June 28, 2019

The Weekly Gist: The Debate Debacle Edition

by Chas Roades and Lisa Bielamowicz MD

After two grueling nights of watching twenty presidential candidates struggle for airtime as they traded snappy zingers and scripted comebacks, we’re ready for the most annoying, least qualified participant to drop out of the campaign altogether. That would be NBC, whose inability to master even rudimentary audiovisual skills was exceeded only by the peacocking of its preening panel of questioners. Seriously, we have another 494 days of this campaign to deal with? Pass the remote.

On a more pleasant note, it’s almost July! Next week brings fireworks, marching bands, picnics, the US Women’s National Team playing in the World Cup semifinals (yes!), and a respite for the Weekly Gist. We’re off next Friday, but we’ll be back on July 12th with more news and commentary. But first…


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

President Trump calls for increased transparency in healthcare

On Monday, President Trump issued a highly-anticipated Executive Order aimed at lowering the cost of healthcare by allowing the public access to privately-negotiated rates that insurers pay hospitals for their services. The order directs the Department of Health and Human Services (HHS) to propose a rule requiring hospitals to make available consumer-friendly information on the “actual prices” for “common or shoppable items and services”, including “information based on negotiated rates”. HHS, along with the Departments of Labor and the Treasury, is also directed to draft rules requiring payers and providers to work together to give consumers information on expected out-of-pocket costs in advance of receiving care. Other provisions of the Executive Order direct agencies to consolidate and streamline federal quality reporting measures, and to plan the creation of a national all-payer claims database (APCD) to allow greater visibility into the cost of care.

As expected, hospital and insurance industry lobbyists reacted negatively to the President’s Executive Order, pointing to concerns that revealing negotiated rates could cause prices for care to increase, not fall, as low-priced providers seek access to the same rates as higher-priced competitors. While that phenomenon has occurred in a handful of other industries, such as the Danish concrete market, experts are divided on whether transparency will have the same impact in US healthcare. We continue to believe that more transparency is better than less, and that industry opposition is driven more by concerns over potential purchaser dismay over outsized rates. Depending on the extent of the information required to be made public by eventual rulemaking (which could well be watered down in response to industry pressure), purchasers of care could be about to get their first full look at the irrational pricing that has driven healthcare costs to their current, unsustainable level. At that point, it could fairly be asked: why isn’t our third-party payer system getting us a better deal on healthcare, even as insurance companies have grown into multi-billion-dollar behemoths? And why has provider consolidation not resulted in rate-lowering efficiencies? A moment of reckoning approaches.

Healthcare features prominently in the first Democratic debate

Everyone should have health coverage—that’s about all the 20 Democratic presidential candidates could agree on in this week’s back-to-back televised debates. Across two nights of sometimes chaotic exchanges, the candidates largely divided into two camps in response to questions on the topic of “Medicare for All” (M4A). Among major contenders, only Sens. Elizabeth Warren (D-MA), Bernie Sanders (I-VT) and Kamala Harris (D-CA) raised their hands in support of abolishing private insurance and moving fully to a government-run insurance plan. Warren took a hard line, asserting that insurers favor their own profits over the health of their enrollees. “That leaves families with rising premiums, rising co-pays, and fighting with insurance companies to try to get the healthcare that their doctors say that they and their children need,” she said. More moderate candidates—including South Bend, IN Mayor Pete Buttigieg, Sens. Kirsten Gillibrand (D-NY), Michael Bennet (D-CO), and Amy Klobuchar (D-MN), all defended at least a transitional role for private insurers, while supporting “public option” and “Medicare buy-in” approaches to increasing coverage. There’s surely much more to come from the candidates on the topic of M4A, but after the first debate it’s worth noting just how much the discussion has shifted in the years since the passage of the Affordable Care Act (ACA). Back in 2010, talk of single-payer healthcare was dismissed entirely as unfeasible, and even the “public option” was abandoned as too radical. While future debates will surely rejigger the pecking order among Democratic candidates, it appears as though most of the party’s frontrunners are staking out positions that would have been untenable at the beginning of the decade.

