March 8, 2019

The Weekly Gist: The First Anniversary Edition

by Chas Roades and Lisa Bielamowicz MD

It’s the first anniversary of the Weekly Gist! We can hardly believe it was just a year ago that we set out to share a few thoughts on the events of the week with a handful of early subscribers. We’re now privileged to correspond each Friday with thousands of readers, and we’re humbled by your praise and encouragement, and the continued expansion of our reach. It’s a labor of love for us, but one that we always look forward to. As part of our work behind the scenes to launch the next phase of growth for Gist Healthcare, we’ve got big plans for our little newsletter, so stay tuned!

THIS WEEK IN HEALTHCARE

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

Forcing providers to reveal their secret prices

As reported by the Wall Street Journal yesterday, the Trump administration is considering a new measure that would force providers to reveal the prices they negotiate with insurance companies to deliver services. Part of a 700-page draft regulation released last month regarding interoperability and information blocking, and intended to implement provisions of the 21st Century Cures Act passed in 2016, the rule would require hospitals, doctors, and other care providers to publish negotiated rates and make them available to patients. The administration is seeking public comment on the proposed rule before May 3rd. The WSJ quotes Dr. Don Rucker, national coordinator for health information technology at the Department of Health and Human Services (HHS), who characterized the proposal as an attempt to “help put Americans back in control of price data”, in order to “empower the American public to shop for their care.” Under the proposal, providers could be fined as much as $1M for blocking information. Starting this year, hospitals have been required to publish their list prices, or chargemasters, in a machine-readable format on their websites, but that requirement has been widely viewed as ineffective and unhelpful for patients, particularly those covered by commercial insurance who typically pay a discounted price negotiated by their carrier.

Reaction to the proposal was mixed. A spokesman for the American Hospital Association warned that revealing negotiated rates could “undermine the choices available in the private market,” while patient advocates hailed the proposal for its potential to enable greater comparison shopping by consumers. The move is part of a larger effort by the Trump administration to increase transparency in healthcare, in order to enable greater consumer choice and to reduce costs by encouraging competition among providers. While we recognize, as research has shown, that price transparency alone will not solve healthcare’s cost problem, we believe the new proposal is a long-overdue step in the right directionWe’d go further and insist on full transparency of pricing across healthcare—among insurers, drug companies, group purchasing organizations, pharmacy benefit managers and others. For all the rhetorical concern about high provider prices, the truth is that the entire industry has profited from high and rising prices for care, leaving consumers and employers holding the bag for outsized inflation for years. Fully transparent pricing would allow third parties to construct truly useful comparison-shopping tools and would surely drive prices downward. Rather than continuing to resist calls for greater transparency, we believe providers should embrace the shift, and put themselves on the side of patients and consumers. Kudos to the team at HHS for advancing this important measure—we hope they go even further.

A key regulator announces his resignation

In a surprise announcement this week, Food and Drug Administration (FDA) commissioner Scott Gottlieb revealed his intention to resign his post at the end of March. His resignation was not anticipated by the Trump administration, and Gottlieb cited a desire to spend more time with his family as the reason for his decision to step down. No immediate successor was named, although it is expected that Gottlieb will be replaced at least on a temporary basis by an acting commissioner while a permanent replacement is sought. In his resignation letter to Health and Human Services (HHS) Secretary Alex Azar, Gottlieb cited his work in fighting the opioid epidemic, cracking down on tobacco use, and addressing underage vaping as key accomplishments. Azar hailed Gottlieb as an “exemplary public health leader”, and President Trump praised him on Twitter, saying “Scott has helped us to lower drug prices, get a record number of generic drugs approved and onto the market, and so many other things.”

Although critics initially worried about Gottlieb’s ties to industry, he quickly proved to be an engaged and aggressive advocate for public health and forged a reputation as a keen regulator in an otherwise anti-regulatory administration. A physician, Gottlieb was particularly outspoken in his attempts to curb tobacco use, looking to reduce the amount of nicotine in cigarettes, limit the sale of menthol cigarettes, and clamp down on the explosion in teenage vaping. Gottlieb was a frequent presence on the conference circuit and a heavy user of Twitter, using his elevated public profile to highlight FDA initiatives on food safety, nutrition policy, drug approvals, and more. His departure has raised concerns that regulatory progress will now stall, and that the tobacco, pharmaceutical, and agricultural lobbies will enjoy greater leeway under his successor. The FDA is an extraordinarily powerful regulatory authority, overseeing as much as one-fifth of the nation’s economy. Scott Gottlieb was a steady, competent steward of that authority—we hope his replacement will prove equally qualified.

