June 29, 2018

The Weekly Gist: The Dog Days of Summer Edition

by Chas Roades and Lisa Bielamowicz MD

What a week! There’s been a year’s worth of huge headlines in the space of a few short days, both in healthcare and the world beyond. The biggest of all, of course is the exit of a stalwart presence, whose dominating influence has swung the outcome in countless critical situations over the years.

Yes, title-holders Germany crashed out of the World Cup after the group stages, clearing the path for a new champion as we enter the knockout rounds this weekend. Get ready for a cracking round of sixteen this weekend and keep an eye on our World Cup of Healthcare bracket—it’s holding up pretty well, despite the loss of the Mannschaft.

Here’s what else has been going on, while you were watching soccer.


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 weekgetting 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 riskMedicaid 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.


THIS WEEK AT GIST—ON THE BLOG

What we’ve been writing about this week on the Gist Blog.

Our Most Common “But What About” Questions (Part 2)
Lisa shares some of the concerns we commonly hear from physicians when we’re out on the road. At the top of the list: a persistent worry that malpractice fears are driving defensive medicine, and nothing’s being done to solve that. Doctors also frequently express concerns that regulatory constraints—Stark regulations, privacy laws, and the like—are holding them back from being able to truly change the way they practice medicine.

Look for a future blog post covering more of the “But What About” questions that we hear on the road—so named because that’s typically how we hear them (“Great talk, but what about…”). You can find our first installment here, starting with the common refrain that we’ve seen this movie before (“Isn’t this just the 1990’s all over again?”), and looking ahead we’ll cover other concerns, including:

  • Won’t all of this lead to rationing? Who’s going to say “no”?
  • Shouldn’t individuals be responsible for the impact of their own behavior?
  • Aren’t we really just headed to single-payer healthcare? 
  • People won’t stand for all of this. Won’t there be consumer pushback to high deductibles and everything else that’s happening in healthcare?

In the meantime, we’d love to hear other questions that you commonly encounter, and how you respond to them. Or send us questions you’d like us to answer; with your permission, we’ll share those on our blog or in an upcoming edition of the Weekly Gist.


GRAPHIC OF THE WEEK

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

Seeking returns to scale in healthcare—beyond leverage

A question on the mind of almost every health system executive today is, “How big does my system have to be to succeed in the future?” We believe that’s the wrong question to ask. Rather, we urge our clients to ask how getting bigger will help them achieve the things they’re trying to accomplish in the market—to seek “returns” from scale. Importantly, we believe that the primary motivation to achieve greater scale can’t continue to be pricing leverage. Given all of the pricing and competitive pressures providers now face, it’s imperative that health systems set their sights on a broader set of objectives—cost reduction, efficiency gains, the ability to standardize operational and clinical processes, and so forth.

This graphic illustrates a way of thinking about scale at three different levels—market, regional, and national. Building scale at the market and regional levels offers the opportunity to create value from care coordination, integration, and the ability to create a single standard of care delivery powered by a common data platform. In addition, regional-level scale offers the opportunity to take on more risk, enabling systems to move past the fee-for-service approach and reallocate assets to lower-cost care approaches that help reduce total cost of care for populations of patients. Pushing further, national-sized systems can begin to capture value from diversification and should be able to drive innovation in care delivery based on greater access to talent and capital markets.


THIS WEEK AT GIST—ON THE ROAD

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

A new platform for the employed medical group

Lisa:
Lately I’ve had several requests for conversations about the future of employed medical groups, from stakeholders ranging from health system executives and physician leaders to investment bankers. Most still focus on the typical questions around growth, profitability, integration and system role that have dominated these conversations for over a decade. However, a handful of leaders have begun asking a new (and counterintuitive) question: Does tight integration between the medical group and health system limit strategic flexibility? Lately we’ve been hearing rumors of health systems who are considering “spinning off” their medical groups into independent ventures, jointly-owned by doctors and the health system. One motivation is clearly old-school: removing the “losses” of physician practices from the system balance sheet. More interesting is the question of strategic independence: would the medical group be able to move more quickly toward managing risk if it were in control of its own strategy, unfettered from the lingering fee-for-service concerns with filling hospitals and operating rooms? Let me know if you’re thinking about this strategy and would like to compare ideas.

Letting go of our financial relationship with patients

Chas:
I’ve had a couple of conversations this week with clients who are evaluating new approaches to managing the revenue cycle and are looking to “outsource” the entire set of processes to a third-party partner. I’m certainly no revenue cycle expert, but it seems to me that we’re at a moment in healthcare that demands a rethink of how health systems approach their financial relationships with patients and payers more broadly. As noted in a new report discussed below, hospitals are in the position of relying on direct patient payment for a growing portion of their livelihood. High-deductible healthcare has dramatically raised public awareness of pricing and billing practices. By leaving consumers “holding the bag” for a sizeable portion of payment, so-called consumer-driven healthcare approaches are driving a wedge between patients and their providers—creating financial obstacles to receiving care, and jeopardizing personal finances when care is delivered.

