June 1, 2018

The Weekly Gist: The Elementary, Dear Watson Edition

by Chas Roades and Lisa Bielamowicz MD

And just like that, it’s June! Half the year seems to have raced by, and suddenly we find ourselves staring the summer months squarely in the face, with temperatures rising, school winding down, and vacation in the offing. Well, almost—hockey and basketball are with us for a few more days (Go Caps! Wake up, J.R. Smith!), and the lightning bugs are still a couple of weeks from arriving (now that’s something the Eastern Conference definitely has over the West).

It’s been a busy week for us here, even if it was a short one—let’s get to it!


THIS WEEK IN HEALTHCARE

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

Virginia gives the nod to Medicaid expansion

After years of contentious debate and legislative gridlock, Virginia this week became the 33rd state to expand Medicaid eligibility under the Affordable Care Act. The Virginia state senate approved the move on Wednesday, with four Republican senators crossing party lines to vote in favor. Earlier this year, the Virginia House of Delegates also approved the expansion bill, which will now go to Democratic Gov. Ralph Northam for signature. More than 400,000 Virginians are likely to become eligible for Medicaid benefits as a result of the expansion, which will require able-bodied adults to meet a work requirement in order to qualify. The expansion will take effect on January 1st. The measure requires Virginia to apply for a Federal waiver to put the work requirement in place, as well as to implement premium payments for Medicaid enrollees, along the lines of Indiana’s “Power Account” approach. The state will partially fund its share of the expansion by imposing a new assessment on hospitals.

The shift in the politics of Medicaid expansion came after last fall’s “wave election” in Virginia, which resulted in Northam’s election, as well as a shift in the balance of power in the Virginia legislature. Voters ranked healthcare among their top priorities in that election, and that, combined with the Trump Administration encouraging states to pursue Medicaid waivers to implement work requirements and other conservative policy approaches, opened the door for a handful of Republican legislators to change their votes. Along with Virginia, other “red” states—including Idaho, Utah, Nebraska and Maine—are also inching closer to Medicaid expansion. With the heated politics of “Obamacare” now beginning to cool, and states continuing to grapple with their own healthcare budgets, we’d expect more right-leaning states to take advantage of the political cover of work requirements to pursue Medicaid expansion.

Big Blue finds success in its Watson business not so elementary

IBM has confirmed that it’s laying off staff in its Watson Health division, although the company did not reveal the extent of those layoffs. This comes after a week of rumors of massive layoffs across IBM Watson Health—with some reporting that as much as 50-75% of staff had been let go. Company insiders confirmed layoffs in several IBM locations, and the focus seems to have been in the Phytel, Explorys, and Merge Healthcare businesses—all acquired by IBM in 2015—as well as Truven Health Analytics, which IBM took over in 2016. According to the company, the layoffs affect only a “small percentage of our global Watson Health workforce”, but other reports indicate a much broader downsizing of the provider analytics portfolio across Watson Health. Watson is IBM’s showcase brand for bringing supercomputing power and natural language processing to healthcare delivery, and the company has spent several years assembling mountains of clinical data to feed into its AI-driven platform.

Despite touting the capabilities and promise of the platform, however, IBM has struggled to turn Watson into a growth engine. In fact, in a detailed external study conducted last year by financial services firm Jefferies, analysts concluded that IBM is not even covering its capital costs in the Watson business, and that it faces an increasingly competitive marketplace for healthcare AI solutions. Others have noted that the Watson platform has fallen well short of its promised capabilities, particularly as a “revolutionary” approach to cancer care—an application that IBM has widely publicized. The marketing of Watson as “one of the most powerful tools our species has created” has gotten a skeptical response from technologists and investors, including some former company insiders. The questionable fortunes of IBM Watson Health provide a sobering reminder that, although “artificial intelligence” and “machine learning” have become hot marketing terms in healthcare, we are still in the early days of their development and actual impact on care. The hype may not yet match the reality.

Pressing pause on a new denials policy

Blue Cross Blue Shield of Texas (BCBS-TX) announced a 60-day delay in implementation of an ED visit denials program set to go into effect next Monday. Under the policy the insurer may deny claims for HMO patients who visit an out-of-network emergency room unnecessarily, based on retrospective review by a BCBS-TX medical director who determines the visit not to be “serious or life-threatening”. Patients would then be responsible for the full bill. Since BCBS-TX announced the policy in April, the Texas Department of Insurance has twice reached out to the insurer, citing concerns about how the policy will be rolled out and communicated to patients, and seeking clarity on how decisions will be made. According to a Houston Chronicle article, 80 percent of BCBS-TX’s out-of-network ER claims are at freestanding facilities, raising the question of whether lowering rates for those facilities and conducting better patient education would be better ways to address cost, rather than sticking the patient with the full bill.

