September 28, 2018

The Weekly Gist: The Carbon Footprint Edition

by Chas Roades and Lisa Bielamowicz MD

Friday, at last! The past week has seen each of us make two separate round-trips across the country, logging more time on airplanes than at home, and racking up a larger carbon footprint than we’d care to admit. It’s been an unusually rainy couple of weeks in the DC area, and if local residents are wondering where to pin the blame for our awful weather, well, we might just have broken the planet with all of our flying. Sorry everyone!

Meanwhile, it’s been an interesting week in our industry, so let’s get down to business.


THIS WEEK IN HEALTHCARE

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

Reducing penalties for hospitals in low-income areas

Starting next week the Centers for Medicare & Medicaid Services (CMS) will implement a change to the way it penalizes hospitals with excessive rates of readmissions, an adjustment announced as part of the final 2018 Inpatient Prospective Payment System (IPPS) rule a few weeks ago. As reported by Kaiser Health News in a new analysis of the change, the change will benefit safety-net hospitals and other facilities that disproportionately serve low-income patients. The Hospital Readmissions Reduction Program (HRRP) has been one of the more successful provisions of the Affordable Care Act’s payment reforms, and since 2012 has docked hospitals with higher-than-expected rates of 30-day readmissions for an expanding set of diagnoses, which now includes heart failure, heart attack, pneumonia, chronic obstructive pulmonary disorder, open heart surgery, and hip and knee replacement. Analysis by the independent Medicare Payment Advisory Commission estimates that the program resulted in reductions in readmission rates that were nearly twice as large for targeted conditions as for those not included, indicating that the program has been effective in motivating hospitals to work on reducing readmissions.

A frequent complaint about the program, however, has been that it unfairly punishes hospitals that serve low-income patients, whose lack of access to medications or follow-up visits after discharge contribute to higher readmission rates. Starting Monday, hospitals will be grouped into one of five categories, depending on the extent to which they treat low-income Medicare beneficiaries (as measured by the rate of “dual-eligible” patients, enrolled in both Medicare and Medicaid). Rather than comparing all hospitals to a single national benchmark for readmission, facilities will now be judged against those serving similar numbers of dual-eligibles. The change is expected to have no impact on the overall amount of readmissions penalties paid but will redistribute those penalties so that the burden is reduced—and in some cases, eliminated—for some hospitals. The change is a welcome recognition that many of the factors that cause readmissions are not directly controllable by hospitals, but instead driven by social determinants of health. While hospitals can partner with other community organizations to address some of these drivers, holding them financially liable for their impact has long been a flaw in an otherwise successful payment policy.

Aetna looks to ease regulatory concern over the CVS merger

As part of its ongoing effort to convince the Department of Justice to approve its proposed merger with pharmacy giant CVS, Aetna announced this week that it planned to sell the entirety of its Medicare Part D drug plan business to WellCare Health Plans, contingent on the CVS-Aetna merger being finalized. The plan is estimated to have about 2.2M enrollees and will triple the size of WellCare’s Part D business. Concerns arose during the Aetna-CVS merger approval process about market concentration in the Part D segment, in which CVS has a 24 percent market share and Aetna controls nine percent of the market, according to analysis by Citi. In a filing with the Securities and Exchange Commission (SEC), CVS stated that it believes Aetna’s divestiture of its Part D plan is “a significant step toward completing the DOJ’s review” of the proposed Aetna-CVS deal. For WellCare, this marks the third major deal in the past two years, coming on the heels of its acquisitions of Universal American Corp in 2016 and Meridian Health Plans earlier this year, both of which bolstered WellCare’s position in the burgeoning Medicare Advantage (MA) market.

Notably, the divestiture will not impact Aetna’s core MA business, or its related MA drug plans. As we have noted elsewhere, gaining a foothold in the MA marketplace is one of the main motivations for CVS’s interest in Aetna. With the DOJ clearing the Cigna-Express Scripts merger earlier this month, signaling that it is willing to take a more sanguine view of cross-sector, vertical merger activity, the remaining concerns holding up DOJ approval of the CVS-Aetna deal reportedly have more to do with overlapping businesses (such as Medicare Part D), than with the overall market power that the combined entity might wield. Aetna’s move to clear up those concerns and WellCare’s ongoing efforts to build up its position in the MA market both signal a growing urgency among healthcare companies to position themselves for strategic advantage in the Medicare marketplace. With Baby Boomers continuing to swell the ranks of MA plans, and MA penetration expected to hit 50 percent of the overall Medicare population in the next few years, we’d expect jockeying for position in MA to continue to accelerate in the near future.