An “ominous sign” in a critical court case

While Democratic presidential hopefuls debated whether to move to a single payer system or build on the ACA, the fate of the 2010 health law grew more uncertain this week, when a Fifth Circuit Court of Appeals panel asked 16 Democratic state attorneys general to explain why they believe they have standing to defend the law in the ongoing Texas vs. Azar case. A federal district court judge in Texas ruled in December that without the individual mandate, which Congress repealed as part of the 2017 tax reform law, the entire ACA should be held unconstitutional. The “blue state” attorneys general, along with the Democratic-led House of Representatives, stepped in to lead an appeal of the ruling after the Trump administration demurred, but now the appeals court appears to be questioning whether appeal is even possible. University of Michigan law professor Nicholas Bagley said on Twitter this week that the court’s ask was an ominous sign. “If neither the blue states nor the House has standing, it would mean that no one has standing to appeal the decision. That would effectively leave the lower court decision unappealable.” Such an outcome would be world-shattering for most sectors of the healthcare economy. Over the past nine years the ACA has changed nearly every part of the American healthcare system, and it’s not clear what would happen it if were to come unraveled. The law altered the structure of the insurance marketplace, expanded Medicaid coverage to millions of Americans, established new payment and quality measurement programs, and much, much more. We’re frankly surprised at how little attention the Fifth Circuit’s action this week has garnered, and we’d advise keeping an even closer eye on Texas vs. Azar as the case continues to unfold.

New healthcare deals in the upper Midwest 

More healthcare deal-making in the Midwest this week, as two large health systems announced their intent to merge, and a regional insurer agreed to take a minority stake in another system’s clinic operations. On Thursday, Des Moines, IA-based UnityPoint Health and Sioux Falls, SD-based Sanford Health, two dominant systems whose operations span 26 states and 76 hospitals, announced merger plans. The combined entity would have more than $11B in revenue, putting it in the top 15 health systems nationally. Both systems have aggressively pursued integration strategies aimed at bringing together hospitals, outpatient services, physician practices, and insurance capabilities, in an effort to shift away from traditional fee-for-service care toward a risk-based model. Sanford Health also recently moved into the long-term care market, after merging with Evangelical Lutheran Good Samaritan Society earlier this year. By coming together, Sanford and UnityPoint hope to be better positioned to pursue contracts with purchasers to manage the health of employee populations, as well as care for Medicare enrollees.

Meanwhile, Blue Cross Blue Shield of Minnesota (BCBS-MN) announced plans to take a minority ownership stake in 14 primary care and six specialty clinics operated by Robbinsdale, MN-based North Memorial Health, which owns one hospital in the Minneapolis suburbs and partners with Fairview Health Services to operate another. The new joint venture is aimed at creating financial alignment between the insurer and the clinics and joins other payer-provider hybrids in the state, such as Aetna’s venture with Allina Health, and Minnesota insurer HealthPartners’s extensive clinic operations. Both the North Memorial and Sanford-UnityPoint deals point to the growing prevalence of vertical integration in healthcare, as providers and payers seek to assemble the clinical and risk-management assets needed to manage care for large populations of patients. Expect more blurring of the payer-provider divide in the months to come.


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

Navigating two different purchase decisions

Consumers will control more of their own spending in healthcare, choosing where to spend their dollars in a high-deductible, HSA-driven world and potentially able to choose among a broader array of networks in a defined-contribution framework. As this shift occurs it will be important to understand how consumers make these choices. Price will clearly be the largest driver of choice at both the point of coverage and the point of care. Importantly, however, consumers will weigh price against the benefits available—clinical reputation, care quality, convenience, and so forth. Providers will need to work hard to earn consumer choice at the point of care by ensuring costs are competitive and consumer benefits are commensurate with price. And they’ll have to work to bring cost down in order to be included in networks at the “wholesale” level as well.


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

Are hospital CEO salaries a problem? 

