The Weekly Gist: The Great Worm Escape Edition

Note to readers: We’ll be taking off next Friday, September 4th, in celebration of Labor Day. Have a great holiday weekend! We’ll see you back here on the 11th for the next edition of the Weekly Gist.

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

COVID-related controversy and hope amid a week of politics

Week two of the 2020 Pre-Recorded Virtual Presidential Convention-thon wrapped up Thursday night, albeit with a decidedly less Zoom-Webex-FaceTimey feel for this week’s Republicans compared to last week’s Democrats. As delegates and VIPs sat cheek-by-jowl at several in-person events, with scarce masking and plenty of loud cheering, the viewer was left hoping that a rigorous attendee COVID testing protocol was being used. That hope may have been dashed by a significant change to testing guidelines from the Centers for Disease Control and Prevention (CDC), which reversed course on Monday by recommending asymptomatic people who have been exposed to the coronavirus should no longer be tested. The altered guidance drew sharp rebukes from doctors and infectious disease experts, who worried that it would undermine the ability to track the spread of the virus, which has now claimed more than 181,000 American lives. The flap over testing guidelines came at the same time as Food and Drug Administration (FDA) commissioner Stephen Hahn was forced to apologize for misleading claims he made over the weekend about the efficacy of convalescent plasma in treating COVID patients. In announcing an Emergency Use Authorization (EUA) for the treatment, Hahn dramatically overstated evidence supporting the lifesaving ability of the therapy. The missteps by CDC and FDA officials were undoubtedly an unwelcome distraction for the Trump administration, overshadowing the president’s bold promise in his acceptance speech that a COVID vaccine would be available before the end of the year.

There was hopeful news on the COVID front this week as well. In what was quickly hailed as a “game changer” in solving the nation’s faltering ability to deliver timely test results, Abbott Laboratories was granted its own EUA for a 15-minute, $5 rapid antigen test, which does not require laboratory analysis. The company plans to produce tens of millions of the new BinaxNOW test kits in the next month, and the US government has agreed to acquire nearly all of the 150M tests the company will produce by the end of the year, at a $760M purchase price. Although some antigen tests have been cited for accuracy problems, the FDA said that the new Abbott test delivers correct positive tests 97.1 percent of the time, and correct negative tests 98.5 percent of the time. Rapid, reliable point-of-care testing could allow for safer return to schools, workplaces, and public gatherings, and if successfully deployed will be an essential tool in managing the impact of the virus until effective vaccines are fully developed, launched, and administered. A genuine ray of hope as the nation looks ahead to the fall and winter. US coronavirus update: 5.9M cases; 181K deaths; 81.8M tests conducted.

Amazon enters the healthcare wearables market with Halo

This week Amazon announced its entry into the increasingly competitive healthcare wearables market, dominated by Apple and Fitbit (which Google is still in the process of trying to acquire). Amazon’s new wristband-mounted personal health data tracker, dubbed Halo, is a screenless device that provides capabilities beyond the average wearable, tracking body temperature, body fat percentage, and even the wearer’s emotions, in addition to the more standard physical activity, heart rate, and sleep. Some of the device’s expanded capabilities have drawn skepticism. Critics worry the body composition function, which allows users to visualize how their appearance may change as body fat increases, may be harmful to people with eating disorders. With two microphones and an artificial intelligence tool, Halo will also monitor a user’s voice to sense mood, and, according to an Amazon promotional video, “will show you what other people hear”. While the company says it aims to improve overall health, it’s not clear what consumer benefits the emotion-sensing capabilities will provide.

Halo’s launch unsurprisingly raised concerns about data privacy, and how data will be shared with partners, which include WW (formerly Weight Watchers), online mindfulness service Headspace, and Mayo Clinic. While Amazon is launching Halo as a wellness product, users can link collected data to their electronic health record through a collaboration with Cerner. San Diego-based Sharp HealthCare will be the first health system partner to participate. As Amazon, Apple and Google battle for share of the wearables market and access to consumer health data, it bears watching to see whether users find value in Halo’s expanded capabilities—and how Amazon and its partners, including affiliated providers, intend to use the health and wellness data generated.

Amwell plans public offering with $100M Google investment

Amid a surge in demand for virtual care services, telehealth company American Well Corporation, known as Amwell, has filed for an initial public offering (IPO) to raise up to $100M. Upon closing the offering, Google will invest another $100M through a concurrent private placement at the IPO purchase price. The two companies have announced a multi-year strategic partnership to integrate technologies and solutions, including joint development of new capabilities using Google Cloud’s artificial intelligence tools. Under the agreement, Amwell will migrate parts of its business to Google Cloud from Amazon Web Services. Amwell earns most of its revenue from charging recurring subscription fees to its customers, which include about 150 health systems and 55 health plans. The company has seen massive growth during the pandemic, with a 1,000-4,000 percent increase in telehealth visits, depending on the market. According to its IPO filing, Amwell’s revenue increased 77 percent in the first half of 2020—yet its net loss nearly tripled over the same period. This deal follows the recent announcement from Amwell’s largest competitor, Teladoc, that it will acquire remote chronic care management company Livongo for $18.5B. We expect this “land grab” for telehealth to continue as payers, providers, retailers and tech companies look to deepen their relationships with consumers by owning the virtual care platform.

