February 26, 2021

The Weekly Gist: The What the Cat Dragged In Edition

by Chas Roades and Lisa Bielamowicz MD

We were warned of risks to our mental health caused by prolonged isolation during the pandemic, and here we are. We’ve developed a dangerous addiction to cat-related Zoom videos. This week’s gem comes from Northern Ireland, where an otherwise dull meeting of the legislature’s finance committee was interrupted by one participant’s feline, Storm, bringing in a live pigeon for his owner, who was providing testimony. “I have literally just caught a pigeon,” said the man. “I’m really sorry about this.” Not missing a beat, and with classic Irish wit, one lawmaker replied, “We’ll know what type of soup you’re eating tonight, Colin.” Oh, and Colin’s last name? Pidgeon. You can’t make this stuff up.

THIS WEEK IN HEALTHCARE

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

A somber milestone on the path to brighter days ahead

Although the nation reached a grim and long-dreaded milestone on Monday, surpassing 500,000 lives lost to COVID—more than were killed in two World Wars and the Vietnam conflict combined—the news this week was mostly good, as key indicators of the pandemic’s severity continued to rapidly improve. Over the past two weeks, hospitalizations for COVID were down 30 percent, deaths were down 22 percent, and new cases declined by 32 percent—the lowest levels since late October. This week’s numbers declined somewhat more slowly than last week’s, leading Dr. Rachel Walensky, director of the Centers for Disease Control and Prevention, to caution people against letting their guard down just yet: “Things are tenuous. Now is not the time to relax restrictions.” Of particular concern are new variants of the coronavirus that have emerged in numerous states, including one in New York and another in California, that may be more contagious than the original virus.

The best news of the week was surely a report from the Food and Drug Administration (FDA) evaluating the new, single-shot COVID vaccine from Johnson & Johnson (J&J), showing it to be highly effective at preventing severe disease, hospitalization, and death caused by COVID, including variants. On Friday, a panel of outside experts met to assess whether to approve the J&J vaccine for emergency use, which would make it the third in the nation’s arsenal of COVID vaccines. If approved, the vaccine will be rolled out next week, according to the White House, with up to 4M doses available immediately. The sooner the better: new data show that since vaccinations began in late December, new cases among nursing home residents have fallen more than 80 percent—a hopeful glimpse at the future that lies ahead for the general population once vaccines become widely available.

Relatively smooth sailing for Biden’s health nominees

Testifying at confirmation hearings in front of the Senate’s health and finance committees this week, California Attorney General Xavier Becerra, President Biden’s nominee to become Secretary of Health and Human Services (HHS), gave some indication of his likely approach to some of the key issues facing healthcare in the years ahead. Beyond the expected partisan questioning around hot-button issues like the COVID response in California, “Medicare for All,” and abortion policy, Becerra was asked about his views on how to control the rising cost of care. On the issue of price transparency, Becerra indicated that he would pursue “robust enforcement” of policies intended to give patients more visibility into the hospital prices, and could be inclined to keep some of the Trump administration’s provisions in place. He also pointed to his prosecution of California hospitals for anti-competitive behavior, suggesting he might pursue a similar tack at the federal level. Asked about the growing battle between pharmaceutical companies and hospitals over “340B” discounts on drugs for safety-net providers, Becerra pledged to “build on” the program, suggesting a position more favorable to hospitals that “are really helping some of our neediest patients”. After two days of questioning, it seemed likely that Becerra would be confirmed by the Senate, putting to rest earlier speculation that his nomination might be blocked. Separately, despite some tough questioning from GOP senators, two other health department nominees—Dr. Vivek Murthy (for Surgeon General), and Dr. Rachel Levine (for Assistant HHS Secretary)—seemed assured of confirmation as well. Up next, confirmation hearings for Chiquita Brooks-LaSure, Biden’s nominee to head the Centers for Medicare & Medicaid Services.

