March 30, 2018

The Weekly Gist: The Everyday Low Prices Edition

by Chas Roades and Lisa Bielamowicz MD

Tomorrow marks the end of our first official quarter of operations at Gist Healthcare. Whew! It’s been a whirlwind education in launching a new venture, but we’re so grateful for the incredible support we’ve received, and we’re having so much fun! Thankful for spring break with family this week, though—recharging our batteries for the work ahead.

The topsy-turvy healthcare industry didn’t take the week off, however—it seemed like every day brought another big development in the news. We’ve tried to capture some of it in this edition of the Weekly Gist, along with letting you know what we’ve been thinking about and working on lately. Thanks for the great feedback on these email updates so far—please forward this one along to a colleague if you find it valuable, and don’t forget to subscribe if you’ve received it from someone else. Let’s get right to it!


THIS WEEK IN HEALTHCARE

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

“Every Day Low Prices”—coming to healthcare?

The dizzying pace of deal activity in healthcare continued this week, as the Wall Street Journal reported that giant retailer Walmart is in talks about a partnership with—and perhaps an acquisition of—the insurance company Humana. The news comes on the heels of CVS Health’s planned acquisition of Aetna, and in the midst of Humana’s own pursuit of an ownership stake in the postacute provider Kindred Healthcare. Walmart has long been interested in the healthcare space, with a major retail pharmacy operation of its own, primary care clinics in a handful of its stores, and ongoing partnerships with health systems around the country.

The Walmart-Humana combination would create a major new force in the healthcare, with the potential to disrupt insurance, physician practice, hospital referral patterns, and much more. As the largest private employer in America, Walmart could reap a double reward by developing the ability to manage healthcare costs—both for its customers and its employees. Humana would gain a massive distribution channel for its Medicare Advantage plans, and a low-cost clinic and pharmacy platform for its senior enrollees. Longer term, the company could develop a range of low-cost insurance products and care networks sold directly to consumers in Walmart stores. To give a sense of the magnitude of disruption Walmart could bring to bear, their pilot in-store clinics offer basic primary care to their own employees at $4/visit, and to shoppers at $40/visit.  The sheer size of Walmart makes the deal a game-changer, and if successful the deal could have lasting consequences for the way US healthcare is organized.

Pressing pause on a major health system merger

In other deal-related news, the national Catholic health system Ascension has reportedly decided to put its plans to merge with Providence St. Joseph Health on hold. The deal would have created the largest hospital company in the US, with nearly $46B in revenue and more than 190 hospitals in 27 states. Earlier, reporting on corporate operating performance, Ascension executives signaled a shift in focus away from further investment in hospital assets, amid concerns about cost pressures and changing patient utilization. Other major, multi-state hospital system mergers are still underway, with more expected to come. While details on the decision to postpone or cancel the Ascension-Providence deal were not forthcoming, the announcement highlights a concern that we’ve heard from a number of executives involved in these mega-mergers. Negotiating and concluding a deal of this kind is a major undertaking, and the post-merger integration work can be extraordinarily complex and take years to complete. Health systems considering mergers of this magnitude are weighing the potential value created by such deals against the imperative to maintain intense focus on operating performance in a turbulent marketplace—raising the bar for entering into any new combination.

The cabinet reshuffle hits the Veterans’ Administration

President Trump fired his Secretary of Veterans Affairs, David J. Shulkin this week after weeks of rumors and speculation about whether and when the firing might come. Shulkin ultimately learned of his fate on Twitter, as have a number of other senior Administration officials who’ve been let go recently in the ongoing shake-up by the White House. But Shulkin, a physician who came to the VA during the Obama years after a long career in hospital administration, did not go quietly. In a sharply-worded piece in the New York Times, Shulkin asserted that he was fired because of his opposition to privatizing healthcare for veterans, a policy priority of many on the right. The VA is a massive, highly-specialized part of our larger healthcare system—one that has suffered from mis-management and under-investment for years, even as demands on the system have grown. Fixing veterans’ healthcare deserves the attention of our best and brightest health system leaders, and the loss of a leader like Dr. Shulkin is an unfortunate step in the wrong direction.


GRAPHIC OF THE WEEK

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

Healthcare leaders eye Amazon with both envy and fear—envy over the incredible consumer loyalty the online giant garners, and fear of the kind of disruption Amazon could create for incumbents. If five years ago everyone was in search of “Uber for healthcare,” there’s no doubt that today’s obsession is how to become “Amazon Prime for healthcare.” One key ingredient of Amazon’s success, however, will require a significant shift in thinking for traditional healthcare providers. The trend in healthcare is toward aggregation of delivery assets into single companies, who look to “own” larger parts of the value chain.