The BCBS-TX plan follows similar, hotly-debated policies from other insurers—most notably Anthem—that put the burden on patients to decide whether ED-level care is necessary. In contrast, UnitedHealthcare put in place measures to reject or down-code payment for level 4 and 5 ED visits it deems inappropriate. The policies represent contrasting tactics to control rising ED costs: should the patient or the provider be left “holding the bag” for ED care that could have been delivered elsewhere? It’s likely that United’s approach—which targets hospitals, not patients—will come under far less scrutiny from regulators.


GRAPHIC OF THE WEEK

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

Looking to bend the price curve (not the cost curve)

One of the key insights that we share with our provider clients is that ultimate responsibility for “bending the cost curve” lies with them—not with purchasers. As the graphic below illustrates, our perspective is that at every level on the “demand side” of healthcare—the Federal government, states, insurers, employers and individual consumers—the thrust of activity has been to seek to pay less for healthcare. There’s been no serious attempt on the part of purchasers to break open the black box of care delivery, and actually figure out how to make the cost of care lower. Instead, providers should expect an increasingly aggressive set of maneuvers aimed at making the price of care lower—leaving them “holding the bag” for lowering the underlying cost of care. That’s as it should be: hospitals, doctors and other providers are best positioned to address the drivers of healthcare cost growth. And they need to get to work on that—urgently. The harder purchasers push downward on price inflation, the faster provider economics will deteriorate, making cost reduction a survival skill and not just a competitive lever.


THIS WEEK AT GIST—ON THE BLOG

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

Lessons from a Decade of Commercial ACO Contracting
While the Medicare Shared Savings Program (MSSP) has enabled hundreds of provider organizations to get into risk-based arrangements with the Federal government, there’s been much less actual risk contracting in the commercial marketplace. Based on our interviews and work with participants in the early, Massachusetts-based “Alternative Quality Contract”, as well as other providers who’ve contracted for commercial risk, we share nine key lessons learned. The bottom line—it’s a lot more complicated than it looks.


THIS WEEK AT GIST—ON THE ROAD

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

Bridging the gap between strategy and execution 

Lisa:
We’ve been working with the leaders of a large multi-market health system to update their five-year strategic plan. As part of the process we’ve been conducting stakeholder interviews with hospital, physician and health plan leaders in each of the system’s markets. Local leaders have been excited to be engaged and have been sharing candid feedback unlikely to make its way up the usual chain of command. Comparing their perspectives to views held at the system level, we’ve been surprised by how little consistency we’ve found on what the system’s strategy actually is, or how it applies to daily work. This project highlights a critical challenge for health systems: the larger and more complex a system becomes, the more easily strategy gets lost between corporate goals and local execution. Our work aims to not only assist in developing a new plan, but also to create a rubric for communicating and applying it to key decisions at all levels of the system.

Setting aside a day to ask the fundamental questions

Chas:
Recently we had the opportunity to spend an entire day with the executive team of a large, multi-market health system. For eight full hours—a minor miracle, given how busy this team’s calendars are—we locked ourselves in a conference room at their corporate headquarters and had a frank set of discussions about system strategy and performance. The generosity of the team in sharing their day with us was incredible, as was the experience itself. Freed from the usual constraints of PowerPoint presentations and a choreographed meeting agenda, we were really able to roll up our sleeves and dig into the issues. Across a wide-ranging conversation, we were able to push each other’s thinking about some fundamental issues: What business is the system really in? How (and why) should the system plan for growth? Who does the system actually serve—payers, physicians, patients, employers? What partnerships (however unorthodox) might make most sense to further the system’s mission? We were able to bring our insights and experiences to bear in a way that felt very productive and provocative—and the feedback from the executives was terrific. Whether or not outside advisors are involved, the exercise of taking the executive team offline for a day of probing discussion is incredibly valuable—one that every system team should make time for.


BINGE WATCH ALERT

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

This week, one of our favorite TV shows came to an end—which makes it a perfect time to go back and re-watch the entire series again. The Americans, which enjoyed a six-season run on the cable channel FX, wrapped up the story of Philip and Elizabeth Jennings, a married KGB couple raising a family under deep cover in the Washington DC area during the Reagan administration. Working in the same tradition as the Godfather movies and HBO series The Sopranos, the show’s creators skillfully put viewers in the position of rooting for—and empathizing with—the “bad guys”.

As depicted by real-life married couple Matthew Rhys and Keri Russell, the Jennings struggled through the quotidian challenges of raising teenagers in 1980’s America while secretly running covert operations and staying one step ahead of their next-door neighbor—and FBI counterintelligence officer—Stan Beeman. Powered by a strong supporting cast and an eye for the smallest detail, what made the show such a success was its authenticity on every level: as a family drama, as a period piece, and as an espionage thriller. (The Soviet tradecraft on display throughout the show’s run was right on point; not surprising, given that the show’s creator is himself a former CIA officer.) If you haven’t been a regular devotee of the show, it’s definitely worth watching in its entirety.


WHAT WE’RE READING

Stuff we read this week that made us think.

