July 22, 2022

The Weekly Gist: The Dog Days and Popsicles Edition

by Chas Roades and Lisa Bielamowicz MD

The dog days of summer have well and truly arrived, and this year they seem to have come earlier and…doggier?…than we can ever recall. Triple-digit heat for days on end, in places that just aren’t built for these temperatures, with runways melting in London, the power grid (yet again) faltering in Texas, and politicians in our nation’s capital spontaneously combusting on the steps of the Capitol. OK, we made that last one up, but it feels plausible in a week that saw our hometown Washington, DC fully earn its moniker as “the swamp”. Nothing to do but stay inside, lower the shades, and crank up the AC. With enough popsicles, we can get through anything.

THIS WEEK IN HEALTHCARE

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

  1. Amazon to acquire primary care company One Medical for $3.5B. While Amazon has been amassing a range of healthcare assets in recent years, including an online pharmacy, virtual and in-home care capabilities, and even diagnostics, this marks the e-commerce giant’s first significant push into bricks-and-mortar healthcare delivery. One Medical, which went public in 2020, operates 182 medical offices in 25 markets, and acquired Medicare-focused primary care provider Iora Health last year. It offers an access-forward, concierge-lite model to employer clients and individual consumers, and more recently has pursued a partnership strategy with anchor health systems in the markets where it operates.

The Gist: Amazon’s pricey purchase of One Medical, for which it will pay a 77 percent premium over market value, is sure to set the healthcare punditocracy afire—even more than its earlier, ill-fated arrangement with JPMorgan Chase and Berkshire Hathaway. Clearly, Amazon is shifting from a build-and-tinker to a buy-and-scale approach to its Amazon Care business, which has been slow off the mark since the company first started selling its own employee clinic services to other employers. With One Medical, Amazon gets thousands more employer relationships, a much larger physical footprint, and a buzzy brand in primary care.

But the deal is less “disruptive” than it might first appear. There is still a missing piece—namely, a risk model that lets Amazon profit from managing patients in the primary care setting. One Medical’s model is expensive—it has yet to turn a profit—and despite the acquisition of Iora’s population health platform, it has doubled down on creating linkages with high-cost health systems rather than truly investing in care management. Primary care on its own is not an attractive growth business, even in a hybrid virtual/in-person model, even at Amazon’s scale. To truly disrupt healthcare, Amazon will need to wade into the risk business, either by partnering with a health plan or creating its own risk arrangements with employer clients. That’s going to be hard, for all the same reasons that Haven was hard—entrenched payer relationships, slow-moving benefits managers, and a murky and conflicted broker channel. We’d love to be proven wrong, but this deal feels less like true innovation and more like a frothy story for slide decks and conference panels.

  1. JP Morgan Chase’s Morgan Health invests $30M in Centivo. Centivo, a Buffalo, New York-based health plan administrator for self-funded employers, has clients in 13 states. Founded in 2019, the company works with national and mid-market employers and health system partners to deliver a consumer-forward, access-driven model, creating customized provider networks that include free primary care and an unlimited virtual care option. The company aims to reduce consumer out-of-pocket exposure and overall employee healthcare costs by identifying and partnering with high-performing providers in each market it serves. Using this model, Centivo is able to lower costs for self-insured employers by at least 15 percent compared to traditional insurers, through narrow networks with low-cost, high-quality providers. Morgan Health, which has styled itself as a private sector version of Medicare’s innovation center, has invested $85M in companies that look to transform employer-sponsored healthcare—taking stakes in Seattle-based primary-care company Vera Whole Health and Nashville-based Embold Health, in addition to Centivo.

The Gist: We’ve had the opportunity to work directly with the Centivo team since its early days, as outside advisors. We’ve been continually impressed by the company’s success in navigating the complicated landscape of self-funded employers, broker relationships, and incumbent health systems. The “ground war” of piecing together these bespoke offerings for employers stands in stark contrast to the approach of traditional payers, who simply aggregate scale and rely on brute-force pricing leverage to manage employer cost trend. It’s also an interesting juxtaposition to Amazon and other “disruptors”, who bring a relatively naïve, Silicon Valley view to healthcare, and often find themselves frustrated by just how hard it is to drive change amid overwhelming complexity.   

  1. Insurers raise Affordable Care Act (ACA) plan premiums next year. After a few years of relatively unchanged monthly premiums, a Kaiser Family Foundation analysis of 72 rate filings for 2023 finds a median 10 percent increase. Insurers say the biggest driver is rising medical costs, driven by higher rates for provider services and pharmaceuticals, as well as a return to pre-pandemic utilization levels. Insurers aren’t expecting COVID-19 or federal policy changes—including a potential extension of enhanced subsidies—to have much of an impact on rates.

The Gist: High inflation and the growing wage-price spiral have left providers with much higher costs, which is sure to drive up the overall cost of healthcare. Where provider systems have the leverage to demand higher rates from insurers, this will inevitably drive up premiums—an effect that is already starting to show up in the individual insurance market. If Congressional Democrats are able to extend ACA subsidies, most ACA enrollees won’t actually feel these premium increases, but as contracts in the group market come up for renewal, we’d expect inflation in employer-sponsored premiums as well. Given the cost-sharing now built into most benefit plans, individual consumers will likely see healthcare join gas, food, and housing as household costs that are experiencing unsustainable inflationary increases.

Plus—what we’ve been reading.