A dose of bipartisan advice on addressing healthcare costs

This week a bipartisan group of economists submitted policy recommendations to Senator Lamar Alexander (R-TN), in response to his letter last December soliciting suggestions for actions Congress could take to reduce costs and incentivize improved care and patient decision-making. In a joint letter, economists from the Brookings Institution and American Enterprise Institute (AEI), representing a broad range of political perspectives, recommended thirteen specific actions, largely centered around expanding value-based payment, improving transparency, and increasing competition. The proposals with the best odds of legislative action include measures to eliminate surprise billing (with legislation already submitted to Congress) and support price transparency. Recommendations to limit tax breaks for employer-sponsored insurance are unlikely to gain Congressional traction.

All in all, the AEI-Brookings recommendations included few surprises and were comprised of solutions that have been advanced for years by economists and analysts. There seems to be a growing bipartisan consensus among policy experts on a set of centrist solutions to reduce healthcare spending and reform care delivery—even as Congressional leaders have spent time debating policies promoted by the extremes of their parties, pitting “repeal and replace” against “Medicare for All”. The politics of healthcare have become increasingly polarized, while leaders at the Centers for Medicare & Medicaid Services (CMS) and elsewhere have been steadily working to advance transparency, increase competition, and expand the impact of value-based payment reforms. Moving forward, we’d expect any progress on the expert recommendations to come from regulatory action rather than legislative activity, notwithstanding Sen. Alexander and others seeking input from industry experts.


GRAPHIC OF THE WEEK

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

The state of competition in Medicare Advantage

Last week’s graphic depicted the wide variability in uptake of Medicare Advantage (MA) coverage across the country, with a large proportion of some states’ seniors signed up for private Medicare plans but only a small percentage in other states. This week, we highlight a parallel phenomenon in MA coverage that could have big implications as the Baby Boom generation continues to sign up in large numbers. With half of newly-eligible seniors choosing MA coverage over traditional Medicare, MA enrollees now account for more than a third of the overall Medicare population. With that, we are witnessing a steady, de facto privatization of the Medicare program. Yet as a recent study from the Commonwealth Fund uncovered, seniors have a shrinking number of choices when it comes to selecting an MA plan. According to the study, the average number of insurers offering MA coverage across counties fell from 4.5 in 2009 to just 2.5 in 2017, with the Medicare market share of the top two insurers in each county rising from 81 percent to 91 percent over the same time period. While each insurer may offer a range of different MA coverage options for seniors, competition among insurers is strikingly low. Four carriers—UnitedHealthcare, Humana, Anthem, and Aetna—account for the vast majority of plans offered. “Churn” in MA coverage is minimal, with between 75 and 80 percent of enrollees continuing to participate in the same plan from year to year. This makes robust competition for new enrollees particularly important in ensuring that seniors are getting a good deal from their insurer—and that the Medicare program is getting a good deal, too.

But there are reasons to be optimistic about these data as well. While the county-level average number of insurers offering coverage is low, the average Medicare beneficiary will be able to choose from among 7 insurers in 2019, thanks to relatively high levels of inter-plan competition in major population centers like Los Angeles, New York, and Miami. New firms are continuing to enter the MA business as well: recently Mutual of Omaha announced plans to launch products in a handful of markets in partnership with provider organizations; health systems continue to launch their own MA offerings, and a number of MA-focused startups have entered the market in recent months. That said, the MA marketplace is still oligopolistic, and in many parts of the country there is very little choice on offer. MA is the future of Medicare, and increasingly looks to be the primary means by which the Federal program will contend with the challenge of covering the historically-large Boomer generation. The more options available to seniors, and the greater the competition among insurers, the better-off our healthcare system will be.


THIS WEEK AT GIST—ON THE ROAD

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

The rise of the specialist cartel 

Lisa:
I got a call this week from a Chief Clinical Officer I’ve known for years. He leads physician and clinical strategy for a health system based in a mid-sized city and wanted to share his recent experience on physician consolidation, and specifically the local “roll-up” of orthopedic surgery groups. Historically the area’s ortho services had been split across three physician groups who engaged in friendly competition but cooperated on health system service-line initiatives. This changed a little over a year ago when two of the three groups were acquired by a venture-funded “supergroup” that has aggregated several hundred orthopedic surgeons across a five-state region. Since the acquisition, the top health system doctor feels the new mega-group has been difficult to work with, saying, “Whether it’s for call [coverage], quality, or business discussions, it’s ‘their way or the highway’”. He reached out to us after system leaders heard that another group was looking to roll up ear, nose and throat (ENT) surgery practices. “Is this happening everywhere?” he asked, “And what’s the end game?”