Amazon’s approach is different—it looks to aggregate products and service through curation and partnership, rather than ownership. That’s how it’s able to be the “everything store” for consumers, serving as a curated marketplace of vendors, and focusing on vetting and enabling those vendors against a high standard of service, quality and price. More than two-thirds of the products purchased on Amazon are sold by someone else—Amazon is the gatekeeper. That’s a lesson well worth learning for health systems: we can’t own everything, so we’d often be better off serving as the gateway between high-value care delivery partners and our patients.


THIS WEEK AT GIST—ON THE BLOG

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

The Coming Wave of Medicaid Waivers
As Medicaid cost growth continues to intensify, states are likely to pursue a number of waiver-based eligibility reforms that will limit enrollment and access to benefits—with real consequences for patients and providers

The Promise and Peril of Hospital Mega-Mergers
The recent trend toward health system consolidation and hospital mega-mergers has the potential to be positive for healthcare, as long as the logic of scale shifts from creating pricing leverage to creating value for consumers


THIS WEEK AT GIST—ON THE ROAD

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

In the Wild West of urgent and emergency care

Lisa:
I’m in Houston with my kids visiting family for spring break. With one of the most favorable regulatory environments for investor-owned care facilities, Texas has been flooded with urgent care, freestanding EDs, and microhospitals. We counted fifteen urgent care providers and freestanding EDs, or FEDs, on one five-mile drive through the north-Houston suburbs.

FEDs in particular have been under fire for charging hospital rates for minor care needs with inadequate price transparency. With FEDs frequently out-of-network, patients can be blindsided with huge bills. A recent study estimated 75% of patients treated in FEDs could be managed by urgent care—and the FED price for those services was ten times higher. While many are clearly looking to profit by charging hospital rates for minor conditions, FEDs can have a place in a consumer-focused health system, but the burden is on providers to educate consumers on what conditions necessitate ED-level care, to direct patients to the appropriate level of care, and to ensure transparent pricing.

PS: My 12-year old would like to pass along his frustration that his mother still “thinks and talks about healthcare all the time, even on vacation.”

From “2020 Vision” to an uncertain look ahead

Chas:
This week I started work with a super-regional health system on refreshing their strategic plan. Like many organizations, they’ve spent the past several years executing against a ten-year strategic framework pegged to 2020. (I’ve seen so many of these “2020 Vision” documents at this point I’ve lost count.) As the expiration date on the old plan approaches, they’re launching a year-long effort to develop a new vision for the health system—a chance to inventory where they are now, what’s happening in their markets, and where they’d like to take the system next. Two observations thus far: the environment has changed so much over the last ten years that they’re questioning the very role a health system will play in the future; and they’re realizing that planning for another 10-year horizon is simply too uncertain—instead aiming to set compass for just the next five years.


WHAT WE’RE READING

Stuff we read this week that made us think.

A look at the uninsured in America in 2018

The talented healthcare team at Bloomberg launched a major new project this week, focused on telling the stories of the uninsured in the US. The first installment is a terrific piece recounting the experience of three families, in Arizona, North Carolina and Louisiana, who have joined the growing ranks of Americans that have fallen into the cracks between private and public insurance coverage. As one of the people interviewed put it, “We’re not poor people but we can’t afford health insurance.” As the cost of care continues to increase, and consumers shoulder more of the burden of paying for healthcare, it’s critical to understand how families are dealing with tough trade-offs between seeking care and paying for other necessities. This series promises to provide powerful examples of why our healthcare system needs to address the unsustainable cost of care.

For states in budget crisis, all roads lead to Medicaid

Half of states face budget shortfalls in 2018, and unlike the federal government, states have to balance their budgets. An analysis in the Wall Street Journal identifies skyrocketing Medicaid and pension costs as the main drivers of budget pressures. As the federal government looks to shift accountability for Medicaid cost growth onto states, this pressure will only intensify, crowding out spending on education, infrastructure, law enforcement and other priorities. Given that promises to invest in schools and cops, not healthcare for the poor, win state elections, fierce budget battles are likely. As we discussed this week, look for budget-strapped states to take advantage of the Trump administration’s willingness to issue waivers for work requirements and other policies that raise the bar for Medicaid eligibility, in order to curb spending.

Some light (but stinky) reading for the weekend

Continuing my journey through the mounting stack of unread magazines, I happened upon a delightful (and incredibly well-written) article about…stinkbugs! Timely, as the annual springtime invasion has begun again in the DC area. It would stretch credulity to attempt some connection between healthcare and an 8,000-word New Yorker piece on the brown marmorated stinkbug, so I won’t try. But if you have the time, and a strong stomach, I’d highly recommend taking a look—it’s everything you didn’t know you wanted to know about stinkbugs.


Thanks again for taking time to read the Weekly Gist. Enjoy the holiday weekend—baseball, brunch, basketball, or just relaxing with family. We’ll look forward to hearing from you with your thoughts, comments and feedback; and of course, don’t hesitate to reach out if we can be of any assistance. 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