September 14, 2018

The Weekly Gist: The Batten Down the Hatches Edition

by Chas Roades and Lisa Bielamowicz MD

Hello from a blessedly dry Washington DC, where even a hurricane is sufficient cause for partisan squabbling. We’ve dodged the brunt of Hurricane Florence, but our thoughts are with everyone down in the Carolinas, who took a direct hit and look to be in for a Biblical amount of rain. As ever, we’re in grateful awe of the many, many first responders, relief workers, emergency power crews, and especially the healthcare professionals who are risking life and limb to provide support for those affected. Hang in there.

Please consider a donation to the American Red Cross to assist in relief efforts in areas impacted by Florence.


THIS WEEK IN HEALTHCARE

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

The Apple Watch is now an FDA-approved medical device

Apple announced on Wednesday that it has received FDA clearance to market its newest Apple Watch as a medical device to measure heart rhythms and generate an electrocardiogram (ECG), viewable in the Apple Health app. The capability will be available on the Apple Watch Series 4, which will retail for a minimum of $399. Initial clinical indications for the device are quite limited: it’s only approved to diagnose atrial fibrillation, not other abnormal rhythms. It has also not been approved for patients under age 22, or for those who have already been diagnosed with atrial fibrillation. So here’s the current use case: a person with no previous rhythm problems who experiences heart palpitations can take an “in-the-moment” ECG to share with their doctorPatients who are hoping to use the device for ongoing monitoring of atrial fibrillation or to avoid toting a Holter monitor for 24 hours will have to wait.

Early reactions from providers have been mixed, with some citing concerns about a potential flood of useless data and the requirement to respond to patients who bring “abnormal” Apple ECGs to their doctors. (Apple has yet to announce any plans to support for consumers who don’t have a doctor.) Also unclear are the likely rates of false positives, or of patients who might have an abnormal ECG that ultimately has no clinical significance but could incur unnecessary ongoing testing and monitoring—and worry. Taking the long view, the real impact of the new device will come not from this single FDA approval but from Apple using it as a launchpad for further clinical applications—and to spark consumer engagement with the broader Apple Health platform as a “health management hub”. Here, Apple will find many willing partners. We’d imagine Oscar Health, with its ability to manage patient data and engage consumers, would be a natural fit. Providers should not reflexively run to concerns about data management and questionable utility, but should instead begin to consider how they will work with these new sources of information as a way to deepen their own engagement with consumers. 

UnitedHealthcare scores a victory in its overpayment case

A federal judge handed insurers a huge victory this week, ruling that a 2014 Centers for Medicare & Medicaid Services (CMS) rule on overpayments to Medicare Advantage (MA) plans was fundamentally flawed. In a summary judgement, the court ruled with UnitedHealthcare, stating that the methodology of determining an MA plan’s overpayments “will inevitably fail to satisfy the statutory mandate of actuarial equivalence”. There seems to be little disagreement that United and other MA plans have a long-standing practice of “upcoding”—aggressive coding of diagnoses and comorbidities to maximize payment—or that this leads to overpayment by CMS. But the agency is unable to collect those overpayments due to “unfairness” in the methodology.

The details behind the ruling are a little wonky, but here’s the gist: the court ruled that it’s unfair for CMS to audit MA plans’ coding if they are not also auditing fee-for-service (FFS) Medicare providers—despite the clear logic that MA plans have an incentive to aggressively upcode while FFS providers do not. Policy expert Timothy Layton (who provides a great explanation of the mechanics) rightly called United’s argument in the case “a ballsy move”,  because if CMS chose to audit FFS Medicare for coding completeness, it would make the FFS Medicare cost of care appear closer to that of MA plans—and thus reduce MA payment rates. CMS has 60 days to appeal the ruling or the agency will otherwise need to develop a new methodology to assess overpayment. But absent that, MA overpayments are now locked in for insurers, bolstering their ability to fuel further expansion.

Building Mayo into new risk-based narrow networks

This week, Rochester, MN-based Mayo Clinic and Minnetonka, MN-based Medica, a regional health insurer, announced a new collaboration that will work with out-of-state health systems to build provider-sponsored insurance plans that include the Mayo Clinic as a specialty care component. While the new arrangement is not a joint venture, and Mayo will not have an equity stake in the offering, the two have agreed to use Mayo’s brand and specialists as part of ACO-like narrow network plans Medica develops with other provider systems—allowing Mayo to continue expanding its reach by serving as a destination referral center for high-end care. The deal comes a year after Medica acquired Mayo’s third-party administrator business, MMSI, which works with a handful of self-ensured employers in the region.

