August 10, 2018

The Weekly Gist: The Ongoing Saga Edition

by Chas Roades and Lisa Bielamowicz MD

Tweet, tweet! The full-time whistle sounded today on the first game of the new Premier League soccer season, signaling the unofficial end of summer and the glorious return of soccer mania after weeks of agonizing emptiness. Or something like that…anyway, Manchester United 2, Leicester City 1. We’re not ready for soccer to be back either, or summer to be coming to a close. (Please don’t write in telling us that the Major League Soccer season has been going on for months…we know soccer when we see it.)

Here’s our take on the week gone by, for your reading pleasure as you make your way through an Opening Weekend full of riveting matches like Chelsea-Huddersfield and Bournemouth-Cardiff City.


THIS WEEK IN HEALTHCARE

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

Medicare gets tough with upside-only ACOs

This week, the Centers for Medicare & Medicaid Services (CMS) released a proposal to revamp the Medicare Shared Savings Program (MSSP), its six-year old program to encourage collaborative efforts among caregivers to generate savings for the Medicare program through the creation of accountable care organizations (ACOs)In a blog post on the Health Affairs website, CMS Administrator Seema Verma laid out the rationale for the new proposal, which is aimed at encouraging ACOs to shift into more aggressive, downside-risk contracts to care for Medicare beneficiaries. The new proposal, dubbed “Pathways to Success”, narrows the number of participation “tracks” to two, effectively eliminating the upside-only Track 1 option. Verma expressed frustration with the lack of savings from Track 1 ACOs, which account for over 80 percent of all MSSP organizations, echoing a growing concern among policy analysts that program participants—especially higher-cost hospital systems—were using the program as a pretext for physician consolidation without delivering reduced costs of care. “Medicare cannot afford to support programs with weak incentives that do not drive toward savings,” Verma wrote.

The new rule proposes creation of two ACO tracks, “BASIC” and “ENHANCED”, each with a five-year contract term, and both requiring participants to take on downside risk. BASIC track participants would be required to assume downside risk after the first two years of participation, while ENHANCED participants would take on downside risk immediately. The proposal further distinguishes between “high-revenue” ACOs, hospital-based organizations which typically have greater combined spend across Medicare Parts A and B, and “low-revenue” ACOs, most made up solely of physician practices. CMS proposes to force high-revenue ACOs into the ENHANCED track more quickly, thus discouraging them from “squatting” in upside-only arrangements—Verma’s principal frustration with the program’s current structure. After one stint in the BASIC track, new hospital-based participants would be required to move along into the more advanced version or exit the program entirely. Both tracks would qualify as “advanced alternative payment models”—a key milestone related to physician payment in Medicare’s Quality Payment Program (QPP)—as long as the participating organization is taking downside risk. Other proposed changes are intended to address long-standing criticisms of MSSP, including a shift toward regional benchmarks designed to more accurately capture geographic variability in cost of care, and a more flexible beneficiary attribution approach, intended to give participants better visibility into the patient population for which they will be held accountable.

Hospital groups and the main lobbying organization for ACOs voiced their opposition to the more aggressive approach, citing the complexity of managing downside risk and warning that many program participants would simply drop out of the program altogether (CMS’s own prediction is that 107 of the program’s 649 ACOs would likely exit the program). As we work our way through the 607-page proposal, we’ll share our own detailed analysis on the Gist Blog, but we’re not surprised to see CMS taking a tougher line with the ACO program. Accountable care has largely been a disappointment thus far—an overly-complex payment reform that has lacked sufficient incentives to engender real change in care delivery. While the more robust versions of Medicare ACOs (such as the Next Generation ACO Model being tested by Medicare’s Innovation Center) have produced meaningful results, most MSSP participants have treated the ACO program as an interesting experiment that has provided a pretense for creating closer linkages with referring physicians and an opportunity to gain access to previously-unavailable data on patient utilization patterns. Meanwhile, the juice has not been worth the squeeze, with many organizations spending millions on legal and consulting fees to set up ACOs, and little Medicare savings to show for it. Even the revamped version is expected to yield only $2.2B in savings over the next decade, against a total Medicare spend of $9.6T over the same period. We continue to expect the ongoing shift to private, Medicare Advantage (MA) coverage to provide the bulk of the opportunity to reduce spending growth in the Medicare program, with the ACO program providing little more than a transition path to enable providers to shift into the MA business.