Consolidation among specialist physician practices has been growing for nearly two decades. While much of the activity started with large practices adding practices in adjacent markets to form even-larger groups, there have also been three distinct waves of outside investment looking to profit from aggregating specialists. In the early 2000s, venture-funded groups brought together hospital-based physicians like anesthesiologists, emergency physicians, hospitalists and radiologists. These supergroups aimed to offer the health system the value proposition of broad coverage with a single group, and in some markets grew to be the lone provider of these key services with huge contracting leverage. A few years later, investors turned their attention to aggregating high-volume proceduralists. Specialties like cardiology, orthopedic surgery and gastroenterology expected to see volumes continue to rise with an aging population, and brought valuable assets like outpatient diagnostics and surgery centers. The past few years have seen investors looking to roll up a broad range of office-based specialists, with large regional or even national dermatology, ophthalmology, and allergy conglomerates beginning to emerge across the country.

The value proposition for doctors is two-fold. Joining a “supergroup” promises access to the technology and operational expertise needed to manage in a complex payment and regulatory environment. And the negotiating power of a larger group brings better rates from payers, and more leverage over local hospitals—leading one hospital CEO to compare recent discussions with a local supergroup who is the sole provider of GI services to negotiating with a specialist cartel. How do outside investors plan to make their money? Our conversations with them suggest it’s a pretty basic play that combines better contract rates, improved practice efficiency through outsourced services, and growth of procedural and ancillary revenues. While outside money may be appealing for technology investments and growth, practicing doctors report it often brings acute pressure to increase productivity. Not surprising, given that it’s highly unlikely that private equity investors are looking to be long-term owners of specialty practices—they’re looking for the short- to medium-term returns from increasing volume and efficiency. And ultimately, they’ll be looking for an exit, but it’s not clear who might provide it. In contrast to primary care, insurers have shown little interest in buying specialty practices so far. For health systems, we’d recommend caution. Given the high prices being paid and dollars flowing from outside sources, it’s possible we’re in a “specialty care bubble”—and those who buy now will be doing so at the top of the market.

I bet you think this song is about you

Chas:
Here’s a little peek behind the curtains at the Weekly Gist. We use this “On the Road” section to highlight key lessons that we’ve gleaned from our work with clients—but what we write about doesn’t always come from places that we’ve been that week, and sometimes we combine details from several clients to tease out larger themes that we’ve picked up on in our work. We’re aware that among some readers, it’s become a bit of a parlor game to guess who we’re talking about in this section, and occasionally we’ll share the name of an event or institution. But it’s never our intention to share confidential details, or to call out specific people or organizations here—thus the “fuzzing up” of identifying facts and the composite nature of some of the stories we share. We operate on Dragnet rules here: the names have been changed to protect the innocent.

A call this week from one of our clients convinced me that it would be worth breaking the fourth wall to let you know that. On the same week that I spoke at a board meeting for this client, I shared a series of observations here about scale, competition and the desire of a health system’s board members and leaders to remain independent. In truth, I was describing a composite of different client interactions I’d had over the course of a few weeks—turns out this is a pretty common theme right now among health systems. But the executive who called was convinced I was talking about them, and that I had shared information about their market strategy. I hadn’t, though in retrospect the details I shared in my writing could be construed to describe their situation. I apologized and reassured the executive that I hadn’t intended to refer to them. But they just couldn’t believe it: how could it be that other organizations are in exactly the same market position, weighing exactly the same decisions about strategy and independence?

In that piece, I was combining four recent client interactions. But off the top of my head I could easily name another dozen who are facing the same dilemma: can our system remain independent in the face of consolidating competitors and market disruptors? The same is true of many aspects of health system strategy. Here’s the uncomfortable truth: most health systems are working from a nearly identical strategic playbook. It goes like something like this: We want to remain “relevant” in the market by pursuing scale and investing in “must-have” services. We want to drive growth in the profitable northern (or southern, or western) suburbs. We want closer alignment with referring physicians, and we’re pursuing clinical integration because we can’t afford to employ all the doctors. We’re taking a “wait and see” attitude toward payment reform. We want to remain independent, so we’re pursuing a handful of joint ventures. Our key areas of focus are orthopedics, oncology, neurosurgery, and women’s health (or substitute in cardiac care, or one of a small handful of other profitable services). We’re becoming an operating company, not a holding company. And so forth.