Medica, which offers insurance plans in several upper-Midwest and Plains states, is looking to continue its growth outside of its Minnesota base. It faces new competition from insurance giant UnitedHealthcare—which once “rented” Medica’s Minnesota network but is now building its own provider network after changes in state law enabled for-profit insurers to offer products in the state. Also taking advantage of the regulatory shift, Aetna last year launched a new joint-venture health plan in the Twin Cities with Allina Health, creating even more competition for Medica in their home markets. As Medica continues to grow by launching provider partnerships in other states, it contributes to the larger national trend of risk-seeking providers joining forces with traditional insurers, rather than launching their own, in-house insurance arms. And the addition of the Mayo brand and access to Mayo’s nationally-recognized specialty care resources could prove to be a differentiator for Medica in the increasingly-crowded field of insurers offering JV opportunities. 


GRAPHIC OF THE WEEK

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

Envisioning new roles for the health system (cont’d)

Last week we began to share one of our core frameworks for helping health systems think through the path ahead, as they look to transform the way they organize and deliver care to drive real value for consumers. Recall that we described today’s typical health system as “Event Health”, built around the fee-for-service model of delivering discrete, single-serve interactions with patients. As we pointed out, one of the important limitations of today’s model is that many of the things healthcare consumers need aren’t simply “events”: some are episodic needs, with multiple interactions taking place across a defined time period (hip replacement, heart surgery, pregnancy and delivery); and some are conditions that need to be managed over a protracted period (cancer, mental illness, diabetes). Yet our “Event Health” status quo cares for these consumers in a piecemeal, fragmented way—often leading to gaps in care, poor transitions, excess cost, and a confusing care journey for the patient.

It’s clear that new operational models are needed to address the shortfalls of “Event Health”, and that leads us to the first of our proposed new roles for the health system: “Episode Health”, which we describe in the graphic below. To address consumer needs that involve multiple interactions, the best model for the health system is to play a coordinating role, managing the whole set of interactions across the episode. Think about joint replacement. Rather than force the patient through an uncoordinated series of events (imaging, prehab, surgery, post-acute care, rehab, and so forth), and judging health system success by the successful completion of each interaction, the system should organize around one single episode of care for the consumer.

Obviously, this is what bundled payment reforms are about—aligning incentives for all the caregivers involved across the episode. But getting the incentives right is just one component of “Episode Health”; equally important is the role the system plays in curating the providers involved at each “event” along the way and ensuring that each event provider delivers the optimal balance of benefits (quality, access, convenience, etc.) and costs. Importantly, the system need not “own” every one of the steps along the way; in fact, it may make more sense to “subcontract” for care in areas where the system’s own resources might not be the best choice. (The ethic of curating subcontractors is at the heart of Amazon’s business model by the way.) The system should be held accountable for the successful completion of an episode—judged from the consumer’s point of view (“return to mobility” not “hip replacement discharge”)—and by the seamless coordination of the events involved, and the consumer’s journey across them.

Next week: moving from episode curation to managing conditions, and what it might mean to be in the business of managing lives.


THIS WEEK AT GIST—ON THE ROAD

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

What I learned from a few days in the ICU

Lisa:
I happened to be in Texas visiting family recently when my 95 year-old grandmother had a heart attack. “Granny”, who lives in an assisted-living apartment, woke up short of breath and was transported by ambulance to a suburban community hospital that’s part of a large regional health system. By the time we arrived, she was in a telemetry bed and getting further testing. The cardiologist on call soon arrived while Granny was getting an echocardiogram. The results weren’t good, showing significant heart failure. Unfortunately, his bedside manner wasn’t great either. He pointed at the screen, and (loudly) said to us, “See this? She’s never going to get better. There’s nothing we can do. I’m not sure what we’re doing here.” All the while entirely ignoring (and never directly addressing) the patient, who may be elderly but is sharp and knows exactly what’s going on.

This would have been all that my family remembered had it not been for an outstanding ED physician who quickly stepped in and apologized, explaining her test results and reassuring us that there was more they could do with fluid management and supportive care. Spending time with Granny in the ICU over the following days, I was struck by other genuine acts of kindness and care, like the phlebotomy tech who spent half an hour gently searching for a vein while chatting to distract my grandmother. I saw firsthand the operational challenges of “good care”, such as the extra steps a nurse went through, scanning barcodes, patient ID bands and multiple EMR logins just to administer eye drops. Good news: Granny went home, and I’d say that she benefited from this system’s years of work as an accountable care organization, leading to strong coordination around discharge planning, transportation and follow-up. The experience was a reminder of how even those of us who work in healthcare can feel bewildered in a critical situation—and how much more jarring it is for patients and family without deep knowledge and connections in the system. Mostly I’m left with deep gratitude for the dozens of people who worked hard to deliver the best possible care experience in a very difficult moment.  

