October 11, 2019

The Weekly Gist: The Ghosts of October Edition

by Chas Roades and Lisa Bielamowicz MD

Well, that didn’t last long. Turns out the baseball gods take a dim view of rooting against the home team, and the ghosts of October visited the Dodgers early this year, putting the Washington Nationals into the NLCS for the first time in club history. Fine, we’ll don the curly “W” and rock the red—or at least one of us will. One thing we can both agree on: rooting against the Bronx Bombers. Go, go Astros!


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

Updating the rules that govern hospital-physician relations

On Wednesday, the Department of Health and Human Services (HHS) announced long-awaited changes to the anti-kickback statute and the physician self-referral law (also known as the Stark law), in the form of twin proposed regulations from the Office of Inspector General (OIG) and the Centers for Medicare and Medicaid Services (CMS). The regulations mark the first significant changes in the past 30 years to the legal framework that determines how hospitals and physicians are permitted to work together. In general, that framework prohibits physicians from referring to facilities with which they have a financial relationship, a restriction that has been viewed as an obstacle to adoption of payment and delivery reforms. According to CMS, the goal of the proposals is to reduce burdensome regulation, and to encourage the transition to value-based care delivery. In particular, the changes would create permanent “safe harbors” for hospitals to provide compensation and technical support to physicians as part of Medicare and non-Medicare value-based arrangements, such as accountable care organizations (ACOs) and bundled payments, with a focus on models that include full risk or substantial downside risk. The proposed changes garnered positive early reviews from physician and hospital industry groups, as well as those involved in implementing ACOs and other value-based strategies, and will be finalized after a public comment period. Updates to the Stark and anti-kickback laws are long overdue, and these changes clarify much of the legal uncertainty we’ve heard many provider organizations complain about ever since the passage of the Affordable Care Act (ACA) and its value-based payment reforms. As HHS continues it “Regulatory Sprint to Coordinated Care”, we’ll watch for other actions intended to clear the path for innovative approaches that lower the cost of care and refocus the system on value.

How much healthcare spending is wasteful?

new study this week in JAMA, authored by researchers at the University of Pittsburgh and the chief medical officer of insurer Humana, indicates that about 25 percent of US spending on healthcare is wasteful, and could be eliminated by targeted interventions. The study, based on a meta-review of academic literature on the topic from the past seven years, categorizes waste into six “domains” outlined in earlier work from the Institute of Medicine (IOM) and the Institute for Healthcare Improvement (IHI). In today’s dollars, the total amount of wasteful spending identified amounts to between $760B and $935B annually—equivalent to total annual Medicare spending, or what the country spends combined on primary and secondary education. The largest categories of waste were identified as “administrative complexity” (in particular billing and coding activities: $248B in waste), and “pricing failure” (the fact that prices for care are too high: $230B-$240B in waste). The study highlights proposed savings from known measures to address waste, which would amount to between $191B and $282B in waste reduction. Notably, the authors found no studies that focused on reducing administrative complexity, and so did not include that category in their proposed areas of savings.

A more expansive view of wasteful spending, meanwhile, was contained in another key study released this week by IHI, authored by a workgroup chaired by administrators at Fountain Valley, CA-based health system MemorialCare. Using a similar framework to identify areas of wasteful spending, the group identified $1T of potential savings from waste reduction measures, leading them to title their initiative the “Trillion-Dollar Checkbook”. Among the group’s leading categories for waste reduction: reducing diagnostic errors ($100B in potential savings); shifting to alternative payment models ($86B in potential savings); and addressing issues of health equity ($82B in potential savings). Beyond these lofty, but potentially difficult-to-achieve measures, the IHI study also catalogues more quotidian areas of waste, such as reducing hospital stays caused by delirium in elderly patients, reducing unnecessary electronic alerts in medical record systems, and reducing waste in blood product utilization, among others. We applaud the continued focus on wasteful spending in healthcare, and in particular the focus on known and proven approaches to address it. It’s worth remembering, however, that much of what is labeled “waste” in healthcare is tied to someone’s revenue stream—there are few areas where efforts to attack waste don’t come with a difficult conversation about reducing the amount paid to some stakeholder. Waste, it turns out, is in the eye of the beholder.