United’s battle with Envision heats up

The ongoing dispute between insurance giant UnitedHealthcare and Nashville, TN-based physician staffing firm Envision Healthcare intensified this week, as United sent a letter to more than 250 hospitals warning them that it intended to drop Envision from its networks starting in January. The two firms have been engaged in a contracting battle for more than a year, centered on the rates the insurer pays to Envision’s emergency room doctors. In April, United filed notice in court that it intended to terminate its contract with Envision, in an attempt to force the firm into arbitration. The filing was in response to Envision’s earlier complaint that United was forcing it to accept unreasonably low rates for its doctors’ services. (Although UnitedHealth Group, the parent company of UnitedHealthcare, had earlier been a rumored suitor to acquire Envision’s ambulatory surgery unit, Envision was ultimately acquired earlier this year by private equity firm KKR.) In the letter, UnitedHealthcare network president Dan Rosenthal told hospitals, “You know better than most how Envision’s rates are driving up the cost of health care for the people we all serve.”

The contracting dispute could prove tricky for United, as cutting Envision’s large group of emergency doctors out of its networks runs the risk of exacerbating the problem of “surprise billing”, in which a patient unexpectedly receives a large bill for out-of-network services received at a hospital that is part of their covered network. Surprise billing has been a hot political topic lately, with a bipartisan group of Senators last week proposing new legislation to address the issue. Federal legislation is necessary to bring change in self-insured health plans, which represent the majority of plans that cover Americans and are not regulated by state law. The Senate bill would require health plans to pick up more of the cost of out-of-network services provided at in-network facilities. The latest move by United is likely to put additional pressure on Envision, by encouraging hospitals to re-evaluate their contracted relationships with Envision doctors. Caught in the middle of this dispute, as always, are consumers, for whom the burden of out-of-pocket health spending continues to mount, and who could be forgiven for feeling like pawns in the continuing power struggle between payers and providers.


GRAPHIC OF THE WEEK

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

Envisioning a range of new roles for the health system

Over the past few weeks, we’ve been sharing our framework for thinking through the path forward for traditional health systems, as they look to drive value for consumers. We began by describing today’s typical health system as “Event Health”, built around a fee-for-service model of delivering discrete, single-serve interactions with patients. We then proposed the concept of “Episode Health”, which would ask the health system to play a coordinating role, curating and managing a range of care interactions to address broader episodic needs. Finally, last week we shared our vision for “Member Health”, in which the system would re-orient around the goal of building long-term, loyalty-based relationships with consumers, helping them manage health over time. In this broader conception, the health system would curate a network of providers of episodes, and events within those episodes, and ensure that the consumer (and their information) moves seamlessly across a panoply of care interactions over time.

This week we bring those three, distinct visions for the role of the health system together in one framework, shown below. A couple of points are worth mentioning here. To begin, our view is that health systems face a fundamental choice over the near term: either begin to embrace the broader aspiration of evolving toward Episode Health and Member Health or become reconciled to the reality of a future as a subcontractor of events and being part of some other organization’s curated network. There’s nothing wrong with being a subcontractor, as long as your cost and quality positions allow you to win business and thrive. You might be the best acute care hospital choice in the market, or the most efficient surgery provider, or the best diagnostic center. But competition will be intense among those subcontractors and earning the business of those who coordinate episodes and control referrals will be increasingly demanding.

Most health systems have already begun to look beyond Event Health, investing in strategies that allow them to span the full continuum of care. Other systems have pushed even further, into the “risk business”—looking to become Member Health and take on the role of managing a consumer’s care across time. But contrary to common wisdom, this evolution does not require a binary choice. Systems are not moving “from one canoe to the other”; rather, most successful systems will play a combination of all three roles at the same time, in perpetuity. While it’s always worth evaluating whether others might be more efficient providers of some Event Health services (diagnostics, rehab, and so forth), most systems will want to maintain a robust base of providing Event Health, even as they embrace a more comprehensive role.

