November 16, 2018

The Weekly Gist: The Gobble, Gobble Edition

by Chas Roades and Lisa Bielamowicz MD

Friday greetings from the nation’s capital, which celebrated—or mourned, depending on your perspective—two big events this week: the announcement that we’ll soon be getting half of Amazon’s vaunted new headquarters right next door to Reagan National Airport, and the arrival of the first snowflakes of the season, blanketing the region in white in the first pre-Thanksgiving snowfall since 1995 (the year Amazon launched its online store, by coincidence). In a sure sign that DC is as full of snowflakes as you thought, all we could think about here was the impact of both events on traffic, Washingtonians’ favorite topic of conversation. For our part, we welcome our new neighbors from Seattle! Bring your electric scooters with you…but please stay off the road.

Note to readers: In honor of the upcoming Thanksgiving holiday, we won’t be publishing the Weekly Gist next week. We’ll be back on Friday, November 30th, full of leftovers and the news of the week. Happy Thanksgiving!


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

Using Medicaid dollars to pay the rent

Speaking to a gathering sponsored by the Hatch Foundation for Civility and Solutions and Intermountain Healthcare this week, Secretary of Health and Human Services (HHS) Alex Azar suggested that the Center for Medicare & Medicaid Innovation (CMMI) may soon begin to test approaches that allow hospitals to use Medicaid funding to pay for the housing needs of low-income patients. In a talk focused on addressing the social determinants of health, Azar highlighted several key initiatives already underway at CMMI to better integrate health care financing with social care services such as housing, nutrition, addiction treatment, and mental health support. Azar said that CMMI has seen great interest among delivery organizations in its Accountable Health Communities model, a five-year pilot launched last year in which 31 participants will test delivery approaches that link provider organizations with community services to address a range of issues including food insecurity, utility needs, housing and transportation. But Federal law prohibits the direct payment of housing costs using Medicaid funding, and the Centers for Medicare & Medicaid Services (CMS) has determined that waiver programs do not provide sufficient authority to overcome that prohibition. Azar’s comments this week promise an effort to push past those restrictions. “What if we gave organizations more flexibility so they could pay a beneficiary’s rent if they were in unstable housing, or make sure that a diabetic had access to, and could afford, nutritious food?” Azar asked. “If that sounds like an exciting idea . . . I want you to stay tuned to what CMMI is up to.”

While further details were not immediately available, the suggestion that the Trump administration is eyeing increased flexibility for providers to use Medicaid dollars to fund housing is a promising signal. The administration has already expanded the ability of Medicare Advantage plans to pay for non-healthcare services, but the complexity of many Medicaid patients’ care merits an innovative approach for that population as well. It’s not uncommon to hear stories from hospital executives about Medicaid beneficiaries who end up spending months in an inpatient bed because they have nowhere to go upon discharge. And organizations who are working to develop population health approaches to care are often stymied by the challenge of managing care for patients who face housing instability. While pilot programs that enable tighter linkages between traditional health providers and community organizations working to address social care issues like homelessness are helpful, giving providers the ability to direct funding toward rent, nutrition, and other social services would be a huge step forward. We’ll share more information on the proposed CMMI initiative as it becomes available, but we’re encouraged by Secretary Azar’s comments this week.

Walmart gets serious about spine surgery

Doubling down on a strategy it has employed since 2013, retail giant Walmart will now require its employees who need high-cost spine surgery to travel to one of a small handful of destination health systems to receive care, according to a report this week in the Wall Street Journal. Having used financial incentives to encourage employees to voluntarily travel to “centers of excellence” for several years, Walmart now plans to mandate that any employees referred for spine surgery be treated by the Mayo Clinic in Rochester, MN (or its facilities in Arizona and Florida), Geisinger Medical Center in Danville, PA, or Memorial Hermann Health System in Houston, TX. According to the article, Walmart found that half of its employees who voluntarily traveled to the “centers of excellence” programs for spine care ended up not undergoing costly spinal surgery, but instead pursuing physical therapy and other lower-cost care options. Walmart’s centers-of-excellence program also provides incentives for employees to travel to destination hospitals for certain cardiac surgeries and transplant surgery, and it will continue to offer those options to employees on a voluntary basis.

