|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
Breaking: Federal judge strikes down Kentucky’s Medicaid work requirement
Late today, a DC Federal judge blocked Kentucky’s proposed Medicaid work requirement, which was scheduled to go into effect this weekend. Ruling on behalf of fifteen Medicaid beneficiaries, the opinion stated that the Department of Health and Human Services (HHS) did not consider whether Kentucky’s plan went against the intent of the Medicaid program to provide health care to vulnerable Americans, and the purpose of Medicaid waivers to increase access and promote health. The ruling specifically called out Kentucky’s estimate that 95,000 Medicaid beneficiaries could potentially lose coverage as a result of the work requirement. The proposal was sent back to HHS for further review. Given that work requirements are a pillar of the Trump administration’s health policy, further legal action is a sure bet. But for now, the implementation of work requirements in the four states with approved waivers is likely on hold, along with the pending approval of proposals submitted by seven others.
Amazon makes its move in the pharmacy space
This week Amazon, Inc. announced the $1B acquisition of PillPack, an online pharmacy startup, giving it a platform to launch a nationwide pharmacy play with the potential to lower prices and disrupt traditional players. Amazon had already been moving into the pharmacy space, launching an exclusive line of common over-the-counter medications and obtaining pharmacy licenses in a dozen states—a laborious state-by-state process. With 1,000 employees, PillPack is a relatively small player, but its ability to distribute drugs in 49 states will allow the retail giant to quickly scale a consumer drug business.
Shares of major pharmacy companies took a big hit after the announcement. CVS, Walgreens and RiteAid collectively lost $11B in value, and Walmart, which previously made a $700M bid for PillPack, was down $3B. This acquisition sets up a battle for control of pharmacy spending between Amazon and traditional pharmacies and pharmacy benefits managers (PBMs)—and the insurance companies who increasingly own them. Amazon will bring negotiating scale that allows them to run directly at the value proposition of PBMs. And in contrast to current drug supply chain middlemen, Amazon, with its focus on consumer value, is much more likely to return the savings to customers. Three companies, UnitedHealth Group, Humana and CVS, control over half of the Part D plan market, and they could quickly move to restrict an Amazon pharmacy from their networks—but doing so would raise the chances of Amazon launching its own plan.
PillPack, which has focused on delivering pills in user-friendly, single-dose packages for patients taking multiple medications, could also provide an avenue for Amazon to offer care management services to chronic disease patients. It’s easy to imagine a diabetes patient purchasing an Amazon diabetes “care bundle” with medications and testing supplies, getting a call from her Amazon pharmacist via Alexa when her glucose readings are high. PillPack is by far the most disruptive move Amazon has made into healthcare, likely to alter the landscape of retail pharmacy, and to form the foundation of a larger Amazon consumer healthcare platform.
On the wrong side of the interoperability “debate”
In comments submitted this week to the Centers for Medicare & Medicaid Services (CMS), the American Hospital Association (AHA) came out in strong opposition to the agency’s proposal to make interoperability a condition of receiving payment from Medicare and Medicaid. The proposed 2019 Inpatient Prospective Payment System (IPPS) rule would set electronic sharing of data with other providers and patients as a requirement for participation in the program, putting financial teeth behind previous Trump administration proposals to focus on improving the flow of health information across settings of care. While reiterating its support for the broader objective of interoperability, AHA expressed concern about the technical challenges and financial implications of implementing full interoperability in the near-term, joining other industry groups in calling for a slower timeline and wider rule-making effort to support the exchange of health information. In AHA’s view, “The commitment of health care providers is not sufficient by itself to create interoperability. The technical and organizational infrastructure must be available and allow for efficient exchange and all parties to exchange must be using compatible technology in consistent ways.”
Meanwhile, a broad coalition of accountable care organizations (ACOs), health information exchanges (HIEs), and other organizations—including some individual hospital systems that have been moving toward care integration—submitted a comment letter praising the aggressive requirements for interoperability. Citing successful use of reimbursement incentives to drive information exchange in Maryland and Florida, the group expressed its belief that “Now is the moment for a focused and rigorous effort to liberate the data currently available in the health care system to enable patients and their providers to seamlessly access and share all their digital health information.” In particular, their comments focused on the need to provide timely data on hospital admissions and discharges to community-based providers to enable greater coordination of care across the continuum.
It’s not surprising to see this divergence of views about tying financial incentives to interoperability—the fee-for-service environment provides little reward for hospitals to share information outside their walled “data gardens”, and risk-bearing ACOs are keen to break through those walls to get access to the data needed to allow them to reduce unnecessary hospital visits. Lost in this whole “debate” are consumers themselves: in any rational world, interoperability would have been the first priority of any national health reform strategy, as the free flow of (the consumers’ own) data is clearly in patients’ best interest. Whatever the timing and payment details, continuing to dig in publicly against interoperability is not a good look for the provider community. Rather than foot-dragging, industry incumbents should aggressively seek to open up the flow of data—before new entrants like Amazon, Apple and Google disrupt them completely.
They’re not just the owner, they’re also a client
Partners HealthCare, the largest provider system in Massachusetts and the state’s largest private employer, announced this week that it’s planning to shift all of its 100K employees into its own Neighborhood Health Plan, dropping coverage with Blue Cross Blue Shield of Massachusetts next year. The move will nearly double the enrollment of Neighborhood Health, which Partners acquired in 2012, and substantially alters the profile of plan enrollees. Neighborhood Health is the largest insurer of low-income and Medicaid enrollees in the state, and it had been a troubled part of the Partners system, which also includes renowned teaching hospitals Mass General and Brigham and Women’s. Partners lost hundreds of millions of dollars in Neighborhood Health over its first half-decade of owning it, facing a growing enrollment of sicker, more-costly patients than it had anticipated. By the end of last year, however, Partners had turned around the performance of the health plan, by shoring up costs, tightening care management for Medicaid enrollees, and expanding its footprint to include large employers.
In addition to growing the plan’s rolls, moving its own employees into Neighborhood Health is expected to save Partners $10M-$15M per year on employee health costs, out of the $830M it spends each year. And it’s likely to improve the risk profile and financial stability of the plan, which is now on very different footing than just a few years ago. Last month, it was reported that Partners is in talks to further expand Neighborhood Health by merging it with Harvard Pilgrim Health Care, another large insurer in Massachusetts. As health systems nationwide consider moving into the insurance business, we believe the Partners story holds a few important lessons. First, as Sentara’s health plan leader Michael Dudley pointed out on our blog last week, getting into the risk business isn’t for the faint of heart. Partners had the strategic and financial stamina to absorb losses for several years before stabilizing the business and setting it on a profitable course. Second, it makes sense for systems to start with populations for which they already bear substantial risk—Medicaid enrollees and their own employees. Improving care management processes is likely to yield immediate rewards in both of these populations and demonstrating success there can be a strong proof-of-concept for potential commercial market customers. And third, it’s possible for even the most unlikely of systems to succeed given time and commitment. A decade ago, you wouldn’t have predicted that Partners—with two of the most expensive academic centers in American healthcare—could have turned itself into an integrated payer-provider organization. Which is exactly what they’ve done.