This week Twitter was buzzing in reaction to a Modern Healthcare article that revealed the list of the 25 highest-paid nonprofit health system executives of 2017.  Some comments were grousing (“I should’ve been a healthcare administrator, not a doctor…”), others highlighted gender gaps in pay (there isn’t a single woman on the top 25 list), but most focused on the philosophical debate of whether the leaders of nonprofit organizations should be paid million-dollar salaries. We’ve written about this before, and largely believe the discussion of high CEO salaries to be a distraction. The CEOs of the country’s largest health systems run complex organizations with billions in revenue. If anything, as health systems grow in size, scope and complexity, one of the greatest challenges most hospitals face is a talent gap—the level of compensation on offer for running a $5B-plus organization is not on par with what similarly-complex, equally-large businesses pay in the rest of the economy.

This topic came up in a meeting I had this week with a health system CEO who shared his belief that CEO salaries are an example of transparency (via IRS 990 reporting) leading to salary inflation: “I know that my colleagues are ‘all over’ the 990s, and use that with their comp committees and boards. I can’t prove the effect, but the transparency is certainly one strong cause.” It struck me that negative reactions to high healthcare prices and high hospital CEO salaries stem from a common cause: feelings among consumers and purchasers that healthcare is not good value for the money. The best solution is not to pay CEOs less, but to link compensation to the value of services delivered. Nonprofit hospitals in particular, given the economic exemptions they enjoy, ought to be at the forefront of transparency in reporting how CEO compensation is directly linked to consumer value delivery. Health system executives should be highly compensated—as long as they are, in turn, held accountable for the value they create for the communities they serve.

Growth—what’s in it for us?

Often when the topic of M&A comes up in my conversations with nonprofit health system CEOs, it’s in the context of a decision about whether or not to remain independent—does our system need to be bigger, and should we be part of a larger system? The crux of the issue usually revolves around the board, and whether they’re willing to consider giving up local control. This week I had a related conversation with a health system executive, but from a different angle. At the helm of a large regional system, this leader was wondering how to make the case to the board for expansion beyond the existing markets where the organization operates. In particular, his concern was that his locally-governed board may be putting an artificial brake on growth, not seeing value for the communities they serve of expansion beyond their market. That’s a valid point—how does it help a Busytown resident if the local health system expands to operate in Pleasantville? Shouldn’t Busytown Health System just focus its resources and time on improving performance at home, and wouldn’t it represent a loss to Busytown if Pleasantville got investment dollars that should have been spent locally? That’s a question raised by the “super-regional” or national strategies being pursued by many large systems today, and one worth thinking about. Whenever a system grows outside its geography, there should be a solid argument that additional scale will reap returns for its existing operations, from better efficiency, better access to innovation and talent, better access to capital, or the like. Those are legitimate reasons for out-of-market growth, as long as the system is diligent in pursuing them. But local boards are right to hold executives accountable for making the case for growth and ensuring that growth creates value for local patients and purchasers.


Give this a spin—you might like it.

Rock and roll renaissance man Jack White returns this month with a new album from The Raconteurs, the former White Stripe’s side project with singer-songwriter Brendan Benson. The group, last heard from eleven years ago and best known for their hit “Steady as She Goes,” make a strong case for the continued relevance of straight-ahead rock music on their latest, Help Us Stranger. White brings his Detroit sound, replete with heavy bass lines and stomping drums, to a collection tinged with glam and blues rock influences from Queen and T. Rex to Zeppelin. The album is at its best with White in the lead, on rockers like “Don’t Bother Me” and “What’s Yours is Mine”, but a cover of Donovan’s “Hey Gyp (Dig the Slowness)” adds an unexpected surprise, as does the Benson-helmed “Live a Lie”, which sounds for all the world like a Cheap Trick rarity. Just in time for summer, White and Benson have given us a steaming platter of fresh hooks and licks, cooked to perfection. White might be addressing rock skeptics, in one of the album’s signature moments, when he repeats the hypnotic incantation: “I’m here right now/I’m not dead yet”. Far from it, as this electrifying album proves. Best tracks: “Bored and Razed”; “Sunday Driver”; “Don’t Bother Me”.


We said it, they quoted it.

Trump Maps Path on Health Costs That Has Few Clues for Consumers
Bloomberg; June 24, 2019

“Making negotiated rates public could pressure pricier hospitals to justify charging more than lower-priced competitors, said Chas Roades, co-founder and chief executive officer of consultancy Gist Healthcare Inc. It might also show employers that they aren’t getting as good a deal as they thought from insurers hired to negotiate on their behalf, he said.