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

Envisioning a new role for the board in health system strategy

Between the two of us, we’ve spent nearly 40 years working with CEOs and health system boards, and have attended hundreds of health system board meetings. In the past, board meetings used to be predictable and, sometimes a little sleepy: boards would dine well, discuss the bond rating, review the quality report, and ensure leaders were smoothly executing the fee-for-service playbook. But this is no longer the case. Not only have board meetings moved online, raising the bar on structure to encourage deep dialogue, the focus and tenor of these meetings has also evolved. Systems have grown in scale, and face new disruptive competitors, and the chaos and uncertainties brought by COVID-19. The graphic below reflects the goals progressive CEOs and board chairs are trying to achieve—and why many CEOs tell us that working with the board is taking more time and bandwidth than ever before. Boards’ strategic involvement needs to evolve to match the market’s evolution. As the market becomes more challenging, the board has to not only increase the magnitude—but change the method—of its involvement in health system strategy. In coming weeks we’ll have more to share on the changing role of the board, as well as implications for board membership, education, and structure.

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

Bringing bots into the health system

This week we hosted a member webinar on an application of artificial intelligence (AI) that’s generating a lot of buzz these days in healthcare—robotic process automation (RPA). That bit of tech jargon translates to finding repetitive, often error-prone tasks performed by human staff, and implementing “bots” to perform them instead. The benefit? Fewer mistakes, the ability to redeploy talent to less “mindless” work (often with the unexpected benefit of improving employee engagement), and the potential to capture substantial efficiencies. That last feature makes RPA especially attractive in the current environment, in which systems are looking for any assistance in lowering operating expenses. Typical processes where RPA can be used to augment human staff include revenue cycle tasks like managing prior authorization, simplifying claims processing, and coordinating patient scheduling. Indeed, the health insurance industry is far ahead of the provider community in implementing these machine-driven approaches to productivity improvement.

We heard early “lessons learned” from one member system, Fountain Valley, CA-based MemorialCare, who’s been working with Columbus, OH-based Olive.ai, which bills itself as the only “AI as a service” platform built exclusively for healthcare. Listening to their story, we were particularly struck by the fact that RPA is far more than “just” another IT project with an established start and finish, but rather an ongoing strategic effort. MemorialCare has been particularly thoughtful about involving senior leaders in finance, operations, and HR in identifying and implementing their RPA strategy, making sure that cross-functional leaders are “joined at the hip” to manage what could prove to be a truly revolutionary technology. Having identified scores of potential applications for RPA, they’re taking a deliberate approach to rollout for the first dozen or so applications. One critical step: ensuring that processes are “optimized” (via lean or other process improvement approaches) before they are “automated”. MemorialCare views RPA implementation as an opportunity to catalyze the organization for change—“It’s not often that one solution can help push the entire system forward,” in the words of one senior system executive. We’ll be keeping an eye on this burgeoning space for interesting applications, as health systems identify new ways to deploy “the bots” across the enterprise.

A “motivated minority” of employers looking to redesign benefits

We’ve heard from health systems across the country that most large employers are delaying major changes to health benefits, placing many “direct-to-employer” (DTE) conversations on hold. “We had deals in the works with two jumbo employers which are now delayed to 2022,” a health system executive told us. But she noted that some smaller businesses are looking to make changes sooner. Our recent conversation with the CEO of a health insurance startup confirmed this interest from mid-market employers. Brokers relayed that the number of RFPs they’re receiving from businesses looking to change plans is down 80 percent compared to last year, but “the ones in that minority are highly motivated to look at solutions that wouldn’t have been on the table last year.” He’s had a number of mid-market businesses choose narrower, “high-performance” networks, featuring enhanced primary care and lower out-of-pocket costs for consumers. There’s opportunity in the mid-market for health systems looking build their direct-to-employer business. Solutions for smaller businesses must deliver cost savings and enhanced access in a way that quickly scales across a range of companies in the market—different from the bespoke networks demanded by large employers that can take years to set up.

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

On last Monday’s episode, we joined host Alex Olgin to talk about the “brave new world” of healthcare that is emerging post-COVID. We discussed the imperative for health systems to design seamless care pathways across both in-person and virtual care in order to build consumer loyalty—and to keep telehealth disruptors at bay. Check it out if you haven’t already…it was our most downloaded episode ever!

Coming up on Monday, we’re excited to share an episode from our friends at the health policy podcast Tradeoffs. Their team dug into the history of how healthcare organizations discriminated against transgender patients prior to the landmark protections included in the Affordable Care Act—which are now being fought over in the courts. Make sure to tune in, you won’t want to miss it!

