October 15, 2021

The Weekly Gist: The Final Frontier Edition

by Chas Roades and Lisa Bielamowicz MD

As you’ve no doubt heard, this week William Shatner became the oldest person ever to go to space, at 90 years old. Thanks to a brilliant bid for free publicity by Star Trek geek and galaxy’s richest human Jeff Bezos, Captain Kirk blasted into the stars aboard a Blue Origin rocket for a 10-minute ride that he described, upon landing, as “the most profound experience”. Shatner’s remarks after touching down were suitably Shatner-esque, with the veteran actor tearfully and dramatically emoting about the fragility of life, the blackness of death, and little green men. We won’t lie, we were moved, despite how over the top the entire spectacle was. But it still can’t touch our favorite Shatner moment, that time he sang Elton John’s “Rocket Man” at the 1978 Science Fiction Film Awards. If you haven’t seen it, the video is everything. Shatner’s part starts at the 0:50 mark, but fast forward to 4:05 for the real treasure. Where was that Shatner this week?

THIS WEEK IN HEALTHCARE

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

More boosters approved as the pandemic continues to ebb

Today a Food and Drug Administration (FDA) advisory panel voted unanimously to recommend a second shot of Johnson & Johnson’s (J&J) COVID vaccine for people over the age of 18 who received their first J&J shot at least two months ago. The move came a day after the panel also voted to approve boosters for Moderna vaccine recipients, following the same criteria it used earlier to approve use of a booster for the Pfizer-BioNTech shot. The booster recommendations must now be endorsed by the FDA, and then a Centers for Disease Control and Prevention (CDC) panel will make its recommendations for booster rollout, likely next week. FDA officials said they would also consider a mix-and-match approach for those who received the J&J, pointing to new evidence that Pfizer and Moderna shots are very effective in boosting immunity in those previously vaccinated with the J&J vaccine. Some 77 percent of eligible Americans have now received at least one vaccine dose, according to the CDC, and in a press conference this week, Biden administration officials said that the number of unvaccinated Americans had declined from 97M to 66M since the President first announced vaccine mandates in late July. Meanwhile, COVID numbers continue to trend in a positive direction: over the past week, new cases are down more than 12 percent, test positivity rates are down 4 percent, and hospitalizations are down 8 percent. While an alarming average of 1,434 Americans have died each day over the past week, that average is down 13 percent from a week ago. More boosters, more vaccines, fewer cases, hospitalizations, and deaths—we are continuing to see the Delta wave ebb, and the prospect for a more normal holiday season lies ahead. Now let’s hope there are toys on the shelves, and that prices aren’t too high.

Walgreens Health takes shape with big new investments

Pharmacy retailer Walgreens announced two moves on Thursday that will position the company to join competitor CVS Health as a major player in the healthcare delivery space. First, expanding a venture started in 2019, the company agreed to invest $5.2B in value-based primary care provider VillageMD, increasing its ownership stake from 30 percent to 63 percent. VillageMD operates Village Medical clinics at 52 of Walgreens’ 9,000 locations, with plans to open another 33 by the end of this year. In making its initial investment in the company last year, Walgreens announced plans to open between 500 and 700 clinics before 2025, and 1,000 by 2027; the new investment presumably gives Walgreens more control over the pace of that rollout. Village Medical clinics are staffed by VillageMD primary care physicians and other clinical personnel, and accept multiple insurance plans, as well as caring for cash-paying patients. The clinics typically take up about a quarter of the space in a Walgreens store, and are designed to care for 100 to 120 patients per day. Walgreens has targeted care for patients’ chronic conditions as a key area of focus, leveraging linkages between the clinics and the company’s pharmacy operations. Given the scale of Walgreens’ national operation—75 percent of Americans live within 5 miles of a store—the VillageMD partnership has the potential to make Walgreens a major provider of primary care services across the country, positioning it as yet another major “disruptor” targeting incumbent healthcare players (provided they can find the clinician manpower to staff up).

