|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
Florida hospitals grapple with the impact of Hurricane Michael
Bearing the brunt of one of the most powerful storms ever to hit the mainland US, four hospitals in Florida were forced to close down this week and dozens of others were without electricity and operating on generator power. Panama City, FL-based Bay Medical Center, a 323-bed hospital operated by Sacred Heart Health System, evacuated 200 patients to hospitals in Pensacola, Jacksonville, and Mobile, AL, including nearly 40 patients from its intensive care unit. The hospital sustained significant damage from the storm, but as of Friday afternoon its emergency department was open and accepting patients, according to a Twitter update from the facility. HCA’s 238-bed Gulf Coast Regional Medical Center, also in Panama City, was forced to evacuate patients as well, although its emergency department also remained open as of Friday. Personnel at the hospitals most impacted by the storm described widespread damage, rapidly-deteriorating conditions, and a scramble to address the needs of the most critically-ill patients as the situation worsened. At Bay Medical Center, 1,500 local residents sought shelter at the hospital even as patients were being evacuated.
As the communities affected by Hurricane Michael continue to dig out from the wreckage of the storm, and recovery and cleanup operations get underway, the bravery and commitment of medical personnel who rode out the storm at these hospitals and other facilities provides yet another example of how critical their work is. At a time when healthcare providers are often vilified by pundits for delivering expensive, inefficient, and questionable care, it’s important to remember how much we rely on hospitals, doctors, nurses and other healthcare professionals to be there in times of need. We expect emergency departments to remain open and accessible at all times, and to provide care to all regardless of ability to pay. That service comes at a cost, both financial and personal, and we owe a debt of gratitude to those who shoulder it.
The healthcare “Deal of the Year” nears its conclusion
The Department of Justice (DOJ) this week gave conditional approval to the proposed $69B merger between CVS Health and Aetna, clearing the way for the deal to close by the end of this year. The merger still faces state-level regulatory hurdles in New York and Connecticut, but the DOJ’s approval was viewed by industry analysts as the most significant step in finalizing the deal. Having recently green-lighted the merger between Cigna and Express Scripts, the DOJ was widely expected to approve the CVS-Aetna deal as well, signaling that the Trump administration is taking a more favorable view of “vertical”, cross-sector mergers in the wake of the landmark AT&T-Time Warner case earlier this year. The combination brings together the retail pharmacy and drug plan operations of CVS, with about $185B in revenue, and the insurance platform of Aetna, which covers around 22M people and reported revenue of $60B last year. In recent weeks, Aetna agreed to sell its Medicare Part D drug plan to WellCare Health, eliminating an area of overlap that had caused concern for DOJ lawyers reviewing the CVS-Aetna merger. This week’s approval is contingent on the completion of the earlier deal with WellCare.
Once the deal-making is completed, the new organization must align operations into a single entity, a process that lurched forward this week with the unexpected announcement that Aetna’s CFO Shawn Guertin planned to step down in 2019, which followed earlier news that CVS’s CFO David Denton had been hired away by Lowe’s Companies. The combined company’s new CFO (current CVS controller Eva Boratto) will have to move quickly in concert with the rest of the CVS executive team to bring the lofty vision of the merger’s value to fruition. As we’ve written elsewhere, putting the pieces of the two companies together to create a platform that can manage the cost of care for a growing Medicare population will be the main challenge facing the new company. If the combined entity can harness the combination of its pharmacy plans, retail clinics, pharmacists and nurse practitioners, and Medicare Advantage networks, it will pose a formidable threat to incumbent healthcare providers and insurers. Much work lies ahead for the new company.
Nearly 1,300 providers join Medicare’s bundled payment program
This week the Centers for Medicare & Medicaid Services (CMS) announced that nearly 1,300 hospitals and physician groups have signed agreements to participate in the Bundled Payments for Care Improvement Advanced program (BPCI-Advanced). Representing a mix of hospitals and physician practices, these providers will take risk for managing care across a 90-day episode for 32 eligible clinical episodes, including three outpatient episodes. Providers who agreed to a three percent discount off a benchmark episode price have the potential to share in savings for care delivered below the target price, but could be penalized up to 20 percent of the benchmark price should costs go over the target.
Participation in Medicare’s first bundled payment program, or “BPCI-Classic” was initially robust, but over 75 percent of participants dropped out of the program when downside risk kicked in. The strong interest in BPCI-Advanced, which includes downside risk from the start, shows a change in provider risk posture, and will be a critical test of the Trump administration’s theory that increasing downside risk will increase savings to Medicare. We continue to believe that while bundled payments—which are paid at a discounted rate—provide a guaranteed cost savings for CMS, the impact for providers will be mixed. Bundled payments provide an opportunity to align with key specialists, which may provide a springboard to broader service line performance improvement. However, few participants have seen a direct correlation with volume growth.
Moreover, we question whether bundled payments are easily scaled. Our conversations with providers suggest fewer than expected economies of scale in expanding bundles across different service lines and physician groups. Providers would be wise to use bundled payment programs like BPCI-Advanced as a platform to build the relationships, data and expertise needed to deliver consumer-focused care episodes focused on addressing patients’ core problems, which will be critically important in a healthcare marketplace where patients are choosing—and paying for—a growing proportion of their care needs.