General Motors turns to Henry Ford for healthcare help

General Motors (GM) and Henry Ford Health System (HFHS) announced they have joined forces to create a new narrow-network health benefits offering for GM’s southeast Michigan employees. The “ConnectedCare” plan will be available to 24,000 salaried employees during GM’s October open enrollment—union employees are not yet eligible. ConnectedCare members will carry a $1,500 deductible and have access to a two-tiered network. Using the Henry Ford provider network reduces an employee’s co-insurance to 10 percent, compared to 30 percent for out-of-network care. GM estimates that plan premiums will be $300 to $1,980 cheaper than the other two traditional, high-deductible PPO plans on offer. Henry Ford will receive a shared-savings bonus should spending fall below a determined benchmark, and quality goals are met; the health system will also share downside risk for losses. Blue Cross Blue Shield of Michigan (BCBS-MI) will serve as the plan’s third-party administrator and will reconcile savings and quality data. (We were a little surprised that Henry Ford’s owned health plan, HAP, isn’t involved.) Of note, GM and HFHS will not be using BCBS-MI’s fee schedule and have negotiated their own rates.

After Intel and Boeing led the market with provider ACO arrangements over five years ago, the pace of direct-to-employer contracting has been slow to develop in many markets, with barriers emerging on several fronts. Few employers have the healthcare knowledge or bandwidth to comprehend, much less structure, these complex arrangements. And they found little support from brokers and insurers, who, sensing the threat to their traditional business models, preferred to steer clients toward employee cost-sharing as a means to control spending. Many health systems also lack the capabilities or network coverage to offer a compelling exclusive network. A recent survey from the National Business Group on Health suggests employer interest in direct contract may be growing, with 11 percent of employers interested in direct-to-provider arrangements, compared with only three percent last year. The survey also suggests that employers may be less willing to push high deductibles and other forms of employee cost-sharing—making them more willing to explore direct-to-provider contracts and exclusive networks that would have seemed prohibitively complex a few years ago. The GM-Henry Ford deal is one of a handful of recent employer-provider partnerships that signal a growing opportunity for health systems to approach employers with alternative solutions to manage rising benefit costs. There is an opportunity for providers to demonstrate their ability to rein in costs through coordinating care and cutting out middlemen. If these kinds of solutions don’t deliver timely results, it will only hasten employers’ interest in moving toward defined-contribution health benefits as the ultimate cost control lever. 

Another week of drama in healthcare deal-making

The soap-opera world of healthcare mergers continued to generate new plot lines this week, as two giant couplings faced new challenges and a third took a big step closer to consummation. Lovelorn drugstore chain RiteAid was again abandoned at the altar, this time by the grocer Albertsons, which called off its plans to merge with the pharmacy retailer. Having only partially pulled off its proposed merger with rival Walgreens last year, RiteAid bowed to antitrust scrutiny and settled for a partial sell-off of 2,000 of its stores to the larger chain. But its subsequent tryst with privately-owned Albertsons came to an abrupt halt this week when proxy advisors urged RiteAid shareholders to reject the deal, leaving it with a reduced retail footprint and insufficient capital to pursue growth independently. Meanwhile the brewing romance between insurer Cigna and pharmacy benefit manager (PBM) Express Scripts was intruded upon by activist investor Carl Icahn, who called on Cigna’s shareholders to spurn the merger because, in his view, the PBM business is facing an existential threat from disruptors like Amazon, and from the risk that other competitors like Anthem will launch their own PBM businesses. At the same time, Cigna’s rival Aetna appeared ever-closer to its nuptials with suitor CVS Health, as Bloomberg reported that the Justice Department’s antitrust review of the merger had turned up no significant concerns. Will CVS and Aetna live together in wedded bliss? Will the swashbuckling corporate raider come between Cigna and Express Scripts? Will RiteAid ever find love? Tune in next week for As Healthcare Turns