Not to be cynical, but that’s pretty much everyone’s strategy. And it’s not wrong, but it’s far from clear that there’s strategic advantage in pursuing exactly the same set of priorities that every other system is chasing. (This is why, as I suggested recently, we’ve grown disenchanted by “best practice” as an innovation approach—the herd mentality is very strong in healthcare.) But because healthcare is (more conventional wisdom) “all local”, most leaders have a pretty limited line-of-sight across institutions. It’s hard for many to recognize that their flight path is being set by a larger flock in motion. At least part of our aspiration is to facilitate more collaboration across organizations, and to enable innovation that sets a truly new course for healthcare. No offense intended, but it’s time to generate new kinds of stories.


BINGE WATCH ALERT

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

Ever since we started watching foreign-language series on Netflix last year, our “recommended” list on the streaming network has gotten pretty eclectic. This week’s binge watch comes from that oddball list as well. Having already urged you to watch a German detective show (Babylon Berlin) and a French crime drama (The Forest), may we now suggest that you check out Netflix’s first original Polish-language series, 1983? Set in the year 2003, the show is a suspenseful thriller that takes place in an alternative reality, one in which the Berlin Wall never collapsed and the Cold War never ended. Thanks to a series of terrorist bombings across Poland in the title year, the Communist Party was reinvigorated as it rallied the Polish people around a program of national pride and solidarity. Now twenty years later, a freedom-fighter movement has emerged to challenge the Party’s stranglehold on the country. A hard-bitten cop works with a young law student—himself an iconic survivor of the bombings—to uncover the shadowy conspiracy that lies behind the events that kept the Party in power. Their investigations draw them into the tangled web of dissident activities, military scheming, and the Vietnamese underworld of dystopian Warsaw (thriving thanks to the brotherhood pact between the two Communist nations). Fans of other alt-history shows such as Amazon’s The Man in the High Castle will be intrigued by the world-building details imagined by 1983’s creators: the state tracks citizens’ movements by monitoring their iPhone-like devices; underground print shops smuggle samizdat copies of Harry Potter novels to subversive readers; and (for reasons never explored) Al Gore is US President. The acting is solid, the show’s pacing is tight and propulsive, and the subtitles are reasonably well-written. We love finding shows like 1983 (with the help of Netflix’s recommendation engine)—intriguing, thought-provoking and fun entertainment from that alternative reality beyond Hollywood: the rest of the world. Ciesz się tym!


WHAT WE’RE READING

Stuff we read this week that made us think.

Does paying patients to shop around work?

Many employers and payers have created programs that reward patients for choosing lower-cost care options. These programs have expanded largely because they’re not controversial: you get much less resistance from employees if you use “carrots” over “sticks”. But little research has been done to answer the question, if you give patients a “carrot”, will they actually make a lower-cost choice? A study out this week in Health Affairs aims to quantify how powerful these kinds of financial incentives can be. Authors evaluated the efficacy of a large-scale program launched in 2017 by multi-state Blues plan Health Care Services Corporation (HCSC) and 29 employer partners, which provided nearly 270K enrollees the opportunity to receive a $25-$500 check if they chose a lower-cost provider for any of 131 elective services. Researchers found a modest 2.1 percent decrease in the prices paid for those services, which translated into an $8 per member per year reduction in total spending.

A few important lessons on engaging consumers in price transparency emerged from the new study. First, only 8 percent of eligible enrollees used the price transparency tool, highlighting the need to educate and engage consumers in using data (and likely the need for better tools). Second, the lion’s share of the savings came from choosing lower-cost MRI and ultrasound providers; notably, financial rewards had no impact prices paid for outpatient surgery. Patients appear to be more willing to shop for services that are low-intervention and viewed as a “commodity” like diagnostic imaging, but a more hands-on solution may be needed for something patients perceive as higher-risk, like surgery. Taken together, these results are intriguing but a little disappointing: instituting a simple rewards program supported by payer-sponsored transparency tools isn’t a silver bullet to control costs. The authors also compare the modest 2 percent reduction from patient rewards to the average 15 percent reduction in price provided by reference pricing. In other words, employers seeking a quick hit on cost reduction might be better served by supply-side, rather than demand-side, reforms.