Cigna to acquire telemedicine provider MDLive

Health insurer Cigna announced today that its health services arm, Evernorth, has entered into a definitive agreement to acquire telemedicine company MDLive. While terms of the deal were not disclosed, Cigna plans to make MDLive’s telemedicine capabilities available to the company’s medical customers as well as Evernorth’s third-party clients. As insurance companies assemble a growing suite of care delivery assets in order to directly provide and manage care for beneficiaries, telemedicine is a central part of the value proposition, since it provides a direct care channel to patients. As recently as last August, MDLive was rumored to be pursuing a public offering, building on its rapid growth during the pandemic. But recent deals raise questions about the future of the standalone telemedicine business. Last year telemedicine company Teladoc acquired care management company Livongo to create a more comprehensive online health offering, and speculation continues that UnitedHealth Group is pursuing a deal with American Well. Telemedicine companies may ultimately find their offerings create more value, for consumers and investors, when integrated into a comprehensive healthcare platform.

The home-based care space heats up

This week Brookdale Senior Living, the nation’s largest operator of senior housing, with 726 communities across 43 states and annual revenues of about $3B, announced the sale of 80 percent of its hospice and home-based care division to hospital operator HCA Healthcare for $400M. The transaction gives HCA control of Brookdale’s 57 home health agencies, 22 hospice agencies, and 84 outpatient therapy locations across a 26-state footprint, marking its entry into new lines of business, and allowing it to expand revenue streams by continuing to treat patients post-discharge, in home-based settings. Like other senior living providers, Brookdale has struggled economically during the COVID pandemic; its home and hospice care division, which serves 17,000 patients, saw revenue drop more than 16 percent last year. HCA, meanwhile, has recovered quickly from the COVID downturn, and has signaled its intention to focus on continued growth by acquisition across 2021.

In separate news, Optum, the services division of insurance giant UnitedHealth Group, was reported to have struck a deal to acquire Landmark Health, a fast-growing home care company whose services are aimed at Medicare Advantage-enrolled, frail elderly patients. Landmark, founded in 2014, also participates in Medicare’s Direct Contracting program. The transaction is reportedly valued at $3.5B, although neither party would confirm or comment on the deal. The acquisition would greatly expand Optum’s home-based care delivery services, which today include physician home visits through its HouseCalls program, and remote monitoring through its Vivify Health unit. The Brookdale and Landmark deals, along with earlier acquisitions by Humana and others, indicate that the home-based care space is heating up significantly, reflecting a broader shift in the nexus of care to patients’ homes—a growing preference among consumers spooked by the COVID pandemic. Along with telemedicine, home-based care may represent a new front in the tug-of-war between providers and payers for the loyalty of increasingly empowered healthcare consumers.


GRAPHIC OF THE WEEK

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

Health systems falling further behind the industry in size

Even though signs point to a post-COVID spike in health system mergers, retailers, insurers, and other healthcare industry players already far exceed health system scale. Even the largest of the “mega health systems” pale in comparison to other healthcare companies up and down the value chain, as shown in the graphic belowAnd with the exception of pharma, these other industry players have seen revenues surge during the pandemic, while health system growth has stagnated. According to a recent report from Kaufman Hallhospitals saw a three percent reduction in annual total gross revenue in 2020. The majority of the decrease stemmed from a six percent decline in outpatient revenue, as volumes plummeted during the pandemic. The largest companies listed here, including Walmart, Amazon, CVS, and UnitedHealth Group, continue to double down on vertical integration strategies, configuring an array of healthcare assets into platform businesses focused on delivering value to consumers. To remain relevant, health systems will need to increase their focus on this strategy as well, assembling the right capabilities for a marketplace driven by value, at a scale that enables rapid innovation and sustainability.


