March 26, 2021

The Weekly Gist: The Just Keep Digging Edition

by Chas Roades and Lisa Bielamowicz MD

By now you’ve heard the sad tale of the Ever Given, one of the world’s largest container ships—it’s about the size of the Empire State Building and was built to carry 20,000 of those ubiquitous metal shipping containers that have become the building blocks of global trade. The ship is stuck diagonally in the Suez Canal, one of the most vital international waterways linking Asia and Europe, and it’s costing the world $9.6B in lost revenue every day it remains blocking the canal. (You can check out the current status of the situation at this clever site.) It’s an international emergency, to be sure, but the crisis has given birth to a photo that is sure to become a meme for our times, showing a comparatively Lilliputian front-end loader trying to dig the grounded vessel out. We know just how you feel, lil’ fella. Just keep digging.

Note to readersWe’ll be pausing the Weekly Gist for the next couple of weeks, as we enjoy a needed (if subdued) Spring Break. See you back here on April 16th with an all-new edition! In the meantime, stay safe and healthy!


THIS WEEK IN HEALTHCARE

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

AstraZeneca stumbles again in it its vaccine rollout

It was a relatively quiet week on the COVID front—so quiet that President Biden held his first White House press conference yesterday and wasn’t asked a single question about the pandemic, which continues to be a race between vaccinations and virus variants. Not that nothing happened this week: it was a rocky week for AstraZeneca, which was hoping to change the narrative over its vaccine, which has stumbled in its rollout in Europe, by reporting positive results from US trials. After a press release announcing that the vaccine was found to be 79 percent effective against symptomatic COVID, an independent review board called the results into question, pointing out that the report was based on data that had not been fully updated. That earned a swift and unusual rebuke from the National Institutes of Health (NIH), forcing the company to correct its findings—to 76 percent. A relatively minor difference, but the dust-up served to further undermine confidence in the company’s COVID jab, especially troubling in Europe where hesitancy and distribution have been a vexing problem, and concerns about blood clots associated with the AstraZeneca shot caused several countries to pause inoculations. Given the supply of already-approved vaccines from other manufacturers in the US, it’s not clear that the AstraZeneca shot will play a big role here, but it is critical in other parts of the world, especially as part of the global COVAX initiative targeted at developing countries, since the vaccine can be stored at normal refrigerator temperatures. The company’s set-to with American regulators also highlighted another challenge that’s become common during the COVID pandemic: conducting scientific review by press release, as the global emergency has required the otherwise slow-moving research community to move at lightning pace. Meanwhile, back at that relatively dull White House press conference, one piece of encouraging news: President Biden doubled his “first 100 days” goal for vaccinations to 200M shots, a goal that seems wholly achievable, given that 2.5M Americans are being vaccinated every day, on average.

Senate votes to delay sequester cuts to Medicare payment

If you’re looking for an issue that can unite a heavily divided Congress, it seems nearly all Senators can get behind delaying payment cuts to providers during a pandemic. On Thursday the Senate voted 90-2 to pause the 2 percent sequester cuts to Medicare payment slated to go into effect on April 1. The bill is expected to be passed by the House and signed into law by President Biden, delaying the cuts through the coronavirus public emergency. While hospitals, many of whom are still recovering from increased costs and volume loss during the pandemic, can breathe a sigh of relief, providers face an even larger 4 percent payment cut in the fall due to the PAYGO, or “pay as you go”, statute, which would trigger automatic payments cuts due to the deficit increases caused by the COVID relief bill. We’d gamble that intense industry lobbying to delay the PAYGO cuts will prove successful—again, legislators will be reticent to dock provider payment as pandemic recovery continues. But eventually, in a more normal world, hospitals can expect policymakers to shift their focus from pandemic relief to cost control—and it will likely not prove possible to delay the inevitable reckoning over the high cost of our health system.


