January 13, 2023

The Weekly Gist: The New Year, New Adventure Edition

by Chas Roades and Lisa Bielamowicz MD

We have some exciting news to share! We announced this week that Gist Healthcare has joined forces with the powerhouse consulting and advisory firm Kaufman Hall, in a deal that was finalized on January 1st. We’ve long been admirers of the excellent work and deep expertise of Kaufman Hall, and as we’ve gotten to know their team better over the last few months, we’ve become convinced that by combining our two firms, we can have an even greater impact on the clients and members we serve. We’ll be an independent unit—our team and brand will remain intact, and we’ll continue to serve our members, write the Weekly Gist, and produce the Gist Healthcare Daily podcast as before. (Don’t worry, the music reviews and dad jokes aren’t going anywhere!) But now we’ll have the resources and expert bench of a preeminent firm to draw upon, and we’re already working on new ways to take Gist Healthcare to the next level. We’re thrilled to have you along with us for this new adventure, and we’re always humbled by your continued interest in our work. And now, back to our regularly scheduled programming!

THIS WEEK IN HEALTHCARE

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

  1. CVS invests $100M in Carbon Health. On Monday, San Francisco-based Carbon Health—a virtual-first primary and urgent care company with 125 clinics across 13 states—announced a partnership with CVS Health, which includes a $100M investment, as well as plans to pilot its operating model in select CVS stores. The announcement came just days after Carbon reported its second round of layoffs in the past year, as it scales back on less profitable business segments to focus on expanding its primary care model.

The Gist: It’s been over a year since CVS CEO Karen Lynch said the company was moving with “speed and urgency” to construct a physician-staffed primary care model. Last fall it purchased in-home health evaluation company Signify Health for $8B, after rumors that it had been close to acquiring One Medical. Between its convenient retail footprint, insurance arm, and Signify’s risk-assessment tools, a nationwide primary care physician network is the last puzzle piece CVS needs to field a comprehensive and formidable primary care strategy. While it’s currently rumored to be evaluating a $10B acquisition of Oak Street Health, this partnership with Carbon Health is a better bet to deliver value quickly, as CVS should be able to more easily integrate and leverage Carbon’s retail health expertise across its growing care delivery platform.

  1. FTC proposes banning noncompete agreements. Last Thursday, the Federal Trade Commission (FTC) released a proposed rule that would ban employers from imposing noncompete agreements on their employees. Noncompetes affect roughly 20 percent of the American workforce, and healthcare providers would be particularly impacted by this change, as far greater shares of physicians—at least 45 percent of primary care physicians, according to one oft-cited study—are bound by such agreements. The rulemaking process is expected to be contentious, as the US Chamber of Commerce has declared the proposal “blatantly unlawful”. While it is unclear whether the rule would apply to not-for-profit entities, the American Hospital Association has released a statement siding with the Chamber of Commerce and urging that the issue continue to be left to states to determine.

The Gist: Should this sweeping rule go into effect, it would significantly shift bargaining power in the healthcare sector in favor of doctors, allowing them the opportunity to move away from their current employers while retaining local patient relationships. The competitive landscape for physician talent would change dramatically, particularly for revenue-driving specialists, who would have far greater flexibility to move from one organization to another, and to push aggressively for higher compensation and other benefits. Given that the FTC cited suppressed competition in healthcare as an outcome of current noncomplete agreements, the burden will be on organizations that employ physicians—including health systems and insurers, as well as private equity-backed corporate entities—to prove that physician noncompetes are essential to their operations and do not raise prices, as the FTC has suggested.

  1. Intermountain and UCHealth partner to form CIN. Late last week, Salt Lake City, Utah-based Intermountain Healthcare and University of Colorado-affiliated UCHealth, based in Aurora, CO, shared that they are jointly developing a clinically integrated network (CIN). It will initially comprise 700 primary care physicians working at UCHealth’s 12 hospitals and hundreds of clinics, but may expand in the future. The CIN will leverage Intermountain’s value-based care expertise and its SelectHealth insurance plans. The two health systems will remain independent and operate the CIN as a separate company.

The Gist: This partnership continues Intermountain’s expansion into Colorado, after it finalized its merger with SCL Health in April of last year. It’s a smart way for Intermountain to strengthen its foothold in the state, especially as further health system acquisitions in the Denver area may raise antitrust concerns. Intermountain will be able to tap into a larger network of physician relationships that it can use to bolster its health plan, with significantly lower infrastructure costs compared to employment. These types of partnership strategies may also be bed-warming for deeper relationships, with the opportunity to demonstrate value before a full-on merger. 

Pluswhat we’ve been reading.

  1. Adverse events in inpatient care still common. Published this week in the New England Journal of Medicine, this concerning study found that seven percent of all inpatient hospital admissions feature at least one preventable adverse event, and that nearly a quarter of all adverse events are preventable, with drug administration errors the most frequent. While the complexities behind studying adverse events make it difficult to measure progress over time, the authors assert that these episodes are still far too common, and advocate for establishing standard approaches to measure the frequency of adverse events more reliably.

