July 16, 2021

The Weekly Gist: The Delta Workout Plan Edition

by Chas Roades and Lisa Bielamowicz MD

If you’ve been enjoying getting back to the gym during this “hot vax summer”, you might want to keep an eye on the delta variant…and fitness centers in South Korea. By order of the government, citizens there can continue to work out in gyms, even as the variant drives case numbers upward. But treadmills must only run at 3.7 mph or slower—essentially a brisk walk—and any music played during workouts is limited to 120 beats per minute. As the New York Times helpfully points out, that’s about the speed of Bruce Springsteen’s “Born in the U.S.A.”, Carly Rae Jepsen’s “Call Me Maybe”, and (hah) Kanye West’s “The New Workout Plan”. None of them exactly what we’d call workout bangers. The idea, of course, is to limit heavy breathing to help control the spread of the virus. We’re keeping our fingers crossed that ongoing vaccination campaigns will help us outrun the new COVID variant; at 3.7 mph, we’re certainly not going to outwalk it!

THIS WEEK IN HEALTHCARE

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

Senate Democrats strike a $3.5T spending deal

Senate Democrats announced a compromise budget framework to fund President Biden’s social spending plans to the tune of $3.5T, including substantial money for some of the administration’s key healthcare priorities. The framework sends instructions to several Senate committees, including the Budget and Finance panels, to craft legislative language around the central components of the deal, with the goal of passing a spending package before next month’s recess. Many specifics remain to be ironed out in negotiations among the party’s progressive and moderate camps, but some of the main elements of the deal became clear this week. The plan includes extending the enhanced subsidies for purchasing individual coverage on the healthcare marketplaces, which were implemented earlier this year as part of the American Rescue Plan Act. It would also seek to close the so-called “Medicaid coverage gap”, by providing new coverage options for low-income adults in states that did not expand Medicaid under the Affordable Care Act (ACA). New investments would be made in home- and community-based services for long-term care, along the lines of the $400B proposed in President Biden’s American Families Plan. And the budget deal envisions expanding benefits in the Medicare program to include dental, vision, and hearing services. Given the budgetary concerns of moderate Democratic lawmakers like Sen. Joe Manchin (WV), one critical question will be how the $3.5T deal will be paid for. One likely source of funding for the deal will be reforming the way Medicare purchases prescription drugs, making that long-time Democratic policy objective a probable part of any final package.

Notably absent from the healthcare spending proposals: lowering the eligibility age for Medicare from 65 to 60. No final decision has been reached on whether to incorporate such a move; rather, the question will be sent to the Senate Finance Committee for consideration. Given the urgency of passing as much of the Biden administration’s legislative agenda as possible before the midterm campaign season begins in earnest, we think it’s unlikely that Democrats will be willing to cross the Rubicon of Medicare expansion at this point. The prospect of having to gain support from all 50 Democratic senators—as zero Republicans are expected to support the package—will likely temper any appetite for picking a fight with the influential hospital and physician industries, which have strongly opposed Medicare expansion (for more on why, see below). One longer-term implication of the apparent decision to favor expansion of Medicare benefits over lowering the Medicare eligibility age now: a richer package of services in traditional Medicare might make Medicare Advantage (MA) a less attractive alternative for potential enrollees and could undermine any future efforts to create an “MA buy-in” for coverage expansion. Expect lobbying and negotiations to reach a furious pace over the next several weeks, as lawmakers work out the final details of the $3.5T spending plan.

Aduhelm saga continues as health systems, CMS bring new scrutiny

This week the Centers for Medicare & Medicaid Services (CMS) kicked off a public review process to determine whether the agency would cover Aduhelm, Biogen’s costly and controversial Alzheimer’s treatment. The process will begin with a 30-day public comment period, and is expected to take nine months before reaching a decision on coverage and patient eligibility. Scientists and doctors, including many who worked on Aduhelm’s clinical trials as well as members of the Food and Drug Administration’s (FDA) own independent advisory panel, have pushed back against the FDA’s accelerated—and broad—approval decision, citing weak data to support the drug’s efficacy, and high rates of serious side effects. Biogen and the FDA have reined in prescribing guidelines for the drug, now recommending Aduhelm only be prescribed for patients with early-stage Alzheimer’s. The FDA’s approval process has also come under increased scrutiny, with reports surfacing of off-the-record meetings between Biogen representatives and the head of the FDA’s neurosciences division as far back as 2019, to discuss the agency’s support for the drug. Acting FDA commissioner Janet Woodcock asked the Office of Inspector General, who operates independently, to review whether the interactions were consistent with agency protocols.