Walmart’s move is yet another example of an employer taking a more activist stance toward managing the cost of care for its employees, in the face of skyrocketing spending, frustration with traditional benefit design, and wide variability in care quality and outcomes. (Other examples include Lowe’s, Boeing, GE, and Intel, and the broader coalition of companies participating in the Health Transformation Alliance.) As we have talked to the various systems involved in Walmart’s “centers of excellence” network, we’ve heard that while the numbers of actual surgeries performed on Walmart employees is low, the proportion of employees referred by Walmart who turned out not to need high-cost surgery is between 50 to 60 percent. In other words, what Walmart is really getting with its program is a low-cost, highly-credible second opinion service, using well-regarded programs like Mayo, Cleveland Clinic, Virginia Mason and others to counterbalance initial surgical referrals from local providers who may be recommending surgery more often than necessary. Spine surgery is a particularly costly proposition for employers whose workers are in physically-demanding jobs (as at Walmart), so it’s not surprising to see Walmart moving more aggressively to address that issue. We’d expect to see more of this kind of activity among large employers, who may be reaching the limits of their ability to shift cost to employees via high deductibles and are looking for other innovative approaches to implementing narrow network strategies.

Oscar sues Florida Blue over “monopolistic” broker tactics  

New York-based health insurance start-up Oscar Health filed a suit in Federal court this week against Florida Blue, alleging that the Blues plan used anticompetitive tactics to monopolize the individual insurance market. In the lawsuit Oscar asserts that Florida Blue, which controls 75 percent of the individual insurance market, engaged in a “targeted campaign” to force brokers to stop offering Oscar’s product to Orlando-area customers, and that the insurer’s exclusivity agreements with brokers are in violation of antitrust law, limiting choice and raising costs in the individual market. Oscar claims more than 190 brokers have recently backed out of selling its plans, which is damaging its efforts to enter the market, as 70 percent of Florida individual market customers find coverage through a broker, compared to just 40 percent in other states.

Even more concerning are reports that the Blues plan may be threatening to pull all of its business, including contracts outside the individual market, from brokers who work with Oscar. Given Florida Blue’s dominance of the large and small group markets in the state, many brokers would likely be unable to survive should they not have access to those plansOscar is requesting a trial by jury, and while any resolution is likely months or more away, providers and insurers should watch this case closely. The outcome could have an impact on the ability of incumbent insurance plans to limit new entrants to the market and could provide a landmark definition of the scope and scale of exclusivity agreements in the diversifying health insurance marketplace.


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

Are we content providers or network operators?

In recent editions of the Weekly Gist, we’ve shared our core framework for helping a health system navigate its transformation from a traditional, fee-for-service driven model (which we termed “Event Health”) to a value-driven model oriented around consumer loyalty (we call that “Member Health”). Along the way, we also described an intermediate posture called “Episode Health”, in which the system takes on accountability for curating and coordinating discrete episodes of care for consumers. In discussing those models and their implications, we shared our view that health systems could play one or several of those roles simultaneously, and could strive to work across all three models depending on the services they offer and the markets in which they operate.

Today’s graphic unpacks that notion a little further and provides our thoughts on the potential for different kinds of partnerships the health system might pursue. The two dimensions of the graphic ask two questions: whose “clinical content” is being delivered to consumers, and whose “delivery network” is being used to provide that content? By “clinical content” we mean the actual delivery of care itself, along with all of the cognitive, technical, and physical components involved. And by “network” we mean access channels to care and contracting mechanisms for network development and payment. We’re drawing a parallel here with other industries where the content/network dynamic is at play—think about the entertainment industry where there are content providers (movie and TV studios) and network providers (distribution companies, TV networks, and so forth). We draw a similar picture in healthcare—think of the care as “programming” and the network as “channels”.

We’ve found this metaphor helpful in working with clients to think through partnership opportunities with other organizations. We encourage health systems to ask, “Are we the content provider or the network operator?” Look through the four boxes below. The bottom-left and top-right quadrants don’t present partnership opportunities. At the bottom left are our competitors, delivering their own content inside their own network. At the top right is our own system, delivering our content using our own assets. Partnership comes into play in the other two quadrants: at the top left we are working with another organization to deliver their content inside our network—a situation that makes our system a “general contractor”, curating subcontractor services for our patients (think about a system that contracts with a rehab facility or telemedicine provider for discrete services). At the bottom right, conversely, we are the subcontractor, delivering our care services as part of another organization’s network—either providing discrete events or episodes of care to a “general contractor” network.

As we’ve worked through this matrix with clients, we’ve come to realize that strategic advantage lies in owning the network, not just providing the content. It’s only by controlling the network that systems can truly pursue the “Member Health” relationship with consumers. That’s why “narrow network” strategies are such a risk to providers, and why climbing into the “general contractor” role often entails the health system taking on insurance functions. In general, systems that find themselves in the bottom right quadrant, working with “distribution partners” to get their clinical content to consumers, must continually reduce cost and improve the quality of the services they provide—as all subcontractors must. Those at the top left must vigilantly curate the content providers they work with, to make sure their end users are getting the best value possible.