Painfully protracted metaphor aside, what we’re witnessing in the ongoing saga of healthcare mergers is a fundamental realignment of the industry, as companies position themselves for two massive disruptions. First, the entry of the Baby Boom generation into their Medicare years creates an enormous opportunity for insurers, providers and pharmacy chains to build new offerings to profit from the “silver tsunami”. Controlling rising drug spending, delivering services, and managing the care needs of a chronically multi-morbid generation will demand (and reward) the creation of healthcare platforms that can capture the long-term loyalty of seniors, and the (mostly Medicare Advantage) dollars that come with them. Second, the looming entry of Amazon, Apple, and Google into the booming healthcare industry has every incumbent questioning their existing business model and looking for new solutions to stave off the inevitable disruption those companies will bring. All the while, investors are looking to engineer the best deals possible to take advantage of these two megatrends. Expect even more drama in the months and years to come…with twists and turns rivaling even the craziest moments of General Hospital’s “Luke and Laura”.


GRAPHIC OF THE WEEK

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

A new vision for the health system-sponsored medical group

We’ve been talking about how to build strong employment relationships with doctors for as long as we’ve been working with providers. As the pace of physician consolidation continues to grow, many of the traditional questions (How do we measure and maximize financial performance? What’s the best governance model for growing groups? How can we create alignment across employed and independent doctors?) still arise. But in our recent conversations, we’ve been encouraging leaders to shift their definition of a “high-performing” medical group.

This graphic illustrates the evolving value proposition of physician employment. Historically most employed medical “groups” weren’t groups at all, but merely loose confederations of physician practices. Health systems hoped to secure referrals and promised doctors continued “autonomy” in return. With the advent of accountable care a decade ago, many systems and doctors began to see potential for integration in the pursuit of a high-performing system asset. We believe the definition of a high-performing medical group has now evolved from generating “internal” value for doctors and the health system to delivering “external” value to the market and consumers. The best medical groups will be the critical centerpiece of the access, experience and ongoing patient relationship platform needed to create real consumer value.


THIS WEEK AT GIST—ON THE ROAD

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

In search of the “next-generation” Chief Information Officer 

Lisa:
I recently met with a health system executive who had a pointed request: “I need to hire a new system Chief Information Officer. Tell me the best ones you know.” With their long-tenured CIO retiring, the system not only needed a succession plan, but was searching for someone who could lead their digital strategy beyond the installation and management of their electronic medical record (EMR). As we discussed the system’s current IT department resources and their goals for their digital enterprise, it became apparent that the best strategy for a new CIO was to recruit for not one, but two, distinct leadership roles.

Health systems have been well-served by a single enterprise CIO when the IT team had a singular goal: effectively transition to an enterprise-wide EMR platform. Surely systems still need a strong operational leader to manage the EMR—but the new challenges of building telemedicine capabilities and digital consumer interfaces, partnering (or competing) with disruptors like Google or Apple, and enabling information-driven care will require an entirely different skill set. We anticipate that the legacy CIO role will splinter into two distinct leadership positions: one traditional IT leader who will handle the “plumbing” of the EMR operations and systems management, and a second strategic leader who will drive a true digital enterprise strategy. 