GRAPHIC OF THE WEEK

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

From insurer to diversified services business

Large health insurers no longer just provide coverage, but are instead repositioning themselves as vertically integrated healthcare organizations that span the care continuum. The graphic below shows five-year total revenue growth by segment for the top five health insurance companies. Some, like Anthem and Humana, are still in the early stages of revenue diversification, leveraging partnerships and investments to fill service gaps—in Humana’s case, these are mainly centered on the Medicare Advantage population. On the other hand, the insurance revenue of Cigna and CVS Health is already dwarfed by pharmacy benefit management (PBM) revenue (as well as retail clinic revenue for CVS). UnitedHealth Group (UHG) is clearly leading the pack, with a robust revenue diversification and vertical integration strategy. Its Optum subsidiary grew 62 percent over the last five years, nearly double the rate of its UnitedHealthcare insurance business. Already the largest employer of physicians in the country, Optum recently announced plans to acquire Massachusetts-based 715-physician group, Atrius Health. It also announced its intent to acquire Change Healthcare, one of the largest providers of revenue and payment cycle management solutions. Given the outsized role of the Optum division in driving UHG’s growth and profitability, it may soon face a dilemma that other publicly traded, diversified companies have had to confront: shareholder demands to unlock value by spinning off the business into a separate company. Central to fending off that kind of activism by shareholders: demonstrable steps to integrate the myriad businesses the company has acquired into a functional whole. Just as Amazon’s hugely profitable Web Services business has become a target of spin-off demands, so too, eventually, may UHG’s Optum.


THIS WEEK AT GIST—ON THE ROAD PHONE

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

How many “lives” does a health plan need?

Doctors and health systems with a significant portion of risk-based contracts weathered the pandemic better than their peers still fully tethered to fee-for-service payment. Lower healthcare utilization translated into record profits, just as it did for insurers. We’re now seeing an increasing number of health systems asking again whether they should enter the health plan business—levels of interest we haven’t seen since the “rush to risk” in the immediate aftermath of the passage of the Affordable Care Act a decade ago. The discussions feel appreciably different this time around (which is a good thing, since many systems who launched plans in the prior wave had trouble growing and sustaining them). First, systems are approaching the market this time with a focus on Medicare Advantage, having seen that growing a base of covered lives with their networks is much easier than starting with the commercial market, where large insurers, particularly incumbent Blues plans, dominate the market, and many employers are still reticent to limit choice. But foremost, there is new appreciation for the scale needed for a health plan to compete. In 2010, many executives set a goal of 100K covered lives as a target for sustainability; today, a plan with three times that number is considered small. Now many leaders posit that regional insurers need a plan to get to half a million lives, or more. (Somehow this doesn’t seem to hold for insurance startups: see the recent public offerings of Clover Health and Alignment Health, who have just 57K and 82K lives, respectively, nationwide.) We’re watching for a coming wave of health system consolidation to gain the financial footing and geographic footprint needed to compete in the Medicare Advantage market, and would expect traditional payers to respond with regional consolidation of their own.

The folly of fighting over board seats

In our work over the years advising health systems on M&A, we’ve been struck by how often “social issues” cause deals that are otherwise strategically sound to go off the rails. Of course, it’s an old chestnut that “culture eats strategy for breakfast”, but what’s been notable, especially recently, is how early in the process hot-button governance and leadership issues enter the discussions. Where is the headquarters going to be? Who’s going to be the CEO of the combined entity? And most vexingly, how many board seats is each organization going to get? That last issue is particularly troublesome, as it’s often where negotiations get bogged down. But as one health system board member recently pointed out to us, getting hung up on whether board seats are split 7-6 or 8-5 is just silly—in her words, “If you’re in a position where board decisions turn on that close of a margin, you’ve got much bigger strategic problems.” It’s an excellent point. While boards shouldn’t just rubber stamp decisions made by management, it’s incumbent on the CEO and senior leaders to enfranchise and collaborate with the board in setting strategy, and critical decisions should rarely, if ever, come down to razor-thin vote tallies. If a merger makes sense on its merits, and the strategic vision for the combined organization is clear, quibbling over how many seats each legacy system “gets” seems foolish. No board should go into a merger anticipating a future in which small majorities determine the outcome of big decisions.