A clear-eyed look at a true healthcare monopoly

Bought new eyeglasses lately? Did they seem a little pricey? According to a piece in the Los Angeles Timesit’s pretty much a guarantee that you got massively ripped off, and that your dollars went to just one company—Luxottica. Interviewing a range of industry experts, the author constructs a picture of how the optical behemoth has moved to control nearly every part of the eyeglass supply chain across the Western world. Luxottica owns or licenses nearly every brand of eyeglass frames and manufacturer of lenses. They own the major outlets that provide eye exams and sell glasses, including LensCrafters, Pearle Vision, Target Optical, and even Sunglass Hut. They have even acquired EyeMed Vision Care, the nation’s largest vision insurance provider. Woe betide the company who tries to stand up to Luxottica: sunglass maker Oakley saw its share prices drop precipitously after a price war with the company resulted in their products being locked out of Sunglass Hut. A few years later, Luxottica purchased the brand at fire-sale prices.

Luxottica’s lock on the entire supply and sales chain for eyewear has a clearly detrimental impact on consumers. According to industry experts, designer-quality frames cost around $15 to make, and good-quality lenses are even cheaper, about $1.25 a pair. Luxottica sells those glasses for $800—a mark-up of nearly 5000 percent! (In the words of one interviewed expert, “If that’s not a monopoly, I don’t know what is!”) While online vendors like Warby Parker have the potential to offer lower prices, most consumers still prefer to try on frames in stores, making Luxottica exceedingly difficult to disrupt. We talk a lot about vertical integration in healthcare—hospitals buying doctors, health plans buying doctors, retailers buying insurers, and so forth. Luxottica provides an interesting case study on what can happen when all of the pieces of the value chain fall under the control of one company, with little competition to keep prices in check. It’s a cautionary tale worth considering.

The big business behind the “poop wars” 

You can hardly find a medical condition today for which modification to the gut microbiome isn’t proposed as a cause or a cure. From inflammatory bowel disease and C. difficile infection, to seemingly unrelated conditions like depression and Alzheimer’s, researchers are exploring the use of fecal transplants that alter the gut’s bacterial profile as a potential treatment—and setting up a battle over how the transfer of fecal material from a healthy person to an ailing patient is regulated and paid for, as detailed recently in the New York Times. The use of fecal transplants first emerged not in hospitals and other clinical settings, but in subjects’ homes. Just a few years ago, the concept was rejected by many in the medical establishment, leaving interested patients to research the therapy and orchestrate the treatment themselves. (If you’re interested in the mechanics, this piece in the New Yorker from a few years ago provides all the gory details.)

As fecal transplants demonstrated growing efficacy (the treatment has a success rate of greater than 80 percent for the most debilitating cases of C. difficile infection) and gained acceptance, the FDA announced a draft decision in 2013 to regulate the therapy as a new drug but also to “study” the issue before finalizing its recommendation. In the interim, a low-cost infrastructure has emerged to screen donors and provide transplant matter, with one nonprofit company, Cambridge, MA-based OpenBiome, providing transplant material to nearly all of the patients receiving fecal transplants across the country. But as interest in the gut microbiome has exploded (sorry), several for-profit start-up pharmaceutical companies have moved into the space and are asking the FDA to regulate fecal transplants like a drug, requiring laborious and expensive clinical trials to demonstrate safety and efficacy, but also bringing the potential to gain exclusive patent rights for the use of fecal transplants. This would dramatically raise the price for patients and payers, and possibly decrease access. The FDA is poised to issue its final decision soon, and patient and physician groups are lobbying the agency to reconsider its approach. Regardless, fecal transplants represent a battleground over who has the right to regulate and profit from a procedure that is already widely accepted. More research is clearly needed to ensure the safety and efficacy of extending fecal transplants to treat a growing list of conditions—but regulatory oversight should be done in a way that does not disadvantage patients who already benefit from the procedure today, at the risk of forcing those patients to return to treating themselves at home.


That’s a wrap! Thanks for reading this week’s edition, and for joining us for the first year of the Weekly Gist. There’s more to come, and we’re eager to hear your feedback and ideas for improvement. As always, if you’ve found this worthwhile, please consider forwarding it to a friend or colleague and encouraging them to subscribe as well.

And as we emphasize every week, if there’s anything that we can do to be of assistance in your work, we hope you’ll 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