Making use of a bigger voice in the policy arena

Chas:
I was meeting this week with the CEO of a leading regional health system who posed an interesting question: how can I make the case for Medicaid expansion in my state? Operating in one of the non-expansion states, and with no obvious path to overcoming political resistance in the state legislature, he was venting his frustration with the broken system of supplemental payments, provider fees, and cross-subsidies that currently holds together Medicaid funding in his state. As his health system continues to invest in under-funded (or unfunded) efforts to provide care for low-income populations, he’s become increasingly fed up with ideological arguments against Medicaid expansion. What he was looking for was a way to make a pro-business case for expansion, one that would resonate with conservative lawmakers in his state.

I promised to give some thought to the question (and I’d love to hear suggestions from others in non-expansion states who have been thinking about this as well…drop me a line). At a high level, I do believe that providing affordable access to care for lower-income citizens in a state results in a healthier workforce, which redounds to the benefit of businesses operating in the state (particularly in our increasingly services-based economy). I also believe that alleviating the burden of uncompensated care on provider organizations reduces the cost of insurance more broadly, by reducing the cost of “free” care that gets passed along to commercial insurers, and thus employers, in the form of higher rates. But there are arguments on both sides of the issue, and reasonable people can disagree.

What immediately struck me when the CEO asked the question: he’s got a platform to influence the policy-making process through advocacy, and as his organization continues to grow through merger activity, his advocacy platform will grow as well. Indeed, one of the important scale economies—often overlooked—that health system executives should be considering as they evaluate potential deals is the potential for enhanced ability to advance policy objectives. As the industry continues to transform, and regulatory barriers (scope of practice, antitrust policies, mandatory staffing ratios) begin to hinder progress toward delivering higher value care, leaders should think through how best to use their growing influence as large, economically-important stakeholders to play a role in shaping policy transformation as well.


ON THE GIST TURNTABLE

Give this a spin, you might like it.

This week’s music pick is the latest release from one of the many acts to come out of the decade-old LA hip hop collective Odd Future, whose alumni also includes Frank Ocean, Tyler the Creator, and Earl Sweatshirt. The Internet, a five-person ensemble led by singer-songwriter Sydney Bennett (who goes by Syd tha Kid, or just Syd), is out with their fourth full-length album Hive Mind, and it’s their best to date, one of the most complete pieces of music to emerge from the larger collective. The Internet’s stock-in-trade is a low-key, soulful R&B, woven with an electronic sensibility that recalls Stevie Wonder or Earth, Wind and Fire—in short, a mellow vibe driven by just enough beat to be interesting. As hip hop continues to go through its Apex Predator phase, eating every other genre in sight, The Internet stake out a cool spot under some low brush to channel hazy, old-school R&B, on tracks like “La Di Da” which would be the soundtrack to summer in a more just universe. It’s the perfect music for summertime’s early evenings, when the heat of the day unravels into a cooler finish (listen to “Stay the Night”, for example). Drop the needle, dim the lights, and ease into the weekend groove.


WHAT WE’RE READING

Stuff we read this week that made us think.

Inducing labor at 39 weeks may lower C-section rates

Many hospitals have clamped down on the use of scheduled inductions, preferring to wait for spontaneous labor unless an expectant mother is “overdue”, approaching 41 weeks’ gestation.  A large, randomized trial in this week’s New England Journal of Medicine challenges this practice, suggesting that scheduled inductions at 39 weeks may reduce C-section rates for low-risk mothers—reversing the common wisdom that inductions increase the risk for C-sections. Rising birth weights, driven by increased maternal obesity and incidence of gestational diabetes, have likely led to an increased risk of C-section. Induction at 39 weeks, shaving off an extra week or two of fetal weight gain, may mitigate this risk.