During an investor call Thursday, Walgreens executives said that VillageMD would become part of a new business segment called “Walgreens Health”, which will also include home health benefits management company CareCentrix. A $330M investment in CareCentrix was also announced this week, giving Walgreens a 55 percent ownership stake, with the option to purchase the rest of the company later. Walgreens plans to leverage the company to manage the transition of patients from inpatient to home-based settings, while more tightly integrating pharmacy management into patient care. Last month, Walgreens also increased its ownership stake in Shields Health Solutions, with a $970M investment that gave it a 71 percent ownership stake in the company, which works with hospital systems to handle specialty pharmacy care. With all these recent investments, and the repositioning of care services into a separate business segment, Walgreens is clearly stepping up its efforts to manage patient care across the continuum, bringing its consumer engagement and convenience care capabilities to bear as it vies for a growing share of the healthcare dollar.

Best Buy to acquire digital health company Current Health

On Tuesday, electronics retailer Best Buy announced plans to acquire digital health company Current Health, adding to its portfolio of home-based care services targeted toward seniors. Founded in Scotland in 2015, Current Health aims to connect remote monitoring, telemedicine and patient engagement capabilities in a single, home-based platform. The company has a growing US presence, working with health systems including PA-based Geisinger, and Mount Sinai Health System in New York. This deal builds on Best Buy’s 2018 acquisition of GreatCall, whose services included home telemonitoring and the senior-friendly Jitterbug cell phones. Best Buy is banking that its Geek Squad workforce, already welcomed into consumers’ homes to set up WiFi and troubleshoot computer issues, can be leveraged as a “last mile” strategy to deploy its growing portfolio of remote monitoring, communication and care management technology. While it remains to be seen whether the company will figure out how to scale, integrate and profit from their expanding healthcare services, they will likely find an increasing number of partners among health systems and insurers looking for a digital and home care solution for their Medicare Advantage populations. And if they are successful, the company’s evolution from a big-box electronics retailer to an enabler of home healthcare solutions would be one of the more compelling corporate transformations on record.


GRAPHIC OF THE WEEK

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

The investor landgrab for physician practices

As consolidation among physician practices continues apace, investor-driven acquisitions have been heating up. According to a recent USC-Brookings Schaeffer Initiative for Health Policy report, private equity (PE) deals have dominated the acquisition frenzy. As the graphic below shows, there have been four distinct waves of PE-driven investment. The first wave, beginning in the early 2000s, targeted hospital-based physicians, like anesthesiologists, emergency physicians, hospitalists, and radiologists. These “hospital-based supergroups” could offer a broad range of physician support and coverage through a single group. In some markets, a single group grew to be the sole provider of key services, resulting in significant contracting leverage. Investor interest then shifted to office-based specialties, such as dermatology and ophthalmology, to capitalize on high-margin, cash-paying, procedures. More recently, PE firms have homed in on the shift of procedures from hospital to outpatient settings, targeting gastroenterologists and orthopedic surgeons who can move volume to ambulatory surgery centers—taking a bite out of hospitals’ most profitable service lines. At the same time, investors have also been backing risk-based primary care practices that manage large panels of Medicare Advantage patients, capturing cost savings from keeping patients out of the hospital.

Regardless of which specialty they’re targeting, private equity’s modus operandi is the same: leverage scale to cut costs and increase efficiencies, boost profitable volume—and then sell for a profit. In 2019, the median holding period for healthcare deals was roughly four years, but that has been declining. An important caveat for doctors looking to sell: PE firms are not long-term owners of practices, instead playing a roll-up function that leads to another transaction with an insurer or larger investor—often with little input from their physician “partners”.


THIS WEEK AT GIST—ON THE ROAD

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

What does Optum’s strategy tell us about the value of system scale?