Finally, there is a space we describe as “Beyond Health”, which comprises all of the additional components of consumer value delivery which may be beyond the ability of most systems to handle on their own. Most notably, these include services that address many of the social determinants of health—housing, nutrition, transportation, and the like. Our recommendation is that health systems look to partner with other organizations at a local and national level to address issues that, however critical, lie beyond their ability to fully solve on their own.

Next week we’ll begin to share some additional implications of our Event-Episode-Member Health framework and discuss the operational challenges that face health systems looking to make this evolution.


THIS WEEK AT GIST—ON THE ROAD

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

Will the “retail revolution” save healthcare?

Lisa:
We strongly believe that retailers like WalmartAmazon and CVS are moving to directly compete with providers for care delivery business, and even more critically, patient relationships. But it’s a much stronger statement to assert that retail will be the solution that will save the healthcare system. This week I was asked to debate that question in a forum at Mayo Clinic’s Transform 2018 Conference, facilitated by Intelligence Squared (IQ2) a non-profit, non-partisan organization that convenes experts to discuss critical and controversial issues. Participating in an IQ2 session takes you back to high school debate club. It’s highly structured, with opening and closing statements, and moderated Q&A, fielded by debate partners (mine was the brilliant Rosemarie Day, founder and CEO of Day Health Strategies and former COO of the Massachusetts Connector). We were assigned to take the “no” position of the statement: “Retail alliances, not Washington, will save US healthcare”.

To be honest, I often argue the exact opposite position in our work with providers, pushing them to consider retailers’ commanding grasp of consumer relationships and data, and the potential disruption of retailer-insurer alliances. Here we made the case that for retailers to “save” the US healthcare system, they cannot just disrupt primary care, but must be motivated to move upstream to influence the real cost drivers in healthcare and disrupt how patients receive hospital and specialty care—and that patients must trust them as a partner when they have serious care needs. It’s difficult to imagine that retailers will be able to do that without partnerships with providers—which leads to my key takeaway from the debate: no one constituency will be able to transform the system working in isolation. Real transformation will require retailers and traditional providers, supported by aligned policy and incentives, to partner to create health solutions focused on delivering consumer value. If you haven’t heard of them, IQ2 debates are worth checking out (they’re available as podcasts and on Hulu). They’re a great example of the power of fact-driven, civil debate of divisive issues—something sorely lacking in our increasingly polarized culture. 

Enlisting the board as an agent for change

Chas:
It’s high season for health system board meetings, so for a second week in a row I had the pleasure of giving a talk to the board of directors of a regional health system. In this instance, the system operates several hospitals across the greater metropolitan area of a mid-sized city. They invited me to talk about our view of where the industry is going, and to tee up our framework for the evolution toward Member Health (described above). I’d had a chance to preview my comments with the system’s CEO, and we found that our thinking on strategic imperatives was closely aligned. One area of sensitivity she raised in our preliminary discussion, however, was the issue of service line rationalization. In short, she and her team had been trying for some time to move toward a market-level, service-line approach to strategy, and were preparing to propose centralizing cardiac surgery in one of the system’s facilities, instead of continuing to provide duplicative services across several. I was warned that this was a “hot button” issue for the board.

In the event, the topic of centralizing cardiac surgery turned out to be the highlight of the retreat. Having laid out the imperative to reduce cost, improve efficiency, and delivery higher value in the context of the market forces I described, I was about to launch into my argument for service line strategy when one of the board members raised it proactively. A lay community member, but also a savvy businessman, this board member shared that he’d received a number of concerned calls from cardiac surgeons about the system’s proposed shift but didn’t know how to respond. Having the larger market context, he said, let him “connect the dots”, and he proceeded to make as eloquent an argument for service line rationalization as I’ve ever heard. By the end of the retreat, the consensus of the board was that rather than being a “court of appeals” for disgruntled surgeons to complain to, they felt confident being agents of change, bolstering the effort to reduce duplication and move to a more centralized, efficient model. Kudos to the CEO for arming her board with the facts and context they need to serve as enablers of strategic change.


OUR READERS RESPOND

Here’s what we heard from you.