THIS WEEK AT GIST—ON THE PODCAST

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

On last Monday’s episode, Lisa and Chas joined Alex in studio to talk about the coming healthcare “land grab”, as payers and disruptors look to expand their virtual and home-based care capabilities to prepare for a post-pandemic future.

Coming up next Monday, we’ll hear from Kristen McGovern, a partner at healthcare consulting firm Sirona Strategies, about the next evolution of value-based payment: Medicare’s Direct Contracting model. The first group of participating organizations starts the demonstration next week. Make sure to tune in!

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


BINGE WATCH ALERT

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

Before the world finally gets back to normal, we’re working our way down the list of shows we meant to binge during quarantine but just didn’t get around to. Well worth the time: a three-season spy drama from Germany, which follows the exploits of a young East German border guard who gets sucked into the world of Cold War espionage. Deutschland 83 and its successor series, Deutschland 86 and Deutschland 89, are set in the tempestuous years that led to the fall of the Wall and its aftermath. Martin Rauch (Jonas Ney) is the accidental secret agent, who plays a Zelig-like role at the center of the pivotal events that brought the Cold War to an end, navigating a complex web of double agents, Stasi informers, and international arms smugglers, all while trying to extricate himself from the dangerous world he’s been dragged into. Season two broadens the aperture to include the anti-apartheid struggle and associated proxy wars in southern Africa, and season three narrows back to the chaotic period surrounding the fall of the Wall, and the reunification of the two Germanies. It’s easy to look past the slightly preposterous plot details, given the careful attention to recreating the atmosphere of late-80s Berlin, East and West. (Indeed, parts of the show were filmed in the actual building that housed the infamous Stasi secret service in East Berlin.) The action is fast-paced and the writing is surprisingly good for a genre series; plus you’ll hardly notice the subtitles, given that a good portion of the show is in English. An added bonus: the excellent 80s new wave music that serves as the show’s soundtrack. (Oh yes, you’ll hear Nena and Falco.) All three seasons are now streaming on Hulu—Alles klar, Herr Kommissar?


WHAT WE’RE READING

Stuff we read this week that made us think.

Finding the way back from a world without smell

For millions of COVID patients, loss of smell happens abruptly. They can recall the exact moment when they noticed it was gone: in the shower, the shampoo had no smell. Or eating a favorite snack, which suddenly had no taste or smell. Of all our senses, smell is the least understood, according to a fascinating New York Times Magazine piece, and there’s been relatively little focused research over the past century. We don’t understand just how integral it is to our lives until we lose it. Smell is the sense most tightly linked to memory; without it, our ability to taste diminishes. The biology of smell is incredibly complex. Humans have as many as 400 types of smell receptors which allow us to smell a trillion smells; in comparison, there are four types of light receptors that enable us to see. Last spring, the small community of smell researchers found themselves inundated with inquiries from COVID patients who suddenly couldn’t smell. Unfortunately the road to regaining the sense of smell is often long and arduous, according to a recent piece in the Atlantic. As olfactory nerves damaged by COVID start to reconnect, patients can experience “parosmia”, where the sense of smell gets scrambled: a pleasant smell, like brewing coffee, registers as a malodorous one, like sewage. Smell training, a process developed for patients who have lost their sense of smell due to injury or other viral infections, can hasten the road back to smell for some COVID patients. Scientists believe the regimented, repetitive smelling of familiar scents can help retrain and reconnect sensory pathways. With as many as half of COVID patients experiencing loss of smell and taste, the biology behind, and treatments for, smell loss will surely be one of many medical fields fast-forwarded by COVID-19.


That’s it! Thanks for taking the time to read the Weekly Gist, and sharing your comments and suggestions with us—we love hearing from you! We hope you’ll share this with a friend or colleague, encourage them to subscribe, and tune in to our daily podcast. We’re looking forward to being back with you in a couple of weeks, with an all-new edition.

In the meantime, 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 wishes for a Happy Easter and Passover,

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

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