Bracing for a controversial court ruling

We’ve been keeping a close eye on the courts this week, as a ruling is expected any day now from the US Court of Appeals for the 5th Circuit in the pivotal Texas vs. US case, in which the court is reviewing the decision of a lower court that the Affordable Care Act (ACA) is unconstitutional and must be overturned. The initial ruling was based on the fact that the penalty for not carrying insurance coverage (the so-called “individual mandate”) was reduced to zero as part of tax reform legislation Congress passed in 2017. This week, the Washington Post reported that the Trump administration plans to ask for a stay if the appeals court upholds the lower court’s decision, hoping to avoid a situation in which millions of Americans lose the ACA’s insurance protections in the midst of the heated 2020 Presidential campaign. Such a request would represent yet another shift in position by the Justice Department, which first tried to narrowly target the individual mandate as unconstitutional, but then broadened its focus to more fully support the Republican state attorneys general who brought the case, arguing that the 5th Circuit should overturn the entire ACA. The appeals court heard arguments in the case in July, and a ruling is anticipated this month. “It’s not like the ruling is going to come down and the world is going to change,” the Post quotes one administration official as saying. But that appears to be just what the Trump team is worried about, particularly given the fact that the administration does not have a replacement for the ACA lined up, and now faces a Congress roiled by impeachment politics, promising little hope of passing potential stop-gap measures in case the ACA is overturned. As Democrats continue to view healthcare as their leading campaign issue, the impending ruling could create further difficulties for the President’s already challenging re-election bid. If you thought the last two weeks in politics were turbulent, fasten your seatbelts.


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

Broadening incentives to reduce cost of care

Central to the “population health” approach to reducing healthcare spending growth is the strategy of shifting risk onto providers. While risk can take many forms, the basic idea is to make hospitals and doctors accountable for controlling spending for some or all of an episode of healthcare delivery. One important learning from early efforts to shift risk to providers is that the mechanism of shift matters—a lot. In general, structuring payments around longer “horizons of accountability” enables providers to deploy care management strategies that might not be feasible in more minimal risk arrangements. For providers to get serious about moving care into lower-cost settings, and reducing unnecessary care utilization, payers will likely need to deploy capitation-like, time-based incentives (total cost risk), rather than just relying on event-based incentives (unit cost risk). That’s the idea we depict in the graphic below.


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

Searching for the “strollers and puppies”

The COO of a regional health system with a large academic flagship recently recounted conflicting viewpoints on ambulatory growth strategy among her team. Some executives had been lobbying to launch a new wave of primary care clinics and urgent care locations in an established, upper-income area of the market where they have little presence today. “Sure, it could give us a foothold in a neighborhood with lots of commercially-insured patients,” she said, “but we’d also run up against two strong competitors who are already there.” The COO lobbied for a different move, centered around two areas that were just beginning to gentrify. These neighborhoods have largely been ignored by the four health systems in the market, and disruptors have yet to build a presence. “You run the demographics, and the numbers say it’s low-income. But as I drive through town, I have a way to spot what places will be hot in five years: look for the strollers and puppies.” These were signs of urban millennials moving to the area, first buying a dog, then beginning to have kids. They may not be using a ton of healthcare services now, but their incomes and needs will only grow. The system could be first to market with new consumer solutions, she argued, and could take the lead on establishing brand loyalty. Most forecasting data is a lagging indicator, largely based on historic growth trends. On-the-ground insights on consumer behavior—like “strollers and puppies”—provide a way to spot local trends that would be missed by even the best healthcare data analysts—and may push providers to build consumer-focused services in a different direction.

Retail disruptors encounter the power of the guild

There’s been a lot of buzz lately about big-box retailers moving into the healthcare space, looking to disrupt traditional incumbents with lower-cost care offerings based on convenient retail access, digital consumer engagement, and a lower-cost clinical labor model. Walmart, CVS, Walgreens, Best Buy and others have been very active, and by all accounts there’s much more to come. But a conversation I had this week with a political consultant (read: lobbyist) highlighted the fact that “getting into healthcare” is no straightforward task. His firm has been working with a number of the retailers to navigate the state-level regulatory obstacles that are holding up more aggressive approaches to remaking care delivery. And in many instances they’ve run into a brick wall. Of particular concern: scope of practice regulations that prohibit non-physician providers from delivering care. Many of the retailers are relying on nurse practitioners, clinical pharmacists, and other non-doctor clinicians as the chassis for their lower-cost models. But it turns out that state medical boards and state-level physician associations hold significant sway with legislators and regulators—and have been working hard to protect the traditional role of the doctor. These organizations play an important role in overseeing licensure and maintaining a high-quality physician workforce, but they can also act as guilds, exercising an unhelpful protectionism that can inhibit innovation. It will be interesting to see if titanic, big-box retailers, like Walmart, will be able to exert their own clout to chip away at narrowly-defined scope of practice regulations—the success of their initial forays into care delivery may depend on it.