In last week’s edition of the Weekly Gist, we shared an exchange we’d had with the CFO of one of our clients during a meeting of their health system’s board of directors. The topic was the importance of the system’s AA bond rating to the board, and the impact that maintaining that rating might have on the strategic flexibility of the system. We wrote, As big strategic decisions loom (shifting the business model, taking on risk, responding to disruptive competitors), it’s worth at least asking whether we’ve passed the time for “keeping dry powder”, and whether systems are being held back by conservative financial management.”

One of the true pleasures of our work at Gist Healthcare is engaging in an ongoing dialogue with our clients, readers, and colleagues across the industry. Shortly after sending out the Weekly Gist last week, we heard from long-time friend Mike Slubowski, the President and CEO of Trinity Health, one of the largest Catholic health systems in the US, with $17.6B in revenue and 94 hospitals and 109 continuing care locations across 22 states. Mike shared his somewhat different (and much more informed!) view of the importance of bond rating to hospital systems and was kind enough to engage in a brief Q&A over email to expand on his thoughts.

Gist Healthcare: How do you think about financial strength for a health system? What characteristics and metrics are most important?

Mike Slubowski: Financial strength is ultimately measured by strong operating cash flow—is the system generating enough cash to cover expenses including debt service, fund depreciation, and to meet capital spending requirements? Operating margin, days’ cash, and leverage ratios are also important metrics of financial strength. We compare these metrics to published ranges from Rating Agencies on rating categories. Finally, what is the organization’s profitability or loss on Medicare? Is the cost structure of the organization (as measured by cost per adjusted discharge or similar metrics) competitive and attractive to payer and purchasers, or is it a high cost organization that’s been living off high commercial payment rates because of its market relevance? That will come back to bite them at some point in the not-too-distant future.  Finally, financial strength is simply a means to an end. In the case of not-for-profit health systems, our mission is to improve the health of the people and communities we serve. Are we using that financial strength to make a measurable difference for our communities? That question has to always be pondered.

[Continue reading our Q&A with Trinity Health’s Mike Slubowski here.]


BINGE WATCH ALERT

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

We talk a lot about what’s wrong with American healthcare. This week, we recommend you take a couple of hours and watch a new documentary from Ken Burns that will remind you what’s right about it. His new film, now airing on PBS, is The Mayo Clinic: Faith – Hope – Science, and it’s an extended love letter to the “miracle in a cornfield” in Rochester, MN, where Burns himself (along with Tom Brokaw, John McCain, and the Dalai Lama, and many others featured in the film) has been a patient. Telling the story of the fabled institution from its early days as an unlikely partnership between W.W. Mayo and the Sisters of St. Francis, through its development under “Dr. Will” and “Dr. Charlie” (who’s words are spoken in the film by Tom Hanks and Sam Waterston), and up through its current status as a Mecca of modern medicine, the film brings the full Ken Burns treatment to its subject—music, historical photographs, magisterial narration and all. We’re reminded of the pioneering contributions of the Mayo Clinic to clinical research, care delivery, medical informatics, and technological advancement.

With a heavy emphasis on the power of the multispecialty, team-based, salaried model of practice, and the patient-centered philosophy of Mayo, Burns puts the Clinic forward as a model of how healthcare ought to work. Although the film glosses over the extent to which the unique economics of the Mayo Clinic contribute to its success, and rushes through the last 50 years or so of history, it does a wonderful job of humanizing the institution, its doctors and patients, and reminding us how awe-inspiring and uplifting healthcare can be. Especially gripping are the individual cases Burns lingers on, such as the violinist whose career is saved by deep-brain stimulation, or the young athlete whose congenital heart defect is repaired. It’s well worth watching if for no other reason than to see the world in which we’re all so deeply entrenched through the wonder-struck eyes of America’s greatest documentarian.


WHAT WE’RE READING

Stuff we read this week that made us think.

Why we rarely read about negative results 

When asked to define publishing bias, many of us jump to researchers’ conflicts of interest, like the financial interests that led to the recent resignation of Memorial Sloan Kettering’s Chief Medical Officer. A recent piece by New York Times Upshot contributor Dr. Aaron Carroll highlights an even more pervasive research bias: reticence to report negative results. Case in point: a recent study in Psychological Medicine evaluated reporting biases in depression treatment. Drug companies are required to register clinical trials, and as you’d expect, roughly half of the studies logged in an FDA database of antidepressant efficacy had positive outcomes, and the other half were negative. But a stark difference emerges when looking at what made it into published journals: 98 percent of the positive studies were published, versus just 48 percent of the negative.

