so far maintaining the position that electronic-payment claims-processing fees are permissible.

The Gist: Through partnerships with payment companies, who charge double the average fees of electronic bank transfers and share the spoils of their “virtual credit cards”, insurers are essentially using the same business model as credit card companies, skimming revenue from physician payments just as Visa and MasterCard do to merchants. With the increasing consolidation of both insurers and claims processors, physicians are left with little recourse but to pay these fees, as nonelectronic payments come with infrastructure costs and payment delays. While the shift to electronic payments spurred on by the Affordable Care Act was supposed to improve efficiency, this article offers yet another example of how efficiency gains can be captured by industry middlemen before they can be translated into provider and consumer benefits.


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

Hospital volumes shifting to outpatient and home-based settings

The pandemic accelerated the outpatient shift, which had been progressing steadily for decades, into a new gear, as safety-minded consumers avoided inpatient settings. Using the latest forecasting data from strategic healthcare consulting firm Sg2, the graphic below illustrates how the outpatient shift will continue to accelerate in the coming years. With each projected to grow by 20 percent or more, outpatient, virtual, and home-based care services will continue far outpace growth in hospital-based care over the next decade. Ambulatory surgery centers (ASCs) will be at the center of this care shift, reflected by a projected 25 percent rise in ASC volumes by 2032. The breadth of care available at home will also expand as care delivery technology improves. With the population becoming older and sicker, higher incidence of chronic disease will be met by a rapid expansion of home evaluation and management services (E&M), reflecting a shift away from hospitals and doctors’ offices as hubs for complex care management. Instead, the patients still coming to hospitals will present with increasingly acute conditions, driving up demand for resource-intensive critical care, as broader inpatient volume remains relatively flat.


A recommendation from our weekly diet of music, movies, TV, and other good stuff.

You’re the One by Rhiannon Giddens—Third solo album from the founder of the Carolina Chocolate Drops, this one a musical Whitman’s Sampler of blues, country, folk, zydeco, and jazz, with Gidden’s marvelous vocal talent taking the spotlight. She’s one of the most interesting musicians working today, innovative and boundary-challenging, and this ambitious album is further proof of that. True Americana.


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

Are doctors destined to make less money? 

At a meeting last week, a surgeon (and loyal Weekly Gist reader) shared his thoughts on our recent coverage of research evaluating physician earnings, and analysis comparing the incomes of American doctors with those in other Western countries. (The gist: unsurprisingly, American doctors make more money—and one of the primary reasons is that there are simply fewer physicians per capita here than in most other Western nations.) His retort: “It sounds like you’re rooting for doctors to get paid less!” Given the number of emails we received on the piece, it’s clear that the topic touched a nerve.

A few doctors pointed out the limitations of simple supply and demand in driving physician salaries. Of course there are important structural differences between our delivery and payment system and those in other nations: fee-for-service versus global payment; length of training and degree of student debt; and relative salaries of specialists versus primary care physicians, just to name a few. But if anything, the effects of supply and demand are amplified in a more market-driven system like the US. Plus, there are factors, like regulation of the number of residency training slots, that keep supply artificially low—and physician incomes in competitive specialties high. At a high level, the data do show that prices—both physician and hospital—are higher in the US than other countries, whereas utilization is roughly similar. Over time, we’d expect that there will be continued price pressure driving down doctors’ incomes, but large swings in physician salaries will take a generation or more to emerge. And should physicians experience more salary pressure, expect more of them to seek additional sources of entrepreneurial and investment income—further increasing the spread between the lowest- and highest-paid doctors.

That’s all for this week! We’ll be back after Labor Day with more Weekly Gist fun, and fresh episodes of the Gist Healthcare Daily podcast. In the meantime, we hope you have a safe and enjoyable end to your summer! Thanks so much for taking time to read our work. Please remember to share it with friends and colleagues and encourage them to subscribe!

We hope you’ll let us know how we can be of assistance in your work. You’re making healthcare better—we want to help!

Best regards,

Chas Roades
Co-President and Managing Director

Lisa Bielamowicz, MD
Co-President and Managing Director