Amid the mayhem, the New York Times reported that New York-based Mount Sinai Health System and the Cleveland Clinic both decided they would not administer Aduhelm to patients at their facilities. Cleveland Clinic’s internal review process determined that current data do not support the drug’s safety and efficacy; the head of Mount Sinai’s Center for Cognitive Health cited the need to affirm “the integrity of the FDA-Biogen relationship” amid calls for an investigation. With an annual cost of $56,000 per patient for the drug alone, the stakes of Aduhelm’s approval are high. It’s easy to imagine that scores of investors and entrepreneurial providers will enter the “memory clinic” business, looking to profit from the tens of thousands of dollars of additional spending on drug administration and patient monitoring. It’s fortunate that leading-name providers have moved quickly to demand additional evidence and scrutiny before the industry has the chance to launch another runaway profit train. As we saw with certain COVID therapies, when the politics and processes behind federal guidelines come under question, it’s the health systems and doctors who control drug administration on the front lines that will ultimately determine whether and how Aduhelm will reach patients.

Medicare preserves telemedicine payment through 2023

CMS announced that Medicare will continue paying for most telemedicine services through the end of 2023, as part of the 2022 Physician Fee Schedule Proposed Rule released this week. The agency hopes continued coverage will garner additional data on the efficacy and use rates of virtual and audio-only visits to help determine permanent policy. Congress has yet to act to make pandemic-driven telemedicine flexibilities and coverage permanent, despite the urging of many advocacy groups. In other highlights from the new rule, CMS is proposing to increase the threshold for doctors to earn quality bonuses under the Merit-Based Incentive Payment System, or MIPS. The program has been criticized for its lax quality targets, which allow the vast majority of doctors to earn bonuses, while providing paltry incentives to reward high-performing physicians.

Overall, doctors will see a pay cut if the rule is finalized in current form. The temporary, one-year pay bump physicians received as part of the coronavirus relief package is set to expire in 2022. Due to budget neutrality requirements, CMS is keeping rates flat, amounting to a 3.75 percent decrease to the conversion factor on which Medicare bases physician payment. This change is in addition to the 10 percent reduction in the conversion factor included in last year’s rule, which was put in place to balance an increase in payment for evaluation and management codes, and was intended to boost compensation for primary care. Survey data shows that 88 percent of health systems have yet to modify their physician contracts to reflect these changes, instead choosing to subsidize physicians and hold them harmless from Medicare payment cuts. Eventually, in our view, health systems will face a choice between aligning physician compensation with the actual economics of practice, or moving to a salaried model that decouples compensation from the reimbursement system altogether.


GRAPHIC OF THE WEEK

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

How would “Medicare at 60” impact health system margins?

An estimate from the Partnership for America’s Healthcare Future predicts that nearly four out of five 60- to 64-year-olds would enroll in Medicare, with two-thirds transitioning from existing commercial plans, if “Medicare at 60” becomes a reality. In the graphic below, we’ve modeled the financial impact this shift would have on a “typical” five-hospital health system, with $1B in revenue and an industry-average two percent operating margin. If just over half of commercially insured 60- to 64-year-olds switch to Medicare, the health system would see a $61M loss in commercial revenue. There would be some revenue gains, especially from patients who switch from Medicaid, but the net result of the payer mix shift among the 60 to 64 population would be a loss of $30M, or three percent of annual revenue, large enough to push operating margin into the red, assuming no changes in cost structure. (Our analysis assumed a conservative estimate for commercial payment rates at 240 percent of Medicare—systems with more generous commercial payment would take a larger hit.) Coming out of the pandemic, hospitals face rising labor costs and unpredictable volume in a more competitive marketplace. While “Medicare at 60” could provide access to lower-cost coverage for a large segment of consumers, it would force a financial reckoning for many hospitals, especially standalone hospitals and smaller systems.


THIS WEEK AT GIST—ON THE ROAD

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

Health system consolidation as a “safety net”

One of the underappreciated ways in which health systems create value in our healthcare economy, as was recently the topic of discussion with the CEO of an organization we work with, is their role as a “safety net”. We weren’t talking about safety-net providers in the traditional sense—those which serve low-income populations. Rather, we were talking about the ability of larger health systems to acquire and invest in smaller hospitals that might otherwise risk going out of business entirely due to economic pressures. When economic shocks hit, as was recently the case with COVID, we often see firms close; think of all the restaurant and hospitality businesses forced to shut down over the past year. As the economy rebounds, new business spring up to take their places—that kind of “creative destruction” is commonplace in the larger economy. But when a hospital is forced to shut its doors, it’s a different story, one that could be potentially disastrous for the community. Often the most economically vulnerable hospitals are sole providers for their communities; without them, critical medical services could be much less accessible for patients. Enter multi-hospital health systems, which have often stepped in to acquire hospitals in jeopardy. By providing access to capital, technology, and management infrastructure, systems have probably kept hundreds of such smaller hospitals in business over the past several decades. Policy analysts are quick to criticize health systems for value destruction: leveraging scale to raise prices, and so forth. Often valid criticism, but it would be myopic to overlook the fact that systems have also allowed many vulnerable communities to retain access to a viable local hospital. The pushback is often to posit that we simply have too many hospitals to begin with—but try telling that to patients and communities who have lost access to their local source of care.