  1. A targeted approach to reducing healthcare disparities. A recent piece in the Harvard Business Review demonstrates how SCAN Health Plan, a not-for-profit, California-based Medicare Advantage plan with over 270,000 members, was able to increase medication adherence among Black and Hispanic beneficiaries. Dr. Sachin Jain, CEO of SCAN, and his colleagues describe how identifying the specific causes of disparities in medication adherence, establishing clear financial incentives for senior leaders, and targeting investments enabled the insurer to reduce disparities by 35 percent within eighteen months.

The Gist: Addressing complex and longstanding racial health disparities is an incredibly difficult but vital task. While there’s been plenty of discussion about the problem, there’s been a lack of effective solutions for healthcare organizations to deploy. SCAN’s progress demonstrates how narrowing the focus down to a more specific issue can yield faster results. Jain and his colleagues write that SCAN’s next areas of focus are reducing disparities in diabetes control and flu vaccinations. We’re looking forward to learning about other innovative ways healthcare organizations are tackling long overdue gaps in care.    


GRAPHIC OF THE WEEK

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

More drugmakers limiting 304B contract pharmacy sales

This month, Bausch Health became the 18th pharmaceutical manufacturer to restrict 340B drug discounts to contract pharmacies. This is the latest development in a protracted saga involving health systems, pharmaceutical companies, and the Department of Health and Human Services (HHS) over the contentious 340B Drug Pricing Program. At issue is the proliferation of drugs dispensed at retail and mail-order pharmacies that have contracts with 340B covered entities, which include many safety-net hospitals. 340B contract pharmacy sales have exploded in recent years, outpacing the growth of non-340B drug sales by over 20x in retail pharmacies and 7x in mail-order pharmacies from 2017 to 2020. In response to this trend, and based on claims of fraud involving duplicative patient discounts, several of the largest drugmakers have either halted sales to contract pharmacies or imposed restrictions. It’s clear that these restrictions are having a significant impact on contract pharmacy sales: 340B sales through retail and mail-order pharmacies shrank by over 20 percent for pharma companies that imposed restrictions in 2021. This has hurt 340B provider participants’ bottom lines, with the majority of hospitals reporting that they are projecting service cuts in order to recoup significant financial losses. While the Biden administration has signaled support for hospitals, courts have issued conflicting rulings about whether HHS can enforce contract pharmacy discounts. Undoubtedly, the ongoing scrutiny of the 340B program continues to raise questions about whether there are better ways to subsidize the operations of hospitals serving low-income patients.


INTERMISSION

A recommendation from our weekly diet of music, movies, TV, and other good stuff.

This Is Going To Hurt (AMC+) — This BBC medical comedy-drama, which took the UK by storm earlier this year, centers on the overtaxed OB-GYN service of an underfunded NHS hospital, and a junior doctor (compellingly depicted by Ben Whishaw) who’s struggling to keep his head above water there. Hilarious, heartbreaking, and visceral, it’s the best TV medical show in recent memory. Well worth a binge watch, but don’t forget your hankie.


GIST IN THE NEWS

We said it, they quoted it.

Amazon Gets ‘Whole Foods of Primary Care’ With One Medical Deal
Bloomberg; July 21, 2022   

“‘This puts Amazon much further up the list’ of entities trying to assemble vertically integrated health care businesses at a multi-billion-dollar scale, said Lisa Bielamowicz, president of consultancy Gist Healthcare. ‘If I’m Optum or I’m CVS-Aetna, I’m looking at this and saying, ‘These guys are serious and they’re starting to put their own pieces together in a way that will create a unified product.’’”


THIS WEEK AT GIST—ON THE ROAD

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

Emergency visits are down, so why does the ED feel so busy?

We’ve been noticing a disconnect recently in our conversations with health system executives. When we share national data that shows that emergency department visits are still down substantially from pre-COVID levels, the reaction is often one of surprise. As one CEO recently put it to us, “We’re seeing exactly the opposite. Our ED feels busier than ever.” It appears that, upon further examination, what’s going on is a shift in the mix of patients who are visiting the ED. The lower-acuity, urgent-care level cases do seem to have shifted away from traditional hospital settings toward virtual visits and urgent care centers. That’s good news from an overall cost of care perspective, but it means that hospital EDs are increasingly filled with sicker, more acute patients. One sure sign the mix has shifted: many systems are now telling us that the percentage of ED visitors who end up getting admitted is rising. But staffing-driven capacity constraints mean that it’s taking longer to find an inpatient bed for those patients, or to discharge them from the ED to other settings (or back home)—so the average length of stay in the ED is going up. On top of that, many EDs are now seeing an increase in psych patients, who stay longer and require greater staff attention. All of that, along with staff who are completely exhausted and demoralized after the pandemic, has combined to make many EDs feel swamped these days—despite what the national data are showing.


THIS WEEK AT GIST—ON THE PODCAST

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

This year, Medicaid joins Medicare and commercial payers in covering the routine costs of patient participation in clinical trials. On last Monday’s episode, Will Schpero, Ph.D., a health economist and assistant professor at Weill Cornell Medical College, discussed how this new policy could lead to more equitable participation in clinical trials.

Coming up this Monday, we’ll be joining Alex in the studio to talk about how the deteriorating economy and increased margin pressures are creating significant challenges for health systems.

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


That’s all for this week. We’re hoping to see a bunch of out-of-office messages when we hit send on this Weekly Gist—that means you’re on vacation, maybe even getting away from the oppressive heat. Wherever this finds you, we’re grateful you’ve taken time to read our work! Now let your friends and colleagues know about us, and tell them to beat the heat by subscribing, and listening to our daily podcast.

As always, please let us know if we can 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