|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
CVS continues its aggressive expansion of HealthHUBs
In a televised interview with CNBC’s Jim Cramer this week, CVS Health CEO Larry Merlo provided an update on the progress the pharmacy chain is making in rolling out its new HealthHUB offering, the expanded care clinics it is positioning as the centerpiece of its patient engagement strategy. (We’ve written extensively about CVS’s strategy and the HealthHUB concept previously, including a first-hand report on what the clinics look like.) Merlo told Cramer that the company has now opened 50 HealthHUBs in four markets in Texas, Georgia, Florida and Pennsylvania, and has plans to open hundreds more by the end of 2020, opening new locations at a rate of about 12 per week across the year. New markets this year will include Boston and Dallas, as well as locations in North Carolina, Virginia, and Ohio. The company plans to have 600 locations by the end of this year, and 1,500 by the end of 2021. Speaking at the JP Morgan healthcare conference this week, Merlo confirmed that the HealthHUB rollout strategy is tightly linked to the concentration of Aetna enrollees in target markets, enabling the company to redesign benefits to offer Aetna members low-cost access to care at CVS locations. “We’re really excited about what we’re seeing from the consumers,” Merlo told Cramer. “We’re seeing increased traffic in the stores, we’re seeing higher front-store margins, and we are seeing terrific utilization of the health-related services.” We remain bullish on CVS’s strategy with the HealthHUB concept, which is has the potential to be the largest national-scale payer-provider integration, built around a new, access-forward care model. We also continue to believe CVS would be an interesting partner for incumbent health systems, who could build tight connections with CVS’s front-end offerings, thanks to the retailer’s use of Epic for its electronic medical record. Based on Merlo’s comments this week, it looks like we’ll be keeping the “CVS beat” busy in future editions of the Weekly Gist.
Oscar and Cigna partner to tackle the small business market
Oscar, the technology-driven, consumer-focused health insurance startup, and the traditional insurer Cigna announced this week they will be teaming up to offer health benefits to small businesses. While details on the exclusive partnership are sparse, the two companies plan to offer a co-branded product that unites Oscar’s tech-enabled services and features Cigna’s large healthcare networks beginning in a handful of yet-to-be-announced markets in 2020. New York City-based Oscar, founded in 2012, currently offers plans in 15 states and is mostly known for individual exchange plans, though it recently expanded into Medicare Advantage (MA) in New York City and Houston. Partnering with Cigna allows Oscar an opportunity to both penetrate the commercial market and expand its footprint nationally—a strategy to help meet the growth expectations of its investors at a pace it cannot achieve through organic growth alone. This is not the first time Oscar has partnered with a national payer in the small business space. In 2017, the company piloted a product with Humana in the Nashville, TN market, although that partnership is no longer active. It’s worth watching to see how successful Cigna and Oscar are in the small group market, which covers about 15M Americans, particularly given Oscar CEO Mario Schlosser’s prognostication this week at the JP Morgan healthcare conference that we will eventually see a “disappearance of the employer market”.
A quality problem with surgical gowns disrupts patient care
Cardinal Health, one of the nation’s largest medical supply distributors, this week initiated a widespread recall of surgical gowns used in many US hospitals. In coordination with the Food and Drug Administration (FDA), the supplier informed its customers that the Level 3 surgical gowns—commonly used by surgical personnel to prevent microorganism transmission and control infections—did not meet sterility standards due to conditions at a plant where the gowns are manufactured. Cardinal ceased distribution of the gowns last weekend, leaving many hospitals and surgery centers scrambling to secure alternative sources. In a statement, the FDA’s Dr. Jeffrey Shuren said the agency is working with Cardinal to investigate the causes of the quality problem and noted that “this issue may already be impacting patient care at healthcare facilities, such as the cancellation of non-elective surgeries.” We can confirm that’s true, having first heard of the problem from one of our member executives during a visit this week. Not only had the system been forced to reschedule surgeries, but they were coordinating with other local hospitals, including competitors, to share existing supplies of surgical gowns. The incident highlights just how tight the supply chain operations of many hospitals have become, with just a few day’s supply of many critical items on hand, and how heavily they rely on the three dominant supply distributors (Cardinal, AmerisourceBergen, and McKesson). A disruption in the supply of seemingly common items, such as gowns, can reverberate quickly through the nation’s health system and cause disruptions in patient care. It is reassuring to note, however, that in these situations it’s common for otherwise fiercely competitive healthcare provider organizations to work together to minimize the impact on delivery of care.