We’ve been hearing quite a bit this week from the health system executives we work with about the newly announced deal between St. Louis, MO-based SSM Health and UnitedHealth Group’s (UHG) Optum division. Under the terms of the arrangement, SSM plans to outsource its revenue cycle, care management, and digital platform operations to the fast-growing services arm of UHG, with some 2,100 SSM employees to be rebadged as Optum employees. In general, the reactions we’ve heard have been quite skeptical; as one system CEO put it, “It’s like SSM is just waving the white flag, deciding that ‘if you can’t beat ‘em, join ‘em.’” We heard from several systems that they had been pitched a similar arrangement over the past few years, with the promise of reducing expenses while allowing the systems to remain independent. A handful of smaller systems have taken Optum up on the deal, including John Muir Health in California, Boulder Community Health in Colorado, and Bassett Healthcare Network in New York. But the deal with SSM, which operates 23 hospitals across four Midwestern states, is the largest to date.

A particular source of skepticism in the discussions we’ve had about this kind of arrangement is giving up access to sensitive revenue cycle data. “You’re putting a lot of trust in the United firewall,” one CEO told us. “I certainly wouldn’t give up my data to my largest payer.” To some extent, we share that concern; there is a certain fox-in-the-henhouse appearance to these partnerships, though it would be irrational for UHG to overtly use that data in a way that discouraged others from collaborating with it. What we’re more confused by: isn’t achieving back-office scale one of the big reasons hospitals join a larger system? What does it say about health system value if an organization of this size still feels the need to outsource to this extent? Further, if you’re outsourcing your digital platform (i.e., how you engage with patients), care management (how you take care of them) and revenue cycle (how you get paid)—what’s left? The question of how best to leverage scale to deliver value seems to us to be one of the big unresolved issues facing healthcare. Meanwhile, we continue to be awed by the audacity of UHG’s Optum strategy, at least as it appears from our outside perspective: assemble the nation’s largest collection of delivery assets, which, when coupled with the insurance arm, allows you to both compete with and commoditize hospital systems—all the while selling those same hospitals services and data. We’ll be watching with interest to see whether UHG can bring those pieces together successfully, in a way that reduces the cost of care and improves quality and experience for patients.

Speculating on private equity’s next physician target

We recently caught up with a consultant colleague who mentioned he’s been contacted by a growing number of independent cardiologists fielding offers from investors looking to purchase their practices. “The PE [private equity] guys have been marching through all of these procedure-based specialists,” he shared. “Derm, orthopedics, GI…it makes sense that cardiology would be next.” We agreed that cardiology has the elements investors are looking for, specifically a large procedural book of business with an accelerating shift to outpatient settings. But the specialty brings more complexities to deal structure and future returns. Heart and vascular groups are less homogenous, and medical management of conditions like congestive heart failure accounts for a greater portion of patient volume. Much more of the business relies on the inpatient hospital. And compared to other proceduralists, many more cardiologists are already employed by health systems. Our colleague speculated this wouldn’t stop investment, and that if they see their independent colleagues getting top-dollar deals, hospital-employed cardiologists could be lured away: “Noncompete agreements aside, most employed cardiology groups operate as pretty autonomous units, and it wouldn’t be that difficult for them to ‘secede’ from the medical group.” For health systems, this potential “PE roll-up” might have the greatest impact yet, given how important cardiology is for both the business and clinical success of hospitals. Strengthening relationships around a common vision for service line growth is more critical than ever, since cutting ties with an essential cardiology group after an investor acquisition may not be a feasible option.


THIS WEEK AT GIST—ON THE PODCAST

All the headlines in healthcare policy, business, and more, in ten minutes or less every weekday morning.

In the first episode of our series about the impact of private equity physician practice acquisitions on the healthcare market, we heard from Anthony D’Eredita, founder and CEO of consulting firm TrustWorks Collective. He discussed the hyper-competitive market for practices, and how health systems are being outbid by deep-pocketed investors.

Some have warned that the rapid growth of PE-backed practices is reminiscent of the rise and fall of physician practice management companies of the 1990s. Coming up on Monday, we’ll hear from Peter Kindrachuk, a former PhyCor executive, on how today’s trend compares to what happened back then.

[Subscribe on Apple, Spotify, Google, or wherever fine podcasts are available.]