THIS WEEK AT GIST—ON THE ROAD PHONE

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

The pandemic brought a “double whammy” to pediatric volumes

Even as surgery and office visit volume rebounds, hospitals across the country continue to report that emergency department volume remains persistently depressed, down 10 to 20 percent compared to before the pandemic. The shift is even more drastic in pediatrics, with some pediatric hospitals and programs reporting that emergency care volume is seeing double the rate of decline. Pediatric volume has been hit with a “double whammy”: with many schools and daycares still closed, contagious illnesses have plummeted. Fewer kids in youth sports means fewer injuries. And unlike adult hospitals, pediatric facilities haven’t filled their beds with COVID patients. “Of all our services, pediatric hospitalists have taken the greatest hit,” one children’s hospital physician leader shared. “Their service is usually full this time of the year with flu and RSV [respiratory syncytial virus]. But with kids not interacting with each other, general pediatric admissions have cratered.” Empty EDs have led some pediatric hospitals to shutter adjacent urgent care clinics: “It doesn’t make sense to operate an empty ED and an empty after-hours clinic”. For patients, however, this can bring unexpected financial consequences, as they’ll now get an ED bill for services they would formerly have received in urgent care. But while pediatric hospitals have taken a greater volume hit, they’re also likely to see a faster rebound. Once kids are back to school and sports, the usual illnesses and injuries will likely return, and we’d guess parents won’t hesitate to seek care.

Growth is on the wrong side of the equation

We spend a lot of time talking to health system leaders about growth. It’s almost an article of faith among executives that growth is paramount to success. That’s understandable for investor-owned companies—top-line growth is often the most straightforward way to generate greater earnings, which is what investors demand. But for not-for-profit systems, the answer is a little muddier. One unspoken but obvious reason for growth is leverage—the ability to extract higher rates from third party payers. There are other, more palatable arguments for increasing scale: it yields greater ability to drive efficiencies in purchasing and operations, to invest in talent and technology, to identify and implement best clinical practices, and to ensure financial sustainability. All of those are real and demonstrable benefits of scale, but more often it’s a desire for greater pricing leverage that underlies many “growth strategies”. Unfortunately, that kind of growth can be downright value-destroying for patients and consumers. The problem is that growth is on the wrong side of the equation, thanks to our dysfunctional, third-party payment system. In healthcare, growth is an input to strategy—whereas in other industries, growth is an output, the result of delivering superior services to consumers. Health systems do better by getting bigger, while other firms get bigger because they are better: their growth is earned. That doesn’t mean that health systems shouldn’t seek to grow, and we certainly spend a lot of our time helping them figure out how to capture growth opportunities. But it’s worth recognizing that it’s the structure of the payment system, not the malevolence of health system executives, that results in leverage-driven growth. The right focus for policymakers is restructuring incentives to encourage systems to compete on creating value for consumers, rather than punishing health systems for responding rationally to the incentives that currently exist.


THIS WEEK AT GIST—ON THE PODCAST

All the headlines in healthcare policy, business, and more, in ten minutes or less every weekday morning.

On last Monday’s episode, we heard from Dr. Bela Patel, the division director of critical care medicine at McGovern Medical School at UTHealth in Houston. During the pandemic, providers there quickly adapted to emerging science, and collaborated closely with competitor health systems. Patel wants to carry forward the lessons learned as hospitals move past the pandemic, and prepare for future crises.

Coming up on Monday, we’ll visit a community health center in Washington State to find out how staff are vaccinating low income and hard-to-reach patients, and connecting with individuals who are hesitant to get the shot. Don’t miss it!

[Subscribe on Apple, Spotify, Google, or wherever fine podcasts are available.]