My advice to clients has been to take advantage of this moment to re-frame their financial relationship with patients. Move toward transparent pricing, simplified billing, and programs that provide visibility and advance warning about the financial obligation patients are incurring. Be willing to forego a larger portion of collections as an investment in consumer loyalty. At the radical extreme, what if a provider were to simply stop collecting money from consumers? No more balance billing—only the insurer pays. We’re not there yet, but setting that as an aspiration might help clarify the changes that need to happen in the interim. As to “outsourcing” the revenue cycle? Given how central the question of pricing, billing, and payment has become in healthcare, I’d be wary of losing control of this strategic lever at this moment in the industry. As much as getting it wrong can destroy a health systems relationship with its patients, getting it right could be a critical and lasting consumer engagement lever. 


GIST IN THE NEWS

We said it, they quoted it.

“Amazon Makes $1 Billion Splash in Health Care, Buying PillPack”
Bloomberg; June 28, 2018.

“‘This provides an avenue for Amazon to disrupt major pharmacy chains the way that they’ve disrupted booksellers, pet supplies, clothing and other big-box retailers,’ said Lisa Bielamowicz, president of consultancy Gist Healthcare.”

“Jeff Bezos Just Did President Trump a Big Favor on Drug Pricing”
Fortune; June 28, 2018

“‘Their scale will allow them to negotiate prices in a way that the drug industry has never seen before,’ said Lisa Bielamowicz, president of the consultancy Gist Healthcare. ‘They have a company ethic of returning these kinds of savings to consumers.’”


BINGE WATCH ALERT

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

Netflix is awash in stand-up comedy at the moment. Every week the streaming network seems to debut a dozen new, hour-long sets from comedians both famous and obscure, rendering these “specials” anything but. This week, however, brought something different. If you don’t yet know the name Hannah Gadsby, and haven’t heard about her American debut special, Nanette, you soon will. A veteran Australian comic, Gadsby has spent years turning her wry, offbeat perspective into headlining comedy Down Under, drawing on her experiences as a gay woman from Tasmania—a stereotypically-homophobic and remote region of the country. Her stock-in-trade has been the kind of self-deprecating, observational comedy that’s become familiar in the last decade.

But this is not that. What Gadsby delivers in this new special is nothing short of a complete dismantling of the idea of comedy—what it does, how it works, and what it means to those cracking the jokes and those laughing at them. What starts as just another stand-up set pivots quickly to a raw, confessional, and wrenching statement of personal identity and purpose. Comedy has been swept up in our #MeToo moment, of course, and the genre is still working through the troubling legacy of Bill Cosby and Louis CK, but Gadsby’s contribution extends well beyond a reckoning with that. She forces us to think about difference and diversity in a visceral way that doesn’t let us off the hook with apologies and platitudes. She’s very funny and very angry, and that’s the point. It’s a breathtaking performance, well-deserving of the critical adulation she’s begun to receive. Not to be missed.


WHAT WE’RE READING

Stuff we read this week that made us think.

Focus on the quality, not the cost, of end-of-life care

A new study in Science examining the cost of care in the last year of life caught our eye this week. The familiar statistic that a quarter of all healthcare costs are incurred in the last year of life is often cited as motivation for efforts to reduce spending on “futile” end-of-life care. This new research challenges the common belief that we spend too much in the last months of life—for the obvious reason that it is very difficult to predict which patients at high risk for mortality are actually going to dieRetrospective analysis shows that spending on care in the last year of life for patients who died accounted for 21 percent of Medicare costs. But attempts to control those costs assume that we are able to know who is going to die in advance. Researchers used an AI-driven predictive model designed to identify which patients at high risk of mortality would die and found that spending on these patients accounted for less than five percent of healthcare costs. Very ill patients often require very expensive care—which may, in fact, save their lives. Given our questionable ability to predict imminent mortality, it’s difficult to call that spending a waste.

There is also evidence that patients are seeking a different care experience in their final days: other research published this week shows that the percentage of Medicare patients dying in an acute-care hospital dropped from 32.6 to 19.8 percent between 2000 and 2015. This trend will likely accelerate, as the Baby Boomers—who prefer to age in their homes—are likely to prefer a non-institutional death (many having watched their own parents die in hospitals and nursing homes). These findings provide an opportunity to reframe the end-of-life discussion around preserving the quality of a patient’s life, not saving costs by altering the level of care. Multiple studies have shown that palliative and hospice care do not shorten a patient’s remaining lifespan. Providing palliative therapy irrespective of a patient’s willingness to discontinue lifesaving treatment will likely produce better cost and quality outcomes—and provide a platform to advance policy discussions on this very charged topic.