The Gist: Health systems had been making at least some progress in their decades-long effort to reduce adverse events before COVID turned the industry upside down, drawing clinical leaders’ focus to the crisis and upending industry benchmarks. Today’s short-staffed, traveler-dependent labor force presents yet another challenge to hospitals aiming to achieve quality benchmarks. COVID has also accelerated the outpatient shift, heightening the importance of tracking quality metrics in non-hospital settings. As more complex procedures are performed in ambulatory surgery centers, and more hospital care is administered at home, there’s also a concern that hospital-based quality measures are not telling the whole story on the state of patient safety. A rethinking of quality metrics and processes to measure and prevent adverse events across the continuum is long overdue.  


GRAPHIC OF THE WEEK

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

Inflation supercharging cost-sharing challenges in healthcare

After COVID fears and shutdowns led consumers to delay care early in the pandemic, persistently high inflation over the past year has further suppressed volumes. As the graphic below illustrates, the average deductible for individual coverage has grown by over 140 percent since 2010, exposing consumers to an increasing portion of healthcare costs, and prompting economists to reevaluate the adage that healthcare is “recession-proof”. This year, that trend collided with an inflation spike that outpaced wage gains by two percent. Faced with diminished purchasing power, households are making budget tradeoffs which explicitly pit healthcare against other essential household needs. For some, this cost-cutting impulse even extends to preventative screenings—required to be covered without cost-sharing—when consumers’ financial concerns drive them to avoid healthcare altogether. While the latest inflation report suggests price increases are moderating, fears of a broader recession persist, making it critical for health systems and physicians to communicate with patients, encouraging them to continue to access preventive care, educating them about lower cost care options, and helping them prioritize treatment that should not be put off.


INTERMISSION

A recommendation from our weekly diet of music, movies, TV, and other good stuff.

Cacti by Billy Nomates—The second full-length release for this Bristol-based no-waver trades tongue-in-cheek punk for urgent, almost claustrophobic, synth pop. Each track from Tor Maries, who performs under the Nomates name, is like another spike on the eponymous succulent of the album’s title. But there are gorgeous flowers to be found among the needles here—the perfect soundtrack for the first Friday the 13th of the new year.


THIS WEEK AT GIST—ON THE ROAD

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

A contentious time for payer-provider negotiations

In our decades of working in healthcare, we’ve never seen a time when payer-provider negotiations have been more tense. Emboldened insurers, having seen strong growth during the pandemic, are entering contract negotiations with an aggressive posture. “They weren’t even willing to discuss a rate increase,” one CFO shared as he described his health system’s recent negotiations with a large national insurer. “The plan’s opening salvo was a fifteen percent rate cut!” Health systems are feeling lucky to get even a two or three percent rate bump, well short of the historical average of seven percent—and far short of what would be needed to account for skyrocketing labor, supply, and drug costs. According to executives we work with, efforts to describe the current labor crisis and resulting cost impacts with payers are largely falling on deaf ears.

This scenario is playing out in markets across the country, with more insurers and health systems announcing that they are “terming” their contract, publicly stating they will cut ties should the stalemate in negotiations persist. Speaking off the record, a system executive shared how this played out for them. With negotiations at an impasse, a large insurer began the process of notifying beneficiaries that the system would soon be out-of-network, and patients would be reassigned to new primary care providers. The health plan assumed that the other systems in the market would see this as a growth opportunity—and was shocked when they discovered that other providers were already operating at capacity, unable to accommodate additional patients from the “terminated” system. Mounting concerns about access brought the plan back to the table. Even in the best of times, a major insurer cutting ties with a health system is extremely disruptive for consumers, who must shift their care to new providers or pay out-of-network rates. But given current capacity challenges in hospitals nationwide, major network disruptions can be even more dire for patients—and may force payers and providers to walk back from the brink of contract termination.


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, JC spoke with Steve Cagle, CEO of healthcare cyber risk management company Clearwater, to discuss the state of cybersecurity in healthcare following a number of data breaches and ransomware attacks on health systems in 2022.

Coming up this Tuesday, we’ll be joining JC on the podcast to chat about what we’re watching for in 2023, including how much of a role politics will play in healthcare, what we expect to see from large disruptors, our predictions for health system mergers, and more.

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

That’s all for this week! We’ll be back next Friday, as usual, with another edition of the Weekly Gist. Thanks for taking time to read our work, and thanks so much for all the kind words of congratulations and support over the past week as we’ve shared our exciting news publicly—we couldn’t be more grateful. If you’re a new subscriber, please consider sharing the Weekly Gist with friends and colleagues and encourage them to subscribe, and to check out our daily podcast.

And of course, now more than ever, please let us know if we can be of assistance in your work. You’re making healthcare better—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