Elevating the consumer voice in demanding healthcare value

Chas:
This week I had the pleasure of participating in a half-day roundtable session hosted by the terrific team at Families USA, the leading consumer advocacy group in the health policy space. Although the organization is best known for advancing the cause of coverage expansion and playing a pivotal role in the passage of the Affordable Care Act, they have traditionally been less active in the “healthcare value” debate. This week’s roundtable was focused squarely on that topic, and brought together leading lights from many highly-regarded health policy groups. Moderated by Families USA director Frederick Isasi and Urban Institute fellow Dr. Bob Berensonthe discussion focused on identifying the key obstacles facing consumers as they seek value from our national healthcare system, and the most leveraged areas for policy development to help overcome those challenges.

Although I’ve collaborated with health policymakers in various ways over the years, and even had the opportunity to share my thoughts and observations with healthcare officials in both the Obama and Trump administrations and with Congressional leaders, I’m far from a “policy guy”. What I did bring to the discussion this week was a perspective on what “value” looks like from the providers’ point of view, and some of the challenges in moving to a value-based delivery system. Unsurprisingly, there’s a strong bias among policy experts that providers—particularly large, expensive health systems—are an obstacle to value. Industry consolidation and pricing power are, correctly, top-of-mind concerns for many policymakers. But I was struck by the willingness of the group to move past the reflexive reaction of demonizing providers and to entertain ideas that engage them in reform efforts. As one participant put it, “the horse is out of the barn” as to consolidation; the question now is how to hold health systems accountable for the value they promise in justifying building ever-larger enterprises with growing market power.


ON THE GIST TURNTABLE

Give this a spin, you might like it.

Just in time for the weekend, today sees the release of the debut full-length Room 25 from Chicago-born underground poet and rapper Noname. Following up on her sensational 2016 cult-classic mixtape Telefone, the self-released album sees Noname, whose real name is Fatimah Warner, expanding her sonic horizons and cultural references, while keeping true to the lyrical playfulness and complexity of her early work. Noname blazed onto the scene in the orbit of Chicago’s brightest star, Chance the Rapper, and her work shares his trademark positivity and inclusiveness, bringing a slam-poet’s spoken word sensibility and a heavy dose of soul-jazz and quiet R&B. Reflecting her relocation from Chicago to the LA scene, the neighborhood party of Telefone’s “Diddy Bop” here gives way to broader observations on maintaining identity in a cosmopolitan city, as on “Prayer Song”. Yet she remains a humble, thoughtful voice on the too-often garrulous rap scene, a posture most clearly signaled by her choice of stage name. “Don’t nobody really know me,” she raps on the track “Window”—and that’s really her point. In a world where female rap mega-stars are throwing shoes and elbows, Noname is a welcome dose of chill.


WHAT WE’RE READING

Stuff we read this week that made us think.

A rural hospital wants to send patients to Walmart

Most of the discussion of rural healthcare has focused on the crisis of access created by hospital closures, with little attention to finding viable solutions. We were struck by an article in North Carolina Health News describing one rural hospital’s answer: divert patients from the hospital ED to an urgent care clinic located in the local Walmart. Testifying to state legislators, Joann Anderson, CEO of Southeastern Health in Lumberton, NC, described a patient access crisis leading to ED overuse for non-emergent conditions that is negatively impacting the hospital’s margin, and long-term viability. As an alternative, Southeastern has established a full-service urgent care clinic inside a local Walmart, described as a busy “treat and street” clinic, serving uninsured patients for a cash price of $25 to $65. The Walmart clinic is supplemented by a nearby “urgent care mall”, which includes imaging and more advanced services.

Walmart’s deepening moves into healthcare point to insurance business aspirations, and an intent to own, rather than partner for, the delivery a broader array of clinical services. The Southeastern collaboration suggests that more traditional provider partnerships may not be off the table. Most discussions of addressing rural healthcare needs, especially in policy circles, focus on propping up rural hospitals rather than rethinking rural healthcare altogether. Any solution must engage organizations like Walmart who have found a way to create—and profit from—a broad presence in rural communities. 

Nowhere to hide from healthcare margin pressures

The always-insightful industry pundit Jeff Goldsmith and his colleagues at Navigant Consulting released a new research report this week that revealed “broad and significant” margin deterioration across a wide swath of US health systems over the last three years. Based on a sample of 104 health systems accounting for 47 percent of US hospitals, the Navigant study found that two-thirds of systems had seen operating margins decline by a total of 44 percent, or about $6.8B, from 2015 to 2017. Of note, the study found that operating expense growth slowed over the period, but that revenue growth slowed even faster. The finding appears to hold true even for very large health systems, and even for health systems in fast-growing parts of the country. Goldsmith and his colleagues point to the data to argue that systems have failed to sufficiently pursue cost savings, and to castigate large systems for not delivering on the promise that scale and integration would produce “synergies” that lower expenses.