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

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

If you’re in search of a streaming snack this weekend, there’s a new(ish), five-episode “teen comedy” on Hulu worth checking out. But don’t let the label fool you. In My Skin, a BBC Three production about a Welsh high schooler, packs a hefty punch in its slight 180 minutes of viewing time. As the title suggests, the show revolves around one of the standard tropes of teenage fiction—how we portray ourselves to the world as we grow into our true selves. The story follows Bethan Gwyndaf, who spends most of her time lying to her closest friends, her classmates, and (sometimes) herself, about her dismal home life in a run-down Cardiff rowhouse. She’s the only child of a drunken wastrel of a father and a mother with serious bipolar disorder who requires frequent hospitalization. But amid this darkness, Bethan spins a series of concentric fictional selves—the edgy, “cool kid” rebelling against helicopter parents, the bookish savant who’s fed up with jet-setting parents, the devoted granddaughter who’s caring for an ailing relative. There are plenty of well-worn devices here, including schoolyard bullies, awkwardly “relatable” teachers, a moment of sexual awakening, and even an antic student council campaign speech. But what lifts the show above trite comedy are the profoundly affecting performances, and breathtaking writing. A mother-daughter confrontation scene, delivered in a hospital psychiatric ward, is one of many vignettes that are unlike anything you’d expect from TV teen dramedy. Neither does the show attempt to tie things up with a bow, and by the end of the last episode we’re only just arriving at the inevitable collision of Bethan’s many identities. A perfectly delivered, binge-friendly short story.

Stuff we read this week that made us think.

A single conference may have seeded 20,000 COVID cases

A conference bringing together 175 Biogen leaders in Boston during the last week of February demonstrated the anatomy of a superspreader event: attendees from all over the world working, eating and drinking together, at a time when little was known about COVID-19 and few precautions were taken. A new study reveals the magnitude of spread of this single event: 20,000 COVID infections may have been linked to the conference by early May, orders of magnitude greater than the previously reported 99 cases. A group of researchers evaluated the viral genomes from 772 patients across the greater Boston area, finding over 80 separate introductions of the virus, primarily from Western Europe or elsewhere in the US. But the Biogen event was far and away the largest source of infections, accounting for 37 percent of investigated cases, which extrapolates to an estimated 20,000 cases across the area (the event also seeded clusters in several states and overseas). Many patients with the Biogen virus had no direct connection with the event, including a large number of homeless individuals. As college campuses reopen and states flirt with allowing larger gatherings, the study provides an important lesson of the potential for exponential spread of the virus when left unchecked by preventive measures, and the need for testing and contact tracing to quickly stop the chain of transmission. 

What happens when PE firms buy hospitals?

A new study from researchers at Harvard, published this week in JAMA, raises concerns about a growing trend in healthcare: the acquisition of hospitals by private equity (PE) investors. Examining data from 204 hospitals acquired by PE firms between 2005 and 2017, and comparing their results to a matched group of 532 that were not acquired by PE firms, the researchers found that acquired hospitals increased charges per inpatient day by $407, a nearly 34 percent higher rate of increase compared to non-acquired hospitals. After three years, the PE-aquired hospitals were earning about $2.3M more in net income than matched, non-acquired hospitals. Medicare and Medicaid discharges dropped at the acquired hospitals, which also reported an increase in patient acuity relative to the non-acquired hospitals, possibly indicating an effort to assign more costly billing codes to patients. In some clinical areas, quality metrics also improved among the PE-acquired hospitals, which tended to be at a quality disadvantage prior to acquisition. The findings are consistent with the stated strategy of many PE firms that buy distressed hospitals with the aim of turning around performance by reducing cost, improving revenue generation (through coding and case mix management), and often investing in new programs. Although the study did not address pricing, the PE approach often includes renegotiating contracts to earn better pricing from payers.

Typically, having made such improvements, PE investors then look to “exit” their investment by selling to another investment firm, or to a strategic buyer (like a hospital company). Earlier this month, however, longtime hospital M&A consultant Joshua Nemzoff launched a new PE firm, Pennsylvania-based StoneBridge Healthcare, that purports to be focused on acquiring and turning around financially-distressed hospitals as a long-term ownership proposition. With a team of veterans from for-profit hospital chain Tenet Healthcare, Nemzoff’s new firm made its first acquisition bid this week, offering to acquire Chattanooga, TN-based Erlanger Health System from the Hamilton County Hospital Authority for $475M. Like many safety-net hospitals, Erlanger has taken a financial hit during the COVID pandemic, although Nemzoff said he’d had his eye on the system for “over a year”. Erlanger firmly rejected the offer, leaving StoneBridge to look for other acquisition targets that fit its desired profile of struggling, suburban $300-500M safety-net hospitals. Its pipeline is “filling up quickly”, Nemzoff said, adding that the firm has the capacity to manage 10-15 acquisitions, turning them into a “mini-HCA”. As the Harvard researchers caution, it will be worth paying attention to the impact of that strategy on the cost of care, especially in these financially challenging times.

Most of all, we hope you’ll 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!

Have a great Labor Day!

Best regards,

Chas Roades
Co-Founder and CEO
chas@gisthealthcare.com

Lisa Bielamowicz, MD
Co-Founder and President
lisa@gisthealthcare.com