April 14, 2023

The Weekly Gist: The Moose on the Loose Edition

by Christy Davis

Hospitals have been long criticized for their unappetizing food options, so we were heartened to come across a story this week of one medical center that’s become something of a culinary destination. Grown inside the facility at low cost, the plant-based meal was so delicious a guest didn’t want to leave! The guest, seeking cuisine not care…was a moose, who was too busy munching on the plants in the lobby to notice the commotion he was causing. Anchorage-based Providence Alaska Health Park said this wasn’t the first moose to walk through their doors. Ultimately, Bullwinkle Jr. had enough of everyone watching him eat, and was discharged by hospital security with a prescription for a nice nap behind the building. Let’s hope the bill isn’t too much of a shocker for our uninsured friend, and he can negotiate a self-pay rate better than the chargemaster price for “Fern, w/o complications: $5,500”.

THIS WEEK IN HEALTHCARE 

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

  1. Mifepristone ruling saga escalates quickly through the courts. Last Friday, Texas federal judge Matthew Kacsmaryk ordered the Food and Drug Administration (FDA) to rescind its approval of mifepristone, a drug widely used in medication abortions with a proven safety record. That suit, brought by the Alliance Defending Freedom, alleges that the FDA did not properly review the safety risks of mifepristone. Later that day, Washington state federal judge Thomas Rice issued a conflicting ruling that forbade the FDA from rescinding approval in the 17 states and the District of Columbia where Democratic lawmakers have sued to protect access to the drug. Then late on Wednesday, the Fifth Circuit Court of Appeals ruled that mifepristone could remain partially available while the Texas case proceeds through the courts—but rolled back more recent decisions issued by the FDA which have made the drug easier to obtain and use, including mail-order access. In response, the Justice Department announced on Thursday that it was seeking emergency Supreme Court intervention, and Judge Rice issued a ruling on Thursday compelling the FDA to preserve full access to mifepristone in the plaintiff states. On Friday, the Supreme Court stayed the lower court’s ruling, restoring full access to mifepristone temporarily, to give the justices until Wednesday to resolve the matter.

The Gist: With the FDA now facing competing judicial orders, the fate of mifepristone rests in the hands of the Supreme Court. While many view this case as centered on questions of abortion rights, the consequences of these unprecedented rulings extend beyond mifepristone access: the FDA’s authority and autonomy in its drug and device approval process is at stake. This same process could potentially be applied to other politically charged drug approvals, like birth control and COVID vaccines, to similarly disruptive effects. Even temporary bans that are ultimately reversed could have a chilling effect on drug production, development, and access.

  1. UnitedHealth Group (UHG) quietly acquired Crystal Run Healthcare. In late February, Crystal Run Healthcare, a Middletown, NY-based physician group with nearly 400 providers, became part of UHG’s Optum division. A local paper broke the news after obtaining an email from Crystal Run’s CEO, as neither company issued a press release, though UHG has since confirmed the acquisition. Crystal Run expands Optum’s footprint in the Hudson Valley region north of New York City, following the acquisition of Mount Kisco, NY-based Caremount Medical in 2022. The company’s broader New York metro area footprint includes Connecticut-based ProHEALTH and New Jersey-based Riverside Medical Group, the three of which Optum has since integrated into a single tri-state medical group.

The Gist: Optum continues to secure its place as the country’s largest aggregator of physicians, now employing or aligning with over 70,000 doctors nationwide. Not only does every new deal by UHG bolster its vertical integration strategy, but they also shine a light on gaps in federal antitrust regulations. UHG must only disclose deals that comprise a “significant” portion of its business, a threshold that excludes physician groups as large as Crystal Run—making it difficult to fully examine transactions that are subscale according to regulations, but may be significant for healthcare delivery in a local market. Some state governments, including New York, are exploring ways to increase state antitrust scrutiny of provider acquisitions. But in multi-state markets where only the federal government has the authority for full oversight, UHG’s acquisition strategies are proving difficult to even monitor, much less intervene. 

  1. Froedtert Health and ThedaCare announce intent to merge. On Tuesday, Milwaukee, WI-based Froedtert Health and Neenah, WI-based ThedaCare shared they have signed a letter of intent to form a $5B, 18-hospital system. The merger would unite Froedtert’s southeast Wisconsin service area with ThedaCare’s northeast and central Wisconsin footprint, linking tertiary care patients in ThedaCare’s high-growth service areas in the Fox Valley to Froedtert’s Medical College of Wisconsin in Milwaukee. As the systems serve non-overlapping markets, the merger is not expected to receive challenge from federal regulators.

The Gist: These two systems have partnered previously, striking a joint venture last fall to build two health campuses with micro-hospitals, which likely served as the operational test case for merger plans already in the works. The pace of consolidation has quickened in the Badger State, with Gundersen Health System and Bellin Health completing a merger last fall to form an 11-hospital system. While interstate mega-mergers have defined recent health system M&A trends, these types of regional mergers, which bring together systems in adjacent but non-overlapping markets, could serve to bolster the combined system’s value proposition as a partner to employers and other healthcare entities in the state and beyond.