BINGE WATCH ALERT

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

Sci-fi geeks of a certain vintage are enjoying a golden age right now, with the big-budget production of Isaac Asimov’s Foundation series now in full swing on Apple TV+, and Dennis Villeneuve’s new interpretation of Frank Herbert’s Dune set to launch on HBOMax and in theaters next week. Villeneuve’s Dune has made the bigger splash, even in advance of wide release, earning critical acclaim at the Venice Film Festival and featuring the star power of Timothée Chalamet, Zendaya, Josh Brolin, and Javier Bardem. But it’s the work of showrunner David S. Goyer, who has wrestled Asimov’s brainy, sprawling Foundation novels into a prestige TV series worthy of replacing Game of Thrones in your weekly geek diet, that merits immediate attention.

A notoriously dense epic spanning galaxies and millennia, Foundation puts the narrative arc of Gibbon’s Decline and Fall of the Roman Empire into space. His early 1950s novels tell the story of a hyper-rational mathematician named Hari Seldon, whose theory of “psychohistory” not only predicts the eventual decline of the galactic empire, but also offers a plan to shorten the dark ages that will follow, by seeding a new civilization at the far reaches of space. (Interestingly, Herbert wrote his Dune series largely in reaction to Asimov’s Foundation, favoring a hero-centric view of history over Asimov’s deterministic, mechanical vision.) Characteristic of Asimov, Foundation is a tale more concerned with ideas than action, which makes Goyer’s interpretation even more impressive. Replacing the books’ male-dominated cast with strong female characters, retooling the plot to fit a more conventional TV season structure, and introducing a clever way of keeping characters around across the sweep of centuries—an unending sequence of genetic clones serve as Emperor, three at a time—the show deftly turns Asimov’s work into a visually appealing drama accessible to viewers unfamiliar with the books. The performances are terrific, with Jared Harris perfectly cast as the hyper-rational and egotistical Seldon, Lee Pace as the dominant Emperor of the perpetual triumvirate, and Leah Harvey as the action-hero leader of the nascent civilization fighting for survival. Goyer has designed the show as a seven-season arc, and Apple has already picked up the second season, so now’s a great time to immerse yourself in the fascinating world of Foundation.


WHAT WE’RE READING

Stuff we read this week that made us think.

An epidemic of workplace violence in hospitals

Navigating the emotions of life and death situations, hospital workers are no strangers to outbursts of violent behavior in the ED and other high-stress care settings. A new report from Kaiser Health News reveals how formerly sporadic violent outbursts have become pervasive during the pandemic, leaving many healthcare workers concerned about their safety. Even before the pandemic, healthcare workers accounted for 73 percent of all non-fatal injuries from workplace violence. And that’s probably a significant undercounting of violent episodes—in many places, clinical workers simply assume that dealing with patient assaults “comes with the territory”, and don’t report incidents. COVID has brought together a maelstrom of factors that have increased threats to workers. The politically charged environment exacerbates the already stressful situation of a family member facing serious illness. Masking rules and visitor restrictions further aggravate some patrons. Doctors report that the illness itself increases the risk of a patient, disoriented from hypoxia and isolation, becoming violent. And with staff stretched thin, nurses have less time to spot worrisome situations and deescalate aggressive behavior. A rising number of patients with acute mental health needs has also increased the risk of violence.

Some states like California have implemented stiffer penalties for those who commit violent acts against healthcare workers, but only a handful of states require tracking and reporting of violent patient incidents. Nursing unions are pushing the US Senate to pass the Workplace Violence Prevention for Health Care and Social Service Workers Act, which passed the House last spring. The bill would extend protections to workers nationwide and require hospitals to develop plans to reduce violence. With caregivers already under intense pressure amid the stress of the pandemic and staffing shortages, dealing with the threat of workplace violence is incredibly demoralizing, and could be a tipping point for those considering leaving the healthcare workforce altogether.


We’ll leave it there for this week. Thanks for taking the time to read the Weekly Gist! We’re so grateful for our loyal readers, and your willingness to share our work with your friends and colleagues. Please encourage them to subscribe, and to listen to our daily podcast—and don’t forget to let us hear from you. It’s always great to get your feedback and suggestions.

Most importantly, please let us know if we can be of assistance in your work. 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