|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
Senators introduce legislation to prevent “surprise” medical bills
A bipartisan group of senators led by Senator Bill Cassidy (R-LA) unveiled draft legislation to protect consumers from “surprise” medical bills incurred when receiving care outside their insurer’s contracted network. The bill is designed to prohibit “balance billing”, the practice of billing patients for the balance of a bill not paid by an insurer when patients receive emergency care from an out-of-network facility or provider, or when patients are treated by an out-of-network doctor practicing at a hospital that is in-network. The bill also mandates that emergency room patients be notified of potential excess charges once they are stabilized, so they may seek treatment elsewhere for follow-up, non-emergency care.
Recent media coverage has drawn attention to surprise medical bills by publicizing individual patient stories (remember the Texas teacher who received a $100K bill after treatment for a heart attack at an out-of-network hospital?), and the practice is widespread, with a recent Kaiser Family Foundation study revealing that 18 percent of commercially-insured patients receive an out-of-network bill following an inpatient stay. While states such as California and New York have passed legislation to mitigate the practice, self-funded plans—which now cover over 60 percent of all commercially-insured Americans—are often exempt from state regulation. This new legislation is a significant move to close that gap, and consumer protection has proven to be an area of bipartisan collaboration. Cassidy stated that it’s unlikely that the legislation will be introduced to the floor of the Senate before 2019. In the meantime, health systems who want to increase consumer value should see this as a part of their mandate; ensuring in-network coverage of all hospital-based providers will be a critical part of “curating” the provider network and delivering a consumer-focused patient financial experience.
Cigna and Express Scripts draw closer to merging
Health insurer Cigna’s plan to merge with the pharmacy benefit manager (PBM) Express Scripts cleared another hurdle this week, gaining approval from the Department of Justice under the Hart-Scott-Rodino Act. The merger, first announced last year, would not substantially lessen competition among PBMs or result in higher prices for PBM services for Cigna’s rivals, according to a DOJ statement clearing the deal. Cigna is pursuing the merger to improve its ability to manage rapidly-rising drug costs for its insurance clients, and to enhance its ability to compete in the Medicare Advantage market, where pharmacy benefit plans are a key competitive asset. The deal is expected to close by the end of 2018, although it must still pass regulatory reviews in 16 states. Cigna announced plans to merge with Express Scripts after a previously-planned merger between the PBM and insurer Anthem fell apart last year, leaving Express Scripts without a deal and without its largest client. PBMs have faced increasing scrutiny for their lackluster ability to control drug spending, and the potential conflicts inherent in their business models.
The DOJ’s green light for the Cigna-Express Scripts deal signals the government’s easing concern about vertical mergers, which bring together firms from different segments of the same industry. Having failed to successfully challenge the vertical mega-merger between AT&T and Time Warner earlier this year, DOJ lawyers may be softening their approach to such cross-sector deals. However, healthcare’s other noteworthy vertical merger, between CVS and Aetna, has been held up in review by the DOJ, as both firms divest overlapping parts of their businesses. As we’ve discussed, these big mergers amount to an effort by major industry players to put together the pieces necessary to manage the cost of care for Medicare beneficiaries, who are enrolling in private Medicare coverage in increasing numbers. The deals also reflect a growing concern among traditional healthcare incumbents that disruptive entrants like Amazon could be poised to make a major play to capture spend in healthcare, speculation that has been bolstered by the steady stream of news about Amazon’s new healthcare venture with Berkshire Hathaway and JP Morgan Chase. Once the dust settles and the deals are completed, the real test will be whether these mergers result in lower prices and more consumer value, or just lock in oligopolistic pricing by incumbents.
A new startup promises to transform healthcare payment
San Francisco, CA-based tech startup OODA Health announced this week that it completed a $40.5M Series A funding round, receiving investments from Oak HC/FT and DFJ, and that it has formed strategic partnerships with a range of payer and provider organizations, including Blue Shield of California, Blue Cross Blue Shield of Arizona (BCBS-AZ), Hill Physicians, the largest independent physician association in northern California, and San Francisco, CA-based Dignity Health, a 39-hospital system poised to become the largest nonprofit health system in the US after its proposed merger with Denver, CO-based Catholic Health Initiatives. OODA Health was started by Giovanni Colella, the physician who previously co-founded Castlight Health, a healthcare price transparency company, and RelayHealth, a secure messaging provider subsequently acquired by McKesson. The startup is building a new payment tool that will give consumers real-time transparency into their financial obligation for care, while enabling instantaneous payment of hospitals and doctors directly by insurers, without the complexity of pre-authorization and other administrative processes. Based on a risk-sharing arrangement with the payer, OODA’s tool will allow providers to be paid immediately, based on clinical data in the electronic health record (EHR), rather than on traditional claims. Dignity Health plans to deploy the tool in test markets in California and Arizona.
Importantly, the new tool will eliminate the need for patients to pay bills from providers, instead shifting the patient’s entire financial transaction to the payer. This would be a major satisfier for consumers and providers, who will no longer have to engage in a complex back-and-forth over billing. Meanwhile, the appeal to providers is obvious, eliminating the delay in payment for services rendered while claims are reconciled and processed. What’s less clear is the appeal to payers, beyond the reduction in administrative complexity associated with the current three-way transaction common to healthcare. Notably, the tool does nothing to reduce the actual price of care (unless savings generated from administrative simplification are passed along to consumers: doubtful). And, by taking providers out of the collections business, the tool would seem to reduce pressure on hospitals and doctors to provide consumer-friendly prices for care. Much remains to be clarified in the tool’s development and rollout but given the pedigree of OODA Health’s founders and funders, and the scale and reach of their strategic partners, this new entrant will surely be worth watching. (As an aside, OODA Health only sought funding from venture firms with female partners—shining a welcome light on the still male-dominated VC world.)