The dangerous intersection of dementia and guns 

In the last year of his life, my [Lisa’s] 84-year old grandfather, a lifelong gun owner, kept a pistol in the side pocket of the recliner where he spent most of his day. When my mother discovered it, he told her he needed it close by to protect himself from the people who were trying to break into the house. Medications to manage his advanced Parkinson’s disease were causing vivid hallucinations, and we were lucky to find the weapon before he accidentally shot a caregiver or family member. A new piece from Kaiser Health News shows just how common this situation is, and how frequently it leads to accidental injuries and deaths.

The article tells devastating stories of family members accidentally shot, and difficult decisions made to restrict a loved one’s access to a weapon they value. But here are the facts: 45 percent of Americans over the age of 65 own a gun or live in a house with one. Six million Americans have Alzheimer’s today, and that will grow to 14M by 2050 as the Baby Boomers age. One in three patients with dementia will exhibit combative behavior—and experts say it is extremely difficult to predict who will become agitated enough to fire a weapon, or at what stage of disease the risk increases.

Beyond vigilant family members, healthcare providers have an important role in assessing risk—studies show families are more likely to take precautions after a conversation with a physician. Eleven states now have “red flag” laws, which allow a physician or law enforcement officer (or a family member) to request a court order for temporary removal of a firearm from a person presenting a danger to himself or others. Some states, however, have moved to pass laws restricting a provider’s ability to collect information about firearm ownership or limiting a doctor’s ability to have a conversation about guns with patients. Florida passed a “gag law” prohibiting doctors from discussing firearms entirely, which was struck down by a Federal appeals court last year. Doctors and healthcare leaders have a unique perspective on the intersection of illness and firearms, and citizens and policymakers would benefit from allowing them to take a more active role in conversations on gun safety. It remains to be seen whether doctors will embrace this role, and whether our society will welcome their involvement.

Reaching the limits of consumer cost-shifting

The team at Bloomberg continued their excellent series on the cost of healthcare this week, with a piece highlighting a problem of growing concern for the average American—high and rising deductibles. With more than a third of all large US employers now offering only high-deductible plans to their employees, and the average individual deductible now above $1,500, little wonder that healthcare tops the list of financial worries for most Americans. As the article points out, it’s no longer just individuals asking how we ended up here—employers are waking up to the problems created by “consumer-driven” health plans as well. “Why did we design a health plan that delivers a $1,000 surprise to employees?” asks one large-company executive cited in the piece. “Nobody in their right mind would think that it’s a smart thing” to put financial hurdles between patients and needed care, says another. And yet, the trend toward high-deductible plans continues. Who likes this?

Well, insurers do. Raising deductibles allows insurers to offer lower-premium plans, which is critical in attracting business—particularly in segments (like the Obamacare exchanges) where price-competition drives purchase decisions. As carriers gear up for an anticipated shift toward defined-contribution healthcare, constructing plans that offer low premiums is an important competitive advantage in the battle for share. But even beyond that, shifting payment responsibility to patients—not just with deductibles, but with coinsurance and higher out-of-pocket maximums—allows insurers to use consumers as a human shield in their never-ending struggle with providers over rates.

High deductibles put providers, particularly hospitals, on the hook for recouping the cost of care—and as a recent TransUnion analysis shows, hospital revenue attributed to direct patient payment has ballooned by 88 percent in the past five years as a result. Patient cost-sharing has acted as a safety-release valve, allowing insurers to continue to offer broad networks without having to place real pressure on provider pricing. And with the Affordable Care Act imposing an 85 percent floor on medical-loss ratios, allowing provider rates to continue to grow is an obvious way to grow profits—15 percent of a bigger number is a bigger number. Meanwhile, consumers are caught in the crossfire, and we’re nearing the day when rising healthcare costs go from being a pocketbook issue to becoming a ballot box issue as well.


That brings us to the end of another edition of the Weekly Gist. Happy Independence Day to all our readers—hope your holiday is relaxing, enjoyable and safe. (And a special birthday shout-out to Thomas Roades, who was born at Redwood City Medical Center on this day, 21 years ago…does anyone know what Kaiser’s returns policy looks like? Kidding, my boy—I love you.)

Thanks so much for reading, sharing, and subscribing to our work. We’d love to hear from you! If there’s anything we can do to be helpful in your work, let us know. 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