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

A new take on universal health care in Vermont

We’ve been close observers of Vermont’s healthcare reform efforts over the years, particularly the state’s effort to implement single-payer healthcare and provide universal coverage for state residents. I just recently had my first chance to work directly with providers in the Green Mountain State, delivering the keynote address at the 2018 Integration Summit for the University of Vermont Health Network, and sharing our thoughts on the future of the industry with physicians and leaders from the state’s largest health system. Our discussions confirmed some conventional wisdom about Vermonters. The doctors in particular were progressive, independent-minded thinkers who keep an eye on what is happening in the rest of the country but are not afraid to chart their own path to address healthcare needs facing their communities. They have been early adopters of patient-centered medical homes and community-based care and have assembled an integrated care network across a small-town and rural market (even Burlington, the state’s largest city, has just over 42,000 residents).

While Vermont pushed universal coverage further than any state so far, its effort stalled in 2014. A majority of legislators and residents supported the idea of universal coverage, but the campaign hit a roadblock when lawmakers couldn’t agree on a way to pay for it, and public approval dropped amid discussions of necessary tax increases and impact on the state economy. (As we’ve written before, we expect national discussions of “Medicare for All” to encounter the same challenges.) Vermont’s move toward universal coverage isn’t over. Several of UVM’s primary care physicians discussed their involvement in pending legislation that would provide universal primary care access to all state residents. Some are calling the move “Single-Payer Lite”, and the state is currently working through the details of how primary care services would be provided and how to pay for the estimated $200M annual costs.

What Vermont is proposing is a type of direct primary care (DPC), in which primary care providers are paid a periodic fee to provide comprehensive, unlimited primary care based on a membership fee, rather than billing payers for individual visits and activity. This model exists in the consumer market, with individuals or employers paying the monthly or annual fee. Most DPC offerings are small, with some notable venture-funded practices like Seattle’s Qliance failing to find a sustainable path to scaleShould the Vermont proposal move forward, it would be by far the largest DPC effort in the country—and would provide a valuable experiment to test how far comprehensive primary care can go in preventing expensive downstream utilization and improving overall health. It’s worth watching Vermont’s experience closely.

A conversation with healthcare’s changemakers

This week I had the opportunity to participate in U.S. News & World Report’s Healthcare of Tomorrow conference, where I moderated the keynote panel, entitled “Change Agents: A Conversation with CEOs Who Are Doing Business Differently”. It was a great group of leaders, including: Dr. Marc Harrison, CEO of Intermountain Healthcare; Kevin Lofton, CEO of Catholic Health Initiatives (CHI); Dr. Mitch Morris, President of Optum Advisory Services; and Susan Story, CEO of American Water. That last name might be less familiar to those in healthcare—Ms. Story runs America’s largest investor-owned water and wastewater services company, with 7,100 employees working across 1,600 communities in 45 states and Canada. Her inclusion on the panel was a sign that U.S. News was truly focused on how the business of healthcare is changing; American Water is one of the founding members of the Health Transformation Alliance (HTA), a group of more than 40 major American companies who have banded together to change the way they purchase healthcare for their employees. Her company’s work with HTA to seek value in new ways highlighted the principal theme our panel discussed: the blurring of the lines between traditional silos in our industry, with payers getting into the provider business (Optum), providers leveraging their own insurance arms to pursue population health (Intermountain) and hospital systems aggressively working to address social determinants of health (CHI).

Several themes emerged during our discussion. First, a universal frustration with working within the current third-party payment, fee-for-service driven model. Truly addressing the health needs of consumers will require expanding how and for what we pay providers (Lofton: “We have to be able to go outside the walls of our organization and go upstream.”). Second, a bias toward taking an activist approach to creating better value: American Water saved millions of dollars per year on drug costs by working through HTA to get access to their own pharmacy spend data, which their traditional benefit manager had been unwilling to share; CHI and Intermountain are working with other health systems to create CivicaRx, a nonprofit drug manufacturing company that will help keep drug spending down and ensure drug availability; Optum is using artificial intelligence to predict patient risk for opioid addiction so they can intervene earlier.

Third, an admission that these innovative “border crossings” need to be matched with an intense focus on execution, which will be hard: Intermountain has embarked on a sweeping reorganization of its business to align operations around its broader vision; CHI must pursue huge “synergies” to create value from its pending merger with Dignity Health; Optum is working to assemble all of the various entities it has acquired over the past few years into a new kind of organization; and American Water has yet to take the truly hard step of narrowing referral networks for its employees as part of its work with HTA. And finally, there was broad agreement that all parts of healthcare must become much more transparent, providing visibility into cost, quality, access, and outcomes. Dr. Harrison put a fine point on this last topic, urging our hosts at U.S. News & World Report to include more value-driven components in their rankings methodology, so that consumers can be armed with better information not just about which programs are most prestigious, but which actually deliver higher-value care. Inspiring leaders, and a great discussion—we could have talked all afternoon! Thanks to U.S. News for putting it together.