In search of the “clinician strategist”

We’ve been working with a CEO and his strategy team around their health system’s five-year strategic plan. It’s still early in development, and they’re considering some bold moves. Given that some of the ideas are disruptive, he astutely observed they needed to bring a clinical leader into the process before the strategy is fully developed, but he’s having trouble identifying the right physician to be part of the very small executive working group. We began listing the important attributes, creating a rough job description for a “clinician strategist”: the ability to consider clinical and operational implications but not get bogged down in details; bold, big-picture thinking and a willingness to take risks; strong communication and leadership skills. As the list grew longer, we began to wonder if we were really telling the CEO to chase a unicorn. Some of the characteristics that typically make for an outstanding clinician—reliance on data and evidence, lower risk tolerance—might conflict with embracing disruptive change. Much of strategic decision making is about finding “80-20” compromises, while doctors often tend to get bogged down in detail (for good reason) and are quick to poke holes. And our ideal physician strategist, out of a desire to safeguard patient care, might sometimes find that the strategy team isn’t adequately considering the ramifications for quality and safety. Finding a physician leader who also has the skills of a chief strategy officer is indeed a rare thing. It’s probably a better bet to identify early-career doctors who have the right mindset and an interest in strategy and help them develop their leadership skills over time. Regardless, this CEO’s instinct was correct. Bringing doctors into the strategy-setting process early is crucial, even if the perfect clinician strategist might prove difficult to find.


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 next Monday’s episode, we’ll continue to explore the potential impact of a “Medicare at 60” policy on health systems. Gist Healthcare analyst Patrick Grant will join the podcast to explain how he modeled the revenue implications for health systems if a large portion of their commercially insured patients aged 60 to 64 switched to Medicare coverage. Tune in for the details!

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BINGE WATCH ALERT

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

As music venues reopen and the festival circuit stirs back to life after a dormant year, the hottest concert ticket of the summer is for a series of shows that happened 52 years ago—the Harlem Cultural Festival. That’s the focus of a stunning new documentary from Ahmir “Questlove” Thompson, the drummer and frontman from The Roots, now streaming on Hulu and in theaters. Summer of Soul tells the story of that forgotten festival, which took place in the shadow of Woodstock in 1969 and featured a star-studded lineup of soul and R&B royalty: Sly and the Family Stone, Nina Simone, Stevie Wonder, Gladys Knight & the Pips, The Staple Singers, B.B. King, The 5th Dimension, and many more. A series of six dates, organized by promoter Tony Lawrence with the explicit goal of providing a peaceful distraction to a community otherwise riven by racial violence, the festival was quickly dubbed the “Black Woodstock”, although it never earned the same place in American cultural lore. Forty hours of footage from the shows sat locked in a basement for decades, and only now have been edited and interspersed with interviews of some of the key players, civic leaders, and audience members. The history is fascinating, but it’s the music you’ll want to savor—seeing Stevie shred a drum solo, watching Sly deliver a steamy proto-Prince set, and witnessing Mavis Staples and Mahalia Jackson duet a gospel number that will peel the paint off your walls. Summer of Soul might be not just the best concert film of the year, but the best music experience period—nothing on today’s festival circuit will top it. Don’t miss it. (View the trailer here.)


WHAT WE’RE READING

Stuff we read this week that made us think.

Asserting the “right-to-repair” expensive surgical robots

President Biden’s sweeping “Executive Order on Promoting Competition in the American Economy”, issued last Friday, captured healthcare headlines with its focus on greater scrutiny of hospital and physician consolidation, emphasis on price transparency, renewed attacks on surprise billing practices, and the mention of clamping down on non-compete agreements that have long been part of physician employment contracts. While some of those proposals raised the hackles of health system and medical group executives, another line item in the order was likely viewed as good news: re-examining “right-to-repair” policies put in place by equipment manufacturers. Such policies limit hospitals’ ability to use third-party vendors to repair and maintain key pieces of equipment, requiring them to purchase expensive maintenance contracts from the original manufacturers. Such policies play a central part in two new class-action lawsuits filed by health systems in Indiana, Washington State and New York against the robotic surgery company Intuitive Surgical, which allege, among other things, that the manufacturer of the popular da Vinci surgical robot used its “monopoly position” to force hospitals to buy its own parts and maintenance services. As reported by Axios, the lawsuits allege that Intuitive Surgical personnel “threatened hospitals they will turn the [da Vinci robots] into ‘paperweights’ if hospitals turn to outside vendors for repairs or new parts”. The anticompetitive nature of right-to-repair clauses has been an area of industry concern for some time; last year over 300 biomedical professionals signed a petition sponsored by U.S. PIRG to ask Congress to take action on the issue. It will be worth watching the two hospital lawsuits against Intuitive Surgical closely, as well as the Federal Trade Commission for any new policy statements in the wake of the President’s recent order.


Thanks for taking the time to read the Weekly Gist! We hope your summer is going well, and you’re able to take some time off to recharge. If you have a moment, we’d love to hear your feedback and suggestions—keep in touch! And if the spirit moves you, please consider sharing this with a friend or colleague, and encouraging them to subscribe, and to listen to our daily podcast.

Most of all, 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!

Chas Roades
Co-Founder and CEO
chas@gisthealthcare.com

Lisa Bielamowicz, MD
Co-Founder and President
lisa@gisthealthcare.com