Give this a spin—you might like it.

By this point, a quarter-century into his storied run with the indie-Americana band Wilco, Jeff Tweedy should by rights be in legacy mode, playing the hits to arena-sized audiences, and cranking out nostalgiana for his adoring fans. Instead, he’s streamlined his songwriting, cleaned up his act, and led the band through a recent series of quirky releases culminating in this month’s Ode to Joy. Wilco’s 11th studio album is a quiet, almost constrained collection of impressionistic tracks configured into a midlife protest album, delivering a stubborn “I’m-still-here” message. The album is deceptively simple, with layer on layer of finely-honed guitar, bass, keyboard, and percussion wrapped around Tweedy’s hushed, unhurried lyrics. There’s nothing here to match the freshness of the band’s landmark 2001 album Yankee Hotel Foxtrot or 2009’s acclaimed Wilco (The Album), but Tweedy & Co. aren’t resting on their laurels either. I had a chance to catch them live last night in Boston, and across more than two hours of hard-driving performance, the band showed no signs of letting up. It’s as if they’re just getting started on a new phase of their careers—an experimental late-period, perhaps. That’s welcome news from a band that’s been dubbed “America’s Radiohead”, promising still more to come from one of the mainstays of indie rock. Best tracks: “Everyone Hides”; “Love is Everywhere (Beware)”; “Before Us”.


Stuff we read this week that made us think.

A crack in our skepticism of robotic surgery

We’ve been pretty critical of the current state of robotic surgery. While Intuitive Surgical’s da Vinci robot can now be found in most tertiary care hospitals across the country, there’s very little evidence to show that the billions of dollars spent on the technology have meaningfully improved outcomes. But a recent New Yorker article provided a glimpse into where visionary surgeons could push the platform. The piece profiles Dr. Pier Giulianotti, an Italian surgeon who is now a professor at the University of Illinois, and one of the world’s leading experts in robotic surgery, having trained over 2,000 doctors on the robot. Giulianotti pushes the boundaries of the platform, using it for complex surgeries like abdominal cancer resections, and for patients like Jehovah’s Witnesses and others who cannot receive a blood transfusion.

It’s a stark contrast to Intuitive’s approach to the market, which focused on routine surgeries like prostatectomy and gynecologic surgery—neither use case has been shown to have a significant clinical advantage even as the robot became “must-have” in the eyes of doctors and patients. But pursuing high-volume routine surgeries and quickly training thousands of doctors (often with just a one-day course) allowed Intuitive to rapidly build dominant market share, locking out competitors. The company now faces its first real competition as Medtronic launches its robotic surgery platform, the Einstein. It will be worth watching to see if a competitive marketplace pushes surgeons and robotic technology toward meaningful innovation or fuels the need to grow volume regardless of demonstrated value to patients.

Physician politics turn blue

Over the past twenty years the politics of the physician profession have shifted from “rock-ribbed Republican” to majority Democrat. A recent Wall Street Journal piece looks at the ramifications of this political transition, one of the fastest in any profession. The forces behind the change are myriad and complex. The increased number of women entering the field accounts for some of the shift, but younger male doctors are also much more likely to be Democrats. With over half of doctors now employed,  fewer physicians adopt the traditionally conservative politics of small business owners. Training dynamics may also contribute: changing medical school curricula and rising student debt have led some to embrace progressive politics. The implications for patients and policy are far-reaching. More liberal doctors seek to practice in more culturally diverse urban markets and are willing to accept significantly lower salaries to do so—exacerbating rural physician shortages. Research shows politics may also influence practice. Republican doctors are more likely to discuss the risks of marijuana use, for example, and Democratic doctors more likely to broach the topic of gun safety with patients. Most significant may be doctors’ shifting support of Democratic health policy goals—recently leading the historically-conservative American Medical Association to only narrowly fall short of withdrawing its opposition to single-payer healthcare. If a large number of doctors take an active voice in support of progressive policies, it could provide momentum to shift political and public support in favor of “Medicare for All” reforms—a sharp turnabout from the traditional political stance of the physician lobby.

Another Weekly Gist in the books! Thanks so much for taking time to read our work, and for continuing to share your feedback and suggestions. We love hearing from you, so let us know what you think. If the spirit moves you, don’t forget to pass this along to a friend or colleague and encourage them to subscribe. And check out our podcast for more news and commentary!

Most importantly, please let us know if there’s anything we can do to be of assistance in your work. You’re making healthcare better—we want to help!

Best regards,

Chas Roades
Co-Founder and CEO

Lisa Bielamowicz, MD
Co-Founder and President