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

We’ve got two recommendations for your Thanksgiving viewing pleasure, if you’re looking for a break from football, parades and overeating. Movie-making history was made this month when Netflix released The Other Side of the Wind, the great unfinished film that the legendary Orson Welles left behind when he passed away in 1985. Left to languish for two decades after Welles was unable to find funding to finish it before his death, the movie was rescued by Hollywood titans Frank Marshall and Peter Bogdanovich, both of whom were involved with the project during a tumultuous 15 years of production in the 1970s and 80s. The movie itself tells the heavily autobiographical, layered story of a filmmaker (Orson Welles as played by John Huston) at the end of his career who’s having trouble getting his final picture, also called The Other Side of the Wind, finished. On the last day of his life, at a party celebrating his 70th birthday, the filmmaker confronts his protégé, an up-and-coming director who’s both assistant and rival (Peter Bogdanovich as played by…Peter Bogdanovich). Suffice to say that the movie just gets more “meta” from there. It’s a must see—how can you not be intrigued by the ultimate cinematic statement from the greatest director in history?

But don’t stop there. Alongside the Welles picture, Netflix also released a new documentary, They’ll Love Me When I’m Dead, that tells the story of the making of The Other Side of the Wind. A delightful, behind-the-scenes look at Welles working on his magnum opus over the years, the documentary delves into the surreal twists-and-turns the project took over the years as he struggled to get it done, and the bizarre cast of characters involved along the way (The Shah of Iran! A stoned Dennis Hopper! A crew of dwarves! Welles himself editing a porn film!). Directed by Morgan Neville, who brought us the incredible Fred Rogers documentary Won’t You Be My Neighbor earlier this year, this companion piece to Welles’s final movie is as fun and weird as the principal film itself. Set aside the stuffing and cranberry sauce, pour yourself a glass of Paul Masson wine, and settle in for an evening with Orson Welles. Enjoy!


Stuff we read this week that made us think.

Hospital mergers back in the spotlight

An article in the New York Times this week set off a flurry of reactions from across the industry concerning the impact of hospital consolidation on the cost of care. The well-researched piece draws on analysis from the University of California, Berkeley, which evaluated the 25 metropolitan areas with the greatest rate of hospital consolidation between 2010 and 2013, showing that prices for most healthcare services increased an average of 11 to 54 percent, casting doubt on the commonly-cited justification that hospital mergers increase efficiency and lower costs. The piece comes on the heels of other high-profile articles which assert that hospital mergers have failed to deliver value to purchasers and consumers.

Notably, the latest New York Times report delves deeper into the economic challenges facing independent hospitals, particularly those in smaller communities. (It’s worth noting that the markets examined in the Berkeley analysis are a step removed from the nation’s largest metro areas.) Smaller cities like Scranton, PA and Wichita Falls, TX are most likely to have seen the greatest levels of hospital consolidation. There’s a real question as to whether smaller cities or rural areas can sustain multiple hospitals, or whether they will inevitably see their hospital choices dwindle to one—or none.

It’s certainly fair to point out that we’ve yet to see the efficiency gains and price reductions promised by many hospital leaders involved in these mergers. In fairness, the traditional third-party payment system has rewarded a strategy of hospital consolidation to gain pricing leverage in rate negotiations with insurers, many of whom (particularly Blues plans) also enjoy oligopolistic positions in their markets. For many years, insurers were content to simply pass those rate increases along to employers in the form of higher premiums. But as costs continue to increase, employers are pushing back, shifting more cost onto individuals in the form of high-deductibles, and taking a more activist approach to purchasing care. And the Federal government’s exposure to rising costs is growing as well, with the Boomer population aging into Medicare, Medicaid rolls expanding, and individual-market subsidies adding a new stream of government health spending. Political decision-makers looking to rein in spending are finding eager allies in price-sensitive consumers, who will increasingly become healthcare voters as their exposure to costs rises. What was once an internecine battle between hospitals and insurers is rapidly becoming a political hot-button, adding urgency to the need for hospital industry leaders to deliver on the value they’ve promised from mergers, or to find other avenues to thrive in a challenging marketplace.