“‘There’s been sort of a big shell game going on inside the industry,’ Roades said. ‘I think all of the industry players are rightly concerned that when the actual purchasers of health care see what’s going on, they’re going to demand some real change.’”


Stuff we read this week that made us think 

Hospital collections in the spotlight 

Amid this week’s discussions of price transparency, a bevy of articles questioned why hospitals are using aggressive tactics to recover unpaid debt from patients. Writing in JAMAresearchers found over a third of Virginia hospitals pursued wage garnishment to collect unpaid patient debt, and many of the patients sued were low-wage earners working for Amazon, Walmart and Lowes. A ProPublica investigation highlighted the debt collection tactics of Memphis-based Methodist Le Bonheur Healthcare, who has brought over 8,300 lawsuits for unpaid patient debt over the past five years. And Modern Healthcare reported that Atlanta-based Piedmont Healthcare is combating bad debt by requiring self-pay patients and patients with high-deductible commercial insurance policies to pay 25 percent of their bill before receiving treatment, raising concerns about whether the policy will cause patients to defer necessary care.

As the public debate about price transparency and rising out-of-pocket spending on care continues, we’d expect the stream of muckraking stories like these to continue. To be honest, the optics (let alone the practice) of billion-dollar health systems pursuing a Walmart worker in court to recoup a few thousand dollars aren’t good, particularly when juxtaposed with recent data showing hospital margins are rising. There is little question healthcare costs are too high, and that price transparency is inevitable. But these stories also raise the question of whether providers should be in the collections business at all. Forcing hospitals and doctors to collect copays and other obligations is an artifact of the commercial insurance industry—it’s proven cheaper for insurers to make providers do the work of bill collection. Resolving the service and ethical conflicts of being both debt collector and caregiver may require hospitals to pursue new innovations to rethink the patient financial experience and the provider’s role within it.

Has Alzheimer’s research been stymied by an “amyloid cabal”?

It’s taken for granted that the brain is a “hard” organ to investigate, and this accounts for the lack of progress in treating Alzheimer’s disease, compared to success in reducing deaths from other disorders like cancer and heart disease. A new article in STAT posits that fixation on a singular cause of Alzheimer’s—the so-called “beta-amyloid hypothesis”—thwarted the development of other therapies and may be the reason Alzheimer’s remains incurable today. Beta-amyloid protein deposits, or plaques, were first discovered in the brains of Alzheimer’s patients a century ago. In the 1980s, scientists sequenced the beta-amyloid protein and identified several amyloid-related genes. When a mutation in one of those genes was found to correlate with early-onset Alzheimer’s, scientists quickly focused nearly all Alzheimer’s research on treatment to eliminate beta-amyloid, which today accounts for an estimated 90 percent of federal, private and industry research funding.

As leading researchers embraced beta-amyloid as the cause of the disease, hypothesis became dogma. Investigators looking to fund, publish or even speak at conferences about plausible alternative causes of Alzheimer’s found their efforts stymied by a “cabal” of prominent experts reluctant to admit they could be wrong, even as several treatments targeted at beta-amyloid failed to produce results. According to one researcher, “If amyloid wasn’t in the grant proposal, it was an uphill battle. There were very big egos involved and they couldn’t stand to be wrong. It wasn’t science anymore.” The cabal now shows some signs of cracking. Scientists are debating whether amyloid is a cause or an outcome of another Alzheimer’s-inducing event, and studies are underway evaluating treatments targeting viruses and inflammation. The past three decades of Alzheimer’s work is a cautionary tale of the dangers of aligning the engines of research, funding and training around a singular promising hypothesis, creating incentives to shut out alternative ideas, and slowing the development of treatment for tens of millions of patients for decades.

Hard to believe the year is halfway gone. Thanks so much for reading this week’s edition, and for sending us your feedback and guidance across the past few months. We’re looking forward to more great dialogue after the holiday, and in the meantime, we hope you’ll consider forwarding this to a friend or colleague and encouraging them to subscribe.

As always, please let us know if there’s anything we can do to 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