(Back to) the “operating room of the future”

The lead article in a recent Wall Street Journal series on health innovation detailing the “Operating Room of the Future” caught our eye this week. We’ve closely followed the proliferation of new clinical technologies in the surgery space across the past twenty years, and to put it bluntly: if what’s described here is the future, we’re a little underwhelmed. Many of the innovations profiled were not uncommon in health system capital plans a decade or more ago: stereotaxis that enables in-field imaging, hybrid ORs that combine open and minimally-invasive capabilities, and of course, da Vinci robots. All of these innovations have struggled to deliver on their initial promise of quality and efficiency. Robotic surgery, in particular, has not demonstrated significant benefits over traditional surgery, despite the seven-figure cost. What lies beyond remains vague, with references to “Surgery 4.0”, a nod to artificial intelligence (of course), and in the words of Intuitive Surgical’s CEO, “increasing collaboration and control between the computer and the surgeon”.

Ten years ago, the average community hospital was budgeting for multiple 64-slice CTs and da Vinci robots. Given current cost pressures, health systems and physicians must give additional scrutiny to multimillion-dollar technologies, to ascertain if they actually deliver improved outcomes relative to cost. And they’ll need to educate patients not just to seek the newest, but also the best-value treatment options.

(Side note: The OR “innovation” most likely to deliver value was buried in the article—easy-to-clean stainless-steel walls and terrazzo floor tiles that don’t support bacterial growth. These promise to reduce infections and should probably be a part of the design of most new surgical suites.)

Kaiser sets a new benchmark for digital care delivery 

From that same special section of the WSJ, we were intrigued by an interview with Kaiser Permanente CIO Dick Daniels, in which he revealed that nearly six out of ten of the health system’s 131M “patient interactions” are now virtual. Kaiser patients can manage a full range of needs online, from refilling a prescription to having a face-to-face physician visit; two-thirds of all online interactions are now mobile. Digital innovation also shapes in-person visits. Patients can check in online and pay copays before an office visit. In the hospital, physicians now view patient data on a tablet outside the room, enabling them to personalize the visit. Inside the room, an interactive screen allows patients to access resources from meal orders and movie streaming to physician-prescribed virtual consults.

Daniels describes the integrated digital experience as central to Kaiser’s strategy to engage individual consumers, as more patients access insurance coverage directly rather than through their employer. In other conversations, Kaiser leaders have told us that digital interactions are one of the strongest drivers of creating an ongoing relationship with consumers, “making them Kaiser members for life”. While the market looks to tech giants and start-ups for innovation, Kaiser has made great strides not just in developing point solutions to solve discrete care needs, but in building a full digital experience. In their markets they are setting expectations for access and convenience that will quickly spread beyond their 12M patients. Kaiser’s fully-integrated, salary-based model surely removes some of the barriers that other providers face when adopting digital platforms. Regardless, health systems who wait for changes in payment or physician receptivity before adopting a digital platform will likely lose patient visits entirely as they seek virtual care elsewhere, and they’ll miss the larger opportunity of creating a deeper ongoing relationship with their customers.

“You’re stupid if you don’t get scared” of Amazon

We spend a lot of time in healthcare these days talking about—and worrying about—Amazon. There’s been a lot of speculation about whether, when and how the online giant will make its mark on our industry, and a lot of legitimate anxiety (or viewed differently, optimism) about Amazon’s potential to disrupt incumbents in healthcare. Yet if you asked most people what business Amazon is really in, they’d probably say “e-commerce”—not so. Amazon is really a giant, very profitable cloud computing company, with a sideline business in online sales (that barely manages to break even). That’s the picture painted by a fascinating new piece from the Wall Street Journal. The article describes, in some detail, the economic engine behind Amazon’s success: Amazon Web Services (AWS), which generates 73% of the company’s overall profits.

The article provides an intriguing view inside AWS and describes the ways in which the company has positioned itself as both partner and competitor to other firms. With more than 40 percent of the world’s public cloud-computing marketplace, and giant data centers worldwide, AWS provides server capacity and web services to many, many companies—including some of Amazon’s largest competitors. For example, one of Amazon’s biggest AWS clients is Netflix. When you stream a movie to your home using Netflix, that movie is delivered to you via an Amazon server. At the same time, however, Amazon is a major competitor to Netflix—offering its own streaming movies and TV shows as part of its Prime membership. Indeed, when Amazon introduced monthly pricing for Prime memberships last year, analysts largely viewed that shift as a way of enabling consumers to directly compare Amazon and Netflix prices (to Amazon’s advantage). That same friend-and-foe dynamic plays out again and again across Amazon’s business. As the company looks to enter healthcare, our industry would do well to heed the lesson here—expect Amazon to offer partnership opportunities and collaborative ventures, even as it positions itself to compete head-to-head at some point with its healthcare partners.


Thanks again for reading the Weekly Gist. We really appreciate all of your kind words and feedback—it’s a labor of love each week, and we’re so grateful you’ve taken the time to read it. Please forward to friends and colleagues if you’ve found it worthwhile—and don’t forget to subscribe if this is your first time reading it. We’d love to hear your suggestions, too—what have you read, watched, and heard this week that made you think?

Most importantly, if there’s anything we can do to be helpful in your work, please 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