Advanced practitioners don’t lower primary care costs—but that’s not the point

A new analysis from the Health Care Cost Institute (HCCI) caught our eye, revealing just how pervasive the shift of visits from primary care physicians (PCPs) to advanced practice professionals (APPs) has been across the country. Using a large commercial claims database, the study found that visits to PCPs declined 18 percent between 2012 and 2016, while visits to APPs (including nurse practitioners, physician assistants and other non-physician providers) increased 14 percent. Notably this shift occurred in all fifty states, ranging from six percent in Washington DC to 31 percent in North Dakota. HCCI researchers also analyzed the impact of this shift on costs and found that utilization of APPs over PCPs did not significantly lower the cost of care (the average cost of a PCP visit was just three dollars more than one provided by an APP). We believe the focus on cost misses the point. The main goal of adding alternative providers to primary care is to expand access, not to lower the cost of providing those services, which account for only four to seven percent of US healthcare spending. More access to—and likely more spending on—primary care, whether through PCPs, APPs or other providers, will be necessary to lower the total cost of care.

Which brings us to the most worrisome data in the HCCI analysis: the increase in visits to APPs only offset 42 percent of the decline in PCP visits. While some patients may be using primary care services through retail clinics or telemedicine providers that aren’t billed to their insurer, it’s likely that use of primary care by commercially-insured patients may actually be declining. This is concerning for providers, given primary care’s importance in developing customer loyalty and managing the cost of care. Achieving these goals, particularly in the commercial population, will require multiple modes of convenient, reliable and affordable primary care access beyond a PCP or APP office visit.

What high healthcare costs look like on the ground

Two articles from Bloomberg this week provide further evidence, as if any were necessary, that our healthcare system is failing nearly everyone involved. First, the latest installment in Bloomberg’s year-long series “Risking It: Stories from America’s Uninsured”, which looks at the tough choices facing American families as they grapple with the high cost of health insurance. The article tells the story of the Maldonado family in Texas, a middle-class family of four who lost their employer-sponsored health insurance four years ago, when David Maldonado’s company dropped coverage for its employees, citing high premium costs. With his wife in remission from breast cancer, Maldonado quickly decided to purchase family coverage on the Obamacare exchange, only to watch premiums shoot skyward for their Blue Cross Blue Shield of Texas (BCBS-TX) plan, which was already costing the family more than their mortgage payments. Faced with paying for college for their two children, keeping up on car and house payments, and footing the bill for a $23,000 health plan (and its associated $5,000 deductible), David decided to drop coverage for himself and one of his children, leaving just half the family with health insurance. As premiums continued to rise, the family decided to drop coverage for their other child as well, and now carry coverage just for Mrs. Maldonado. The story is a sobering reminder that expanding coverage under the Affordable Care Act (ACA) has produced a mixed blessing at best on the ground—with the actual coverage available often unaffordable for many middle-class families.

Meanwhile, the ACA’s coverage expansion and broader trends in the insurance market have made the challenge of actually getting paid even harder for many healthcare providers. As a second article this week from Bloomberg frames it, “Doctors are Fed Up With Being Turned Into Debt Collectors”. Highlighting a key implication of the rise in high-deductible health plans, both on the ACA exchanges and in employer-sponsored insurance, the article describes a question now commonly faced by doctors and hospitals—how best to collect their patients’ portion of the fees they charge? As one Texas doctor tells Bloomberg, reflecting the experience of the Maldonados from the other side of the equation, “If [patients] have to decide if they’re going to pay their rent or the rest of our bill, they’re definitely paying their rent.” He reports that the number of people dodging his calls to discuss payment has increased “tremendously” since the passage of the ACA. Another Texas doctor reports that his small practice had to add an additional full-time staff member just to collect money owed by patients, adding further overhead to his practice’s costs and making it more likely that he, like many other doctors, will eventually seek shelter by being employed by a larger delivery organization. That trend, as has been repeatedly shown, further increases the cost of care, exacerbating the increase in insurance costs for families like the Maldonados. This Gordian knot of increasing costs, rising deductibles, and growing premiums has left us with a healthcare system that’s forcing difficult decisions at every turn, for patients and providers.

That’s it for this week! Here’s hoping that you’re headed home to family and friends for the Thanksgiving holiday, and that you find much to be thankful for this year. We certainly have—we’re so grateful for the opportunity to share our thoughts and ideas with you, and for the time you’re willing to share with us. We’d love to hear your feedback and suggestions, so please keep it coming. And if you’ve found our work of value, please don’t forget to subscribe and share the Weekly Gist with your colleagues.

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

Happy Thanksgiving,

Chas Roades
Co-Founder and CEO

Lisa Bielamowicz, MD
Co-Founder and President