BINGE WATCH ALERT

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

It’s too soon to return to movie theaters safely, but one silver lining of the pandemic has been the direct-to-streaming release of major motion pictures. Take advantage of that fact to spend some time this weekend with Judas and the Black Messiah, the new film from director Shaka King already garnering award nominations and widespread critical acclaim—and available to stream on HBO until March 14th. Portraying the circumstances surrounding the death of Chicago Black Panther leader Fred Hampton in 1969, the film stars Daniel Kaluuya (“Get Out”) as the charismatic radical activist who helped launch the Rainbow Coalition—a prime target of J. Edgar Hoover’s FBI—and Lakeith Stanfield (“Knives Out”, “Sorry to Bother You”) as the turncoat informer William O’Neal, who betrayed Hampton to the Chicago police, ultimately facilitating his assassination. It’s a nuanced retelling of the story, foregrounding the ambivalence of O’Neal, the fiery oratory of the revolutionary Hampton, and the cynical cruelty of law enforcement officials like Hoover and Roy Mitchell, the FBI agent who coerces O’Neal into becoming an undercover informant. (Mitchell is played by Jesse Plemmons, who is steadily building a career as the most versatile actor of his generation.) Especially affecting is the romance between Hampton and fellow Black Panther Deborah Johnson, played by the captivating actress Dominique Fishback (“Show Me a Hero”). As Black History Month draws to a close, we’re reminded by these powerful performances that the urgent struggle against racial brutality is far from over in this country, and the legacy of these tragic events is still with us, more than a half century later.


WHAT WE’RE READING

Stuff we read this week that made us think.

Risking lives in pursuit of profits

Finding a good long-term care facility for a loved one has always been a difficult process. A new National Bureau of Economic Research working paper suggests that families should also be paying attention to who owns the facility, finding a significant increase in mortality in nursing homes owned by private equity investors. Examining Medicare data from over 18,000 nursing homes, 1,674 of which were owned by private equity (PE) firms, researchers found that PE ownership increased Medicare patient mortality by 10 percent—translating to a possible 20,150 additional lives lost. PE-owned facilities were also 11 percent more expensive. Counterintuitively, lower-acuity patients had the greatest increase in mortality. Researchers found staffing decreased by 1.4 percent in PE-owned facilities, suggesting that shorter-staffed facilities may be forced to shift attention to sicker patients, leading to greater adverse effects on patients requiring less care. Antipsychotic use, which carries a higher risk in the elderly, was also a whopping 50 percent higher. Nursing homes are low-margin businesses, with profits of just 1-2 percent per year—and PE ownership did not improve financial performance. Researchers found private equity profited from three strategies: “monitoring fees” paid to services also owned by the PE firm, lease payments after real estate sales, and tax benefits from increased interest payments, concluding that PE is shifting operating costs away from patient care in order to increase return on investment. Private equity investment in care delivery assets has skyrocketed over the past decade. This study draws the most direct correlation between PE investment and an adverse impact on patient outcomes that we’ve seen so far, highlighting the need for increased regulatory scrutiny to ensure that patient safety isn’t sacrificed for investor returns.

Pick up the phone, save a life

On a happier note, here’s a study that highlights how a simple conversation can bring meaningful improvement to the lives of the isolated elderly. Researchers trained a group of college student volunteers in empathetic conversations, tasking them with regularly calling a group of elderly Meals on Wheels clients. Volunteers called participants two to five times per week, with the frequency chosen by the client, for conversations targeted to be less than ten minutes long. After just four weeks, study participants saw a significant decline in depression, anxiety and loneliness compared to a control group, with the vast majority satisfied or very satisfied with the experience. It’s a brilliant example of how a low-cost intervention focused on simple human connection can improve the life, and likely the health, of the elderly (and a great way to put eager pre-med student volunteers to good use). Also: a good reminder to take a few minutes this weekend to call your grandmother, elderly uncle, or other aging person in your life. It will mean more to them than you can imagine.


And there you have it, another week gone by. Thanks so much for taking time to read the Weekly Gist, and sharing your feedback and suggestions with us—we love hearing from you! If you wouldn’t mind, please take a moment to share this with a friend or colleague and encourage them to subscribe, and to listen to our daily podcast. The more the merrier!

Most importantly, please get in touch if there’s anything we can to do be of assistance in your work. 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