The study is helpful in highlighting the significant headwinds faced by providers in the current operating environment, although coverage of the study in the trade press seems to have buried the lede (or missed the point altogether). While it’s true that expenses are growing faster than revenues, that’s no surprise—as the study suggests, expenses are being driven higher by complex IT implementations, rising nursing costs, increases in specialty drug costs, and the increasing cost of employing physicians. But the real story is revenue slowdown. What’s really going on is a combination of mix shift (each Boomer that turns 65 represents a switch from commercial price to Medicare price) and price cut (significant reductions in Medicare payment to providers put in place by the Affordable Care Act). Large systems—no matter how oligopolistic—have zero leverage over Medicare pricing…you can’t negotiate prices with Uncle Sam. And you’d naturally expect these Medicare-related effects to be more pronounced in “high-growth” areas like the Southwest—that’s where the Boomers are going to retire. The challenge for providers of every size is to figure out how to survive given these once-a-generation pressures. And as the Navigant study correctly asserts, that will require even more aggressive cost cutting by health systemsWe’d add: providers will need to pursue an entirely different model of care delivery to weather the magnitude of revenue pressures ahead.

Here’s how PBMs make so much money

We highly recommend taking five minutes to read Bloomberg’s well-researched piece on pharmacy benefits managers (PBMs), which provides the best simple explanation we’ve seen (with great graphics) on how PBMs make money—often at the expense of independent pharmacies and the employers they purport to serve. PBMs say they provide a service to employers by creating consistency in drug pricing through “managing the spread”, or the difference between the cost to a drug to employers or payers and the price paid to pharmacies.

Focusing on data from Medicaid plans who use PBMs, Bloomberg identified a PBM profit-maximizing sweet spot: newly-generic medications. The prices of these drugs often fall fast in the few years after a generic is introduced, but PBMs only pass along a small portion of the price cut, widening the spread. Customers tracking the numbers see a small reduction in their costs, while the PBM pockets the widening spread as profits—undermining the whole point of generic drugs, which is to deliver a markedly cheaper alternative to the market. PBMs assert that they make money on some drugs and lose it on others and would fail to get the best rates if they revealed their contracting methodologies. However, the Bloomberg piece highlights the power of data and transparency. We’d bet that putting more information in the hands of employers, states and payers, rather than blindly placing trust in the hands of opaque middlemen, would result in better pricing and outcomes for consumers. 

Checking in with the descendants of Betsy Wetsy

We recently read a piece in Wired that reminded us—maybe a little too much—of Westworld, HBO’s dystopian sci-fi series that tells the story of a futuristic theme park populated with life-like robots, where things get a bit out of hand. The article describes Hal, a $48,000 robot boy developed by Gaumard Scientific for use in medical training. Hal is one of a family of animatronic robots made by Gaumard, which has been building medical simulators since the 1940s. Hal is chock-full of hydraulic systems and servo motors that allow him to breathe, bleed, cry, and urinate, and allow for special effects like swelling throat and lips to simulate anaphylactic shock, for example. Hal, whose full name is Pediatric Hal S2225, is part of an extended family that includes Victoria S2200, a robotic mother that gives birth to a robotic baby, and the charmingly-named Super Tory S2220, a robotic newborn. As the article describes, these robotic patients are so disturbingly life-like—complete with vocalizations and facial expressions—that trainees can get rattled. And that’s part of the point, adding an emotional dimension to training scenarios that previously only included lifeless rubber dummies. These futuristic training robots introduce an element of interactivity that challenges trainees to stay focused on the medical tasks at hand. They also enable a constant stream of monitoring data to be collected and analyzed, which gives real-time feedback on how the trainees are performing.

It’s interesting to wonder how far this technology will go. Will we one day be able to simulate medical situations at a biological level, allowing surgeons to train on robotic organs, for example? Should this advanced technology be incorporated into training curricula, and where could it adequately substitute for real-world practice with living patients? Given the high price tag, defining the places where the Hal and his family provide an advantage over current training is essential. While there is a place for methods that teach complex skills without jeopardizing patient safety, we are skeptical that a new class of robotic patients will better teach empathy than observing and delivering care to real patients in need.


Thanks again for reading the Weekly Gist, and for getting in touch with your feedback and comments. Every week we hear from old friends and new, who want to continue the dialogue and share suggestions for future work. What a blessing! If you’re reading this for the first time, please consider subscribing, and sharing with a friend or colleague.

And as always, if there’s anything we can do to be of assistance in your daily work, please let us know. 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