Pluswhat we’ve been reading.

  1. What’s driving the bidding war for primary care practices? Published in the April edition of Health Affairs Forefront, this piece unpacks why payers and other corporations have replaced health systems as the top bidders for primary care practices, driving up practice purchase prices from hundreds of dollars to tens of thousands of dollars per patient. While corporate players like UnitedHealth Group, Amazon, and Walgreens have spent an estimated $50B on primary care, it pales in comparison to the potential “$1T opportunity” in value-based care projected by McKinsey and Company. The authors argue that this tantalizing opportunity exists because the Centers for Medicare and Medicaid Services (CMS) invited corporations to “re-insure” Medicare through capitated arrangements in Medicare Advantage (MA) and its Direct Contracting program. While CMS intended to promote risk and value-based incentives to improve care quality and costs, the incentive structures baked into these programs have afforded payers record profits, despite neither improving patient outcomes nor reducing government healthcare spending.

The Gist: While the critiques of MA reimbursement structures in this piece are familiar, they are woven together into a convincing rebuke of the “unintended consequences” of CMS’s value-based care policy. Through poorly designing incentives, CMS paved a runway for corporate America to capture the lion’s share of the financial returns of value-based care, paying prices for primary care that health systems can’t match. Meanwhile, despite skyrocketing valuations for primary care practices, primary care services remain underfunded and inadequately reimbursed, pushing primary care groups closer to payers with excess profits to invest.


GRAPHIC OF THE WEEK

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

A new normal for hospital margins?

Using data from Kaufman Hall’s National Hospital Flash Report, as well as publicly available investor reports for some of the nation’s largest nonprofit health systems, the graphic below takes stock of the current state of health system margins. The median US hospital has now maintained a negative operating margin for a full year. Some good news may be on the horizon, as the picture is slightly less gloomy than a year ago, with year-over-year revenues increasing seven points more than total expenses. However, the external conditions suppressing operating margins aren’t expected to abate, and many large health systems are still struggling. Among large national non-profits Ascension, CommonSpirit Health, Providence, and Trinity Health, operating income in FY 2022 decreased 180 percent on average, and investment returns fell by 150 percent on average, compared to the year prior. While health systems’ drop in investment returns mirrors the overall stock market downturn, and is largely comprised of unrealized returns, systems may not be able to rely on investment income to make up for ongoing operating losses.


THIS WEEK AT GIST—ON THE ROAD

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

Are we on the cusp of a new disruptive era of clinical innovation? 

At a recent meeting of physician leaders, we sat next to the head of the health system’s bariatric surgery program. Given the recent and rapid uptake of GLP-1 inhibitors like Ozempic and Wegovy, we asked how he thought these drugs, which can generate dramatic weight loss, would affect his practice. He chuckled, “they’re really good drugs…they could put me out of business! It’s too early to say if they’ll be effective over a lifetime, but there’s no doubt they’re going to have a huge impact on our work.” It got us thinking about the other reverberations this class of drugs could have on care needs, if a majority of obese Americans had access to them.

Some effects are obvious. We could see significant declines in treatment needs for chronic diseases like diabetes and heart failure, for which obesity is a strong risk factor. Given that obese patients are much more likely to need joint replacement surgery, we could see a big hit to that demand—although some patients who are poor candidates for surgery because of weight-related complications could become eligible. Even longer-term, if American’s aren’t dying of chronic disease, we’ll still die of something, so expect diseases of advanced age, like Alzheimer’s and many cancers, to increase. Other pharmaceutical innovations, like the growth of immunotherapy and more targeted cancer treatments, also have the potential to radically alter how disease is managed. We may be at the beginning of another wave of disruptive medical innovation on the order of the introduction of statins in the 1990s, which combined with minimally invasive catheterization, slashed the need for bypass surgery. Given their sky-high prices, it’s too soon to tell how quickly the use of these new obesity drugs will grow, but innovations like these will serve to pull more care out of hospitals and into less invasive outpatient medical management.


THIS WEEK AT GIST—ON THE PODCAST

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

Last Monday, we heard from Kaufman Hall co-founder and Managing Chair Ken Kaufman. He joined JC to talk about his recent blog post that examined Ford Motor Company’s decision to overhaul its strategic plan and what hospitals can learn from the automaker’s shift in direction.

Then, on Monday, April 24th, JC will be joined by Privia Health executive leaders Jason Ross and Mike Flammini. They’ll discuss how the physician-enablement company has evolved since it went public and share more about some of its latest partnerships with health systems.

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


That’s all for today! Again, thanks for taking the time to read the Weekly Gist, and for sharing our work with friends and colleagues—we appreciate it! Please also encourage them to subscribe, and to listen to our daily podcast. We’ll be off next week due to a full travel schedule, but see you back here the week following.

In the meantime, we love hearing from you—let us know what you thought, what you’re seeing, and how we can be of assistance in your work. You’re making healthcare better—and we want to help!

Best regards,

Chas Roades
Co-President and Managing Director
chas@gisthealthcare.com

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