This “negative publishing bias” is just the tip of the iceberg. Researchers frequently highlight only the positive outcomes of a trial, minimizing or leaving out the negative ones, or using “spin” to puff up nonsignificant positive results. Citations in subsequent work amplify the bias effect. Summing it up, this may have contributed to one in ten Americans taking antidepressants despite a very equivocal body of research. How to minimize negative bias? FDA trial registration has been critical, allowing tracking of all conducted studies, as well as how trials may shift focus along the way. Even more important, according to Carroll, we need more confirmatory research by independent investigators. And we should embrace and encourage the reporting of all results, positive or negative—and fight the impulse to think that clinical outcomes should make for exciting news. The boring negatives may be just as important for getting to the real right answer. 

Checking in on the impact of costly new drugs

A new review published by the Pew Charitable Trusts as part of their Stateline series examines efforts by states to deal with the high cost of treatment for chronic hepatitis C, a huge cause for concern for state health programs which have struggled with funding care for Medicaid and prison inmate populations with the disease since the 2014 introduction of a new class of drug therapies. The article reviews efforts by several states to ration access to the antiviral therapies, such as Sovaldi and Harvoni, which carry high price tags for a full course of therapy but enable a full cure for the disease. As many as 3.5M Americans suffer from hepatitis C, but the disease is thought to be much more prevalent in Medicaid and prison populations, since the disease is often spread through needle-sharing. It’s estimated that nearly 1M Medicaid beneficiaries are infected, along with as many as a third of all prison inmates—putting state budgets on the hook for paying for the drugs. At launch in 2014, a single course of treatment was priced at $84,000, although discounts have gradually been made available by pharmaceutical companies. According to the article, states have attempted to limit access to the therapies, but those limitations have often been successfully challenged in court.

Health economists often argue that the high price of the therapies is justified by their curative success rates, which can eliminate the need for years of costly care for conditions related to chronic illness. The debate over the pricing of Harvoni and similar drugs has become a central talking point in the growing concern over the rising price of pharmaceuticals, and has raised awareness of the enormous impact that drug costs are likely to have on overall health spending as the population ages and drug companies shift their focus to more specialized, expensive treatments. While some level of rationing is inevitable for very costly therapies, the high price of hepatitis C drugs has sparked a larger conversation about short-term cost versus long-term benefit that is likely to be central to health policy making moving forward. Notably, just as the Pew article was published, Gilead Sciences announced that it planned to introduce an authorized generic version of Harvoni, priced at $24,000 per course of treatment.

The electric scooter fad turns deadly

A few months ago we noted a trend that we’d just begun to pick up on in our travels: the growing number of electric scooters on city streets in certain parts of the country. At that point, the numbers were still fairly small, and the presence of these rented toys was mostly an annoying distraction. In the months since, it’s become a more serious problem, one with potentially deadly consequences. The Washington Post reported this week on the alarming spike in emergency department visits in a number of cities, related to riders falling off their rented Bird, Lime, and Skip scooters. According to the article, hospitals are seeing a growing number of patients who’ve sustained injuries ranging from minor hand, shoulder and leg sprains to severe head traumas, caused by malfunctioning equipment, collisions with pedestrians and cars, and just plain clumsiness. At least two deaths, one in Dallas and one in Washington, DC, have been directly attributed to the scooters. And the injury rate is surely higher than has been reported by hospitals, since many riders are likely seeking treatment at retail and urgent care facilities. Expect the trend to continue: the electric scooter craze is only a year old, and already tens of millions of rides have been taken across hundreds of cities. In case you’re tempted to take a ride, please be careful…and wear a helmet. (Don’t worry, if you’re on a scooter, you already look like a dork anyway.)


Thanks again for taking the time to read the Weekly Gist. We won’t lie, it’s a lot of work to put together but hearing your comments and feedback and engaging in dialogue with you about what we’ve written makes it so worthwhile. We appreciate your support, and if you’ve found it useful we hope you’ll forward our work to a friend or colleague. And don’t forget to subscribe!

Meanwhile, if there’s anything we can do to be helpful in your 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

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