It’s likely that these results will drive a change in practice, with some obstetricians suggesting that expectant mothers should be offered induction as an equivalent alternative. Hospitals should prepare for more inductions and a potential slowing of labor and delivery throughput, as induced labor takes longer to progressWe applaud the rigorous approach to investigating this question, so often missing in the practice of obstetrics, much of which remains driven by collective wisdom rather than real researchA few examples: only eight medications are FDA-approved for use in pregnant women, meaning nearly all medications taken by expectant mothers are prescribed “off label”. Tens of thousands of women endure months of bedrest every year despite little evidence that it produces better infant outcomes—and in the face of real data showing adverse mental and physical consequences for mothers. As hospitals face growing scrutiny about the lack of standardized management of labor and its complications, more providers should push for more dedicated research into true best practices in the management of pregnancy.

A call for increased oversight as surgery center volumes grow

A deeply researched piece from Kaiser Health News and USA Today caught our eye, detailing the shocking lack of oversight at many outpatient surgery centers across the country. Some data to consider: in 17 states, surgery centers are not required to report patient deaths, much less complications. While Medicare and Joint Commission require hospitals to report unexpected deaths (and “morbidity and mortality” conferences examining them are the cultural norm), no comprehensive reporting requirements or peer review processes exist for surgery centers. And according to the article, “no rule stops a doctor exiled by a hospital for misconduct from opening a surgery center down the street”. Patients looking for data on surgery center quality will find little useable information. Medicare publishes some limited data on surgery centers, but it excludes non-Medicare patient deaths and transfers, leading to dramatic under-reporting. Perplexingly, Medicare has moved to stop collecting surgery center-to-hospital transfer rates and other quality data, saying that the measures have “topped out”, showing little variability.

The ability to perform increasingly complex procedures in an outpatient setting, combined with growing consumer cost sharing, is driving increasing numbers of cases to ambulatory surgery centers. This volume shift is testing the limits of how far we can drive care out of the hospital before quality issues become too serious and highlights the need to put in place safeguards to know when we’ve gone too far. With little regulatory oversight, the onus will fall on health systems and other surgery center operators to create and enforce standards, and media and consumer advocacy organizations to play a watchdog role in exposing lapses in care and pushing for greater regulation.

A shadow group is running the VA

This week, ProPublica featured an eye-opening piece of investigative reporting on the outsized influence being exercised by of a small group of outside advisors on the Department of Veterans Affairs (VA). The beleaguered agency has been a particular focus for the Trump administration over its first year, with efforts being made to reduce veterans’ wait times for care, implement electronic health records, and supplement its over-stretched delivery system with private sector provider relationships. The new reporting reveals a previously-unknown nexus for decision-making at the VA: a triumvirate of close friends of the President from Florida, informally known inside the department as the “Mar-a-Lago Crowd”. The group includes Ike Perlmutter, chairman of Marvel Entertainment, Bruce Moskowitz, a prominent Palm Beach physician, and Marc Sherman, a lawyer—none of them veterans themselves, and none of the three holding any official government role. Over the course of the past year, the three have acted as de-facto leaders of the VA, directing staffing and policy decisions, issuing guidance on program priorities, and inserting themselves into critical situations—such as the appointment (and later, the ouster) of former VA Secretary David Shulkin, and the contracting process for the VA’s recent deal with Cerner Corp.

As the article points out, the role of the three outsiders in running the VA is unprecedented in modern times. While some Presidents have relied on the counsel of advisors outside government, rarely has a group of outsiders been so deeply embedded in the operations of one specific department. There are suggestions throughout the piece that the three may be using their unique roles to profit personally from their involvement at the VA, although the much larger problem highlighted by the piece is the extent of the distraction the Mar-a-Lago Crowd has created for senior leaders in the department. Having fallen out with Shulkin, whose exit was reportedly engineered by Perlmutter, the three Trump friends have apparently been strong supporters of newly-appointed VA Secretary Robert Wilkie. However, as Wilkie begins to make his own appointments to senior posts at the VA, he is running up against new resistance from the Mar-a-Lago Crowd, who have their own preferred candidates. All of this is enormously disappointing—among the urgent crises faced by the Trump team upon taking office, the dire state of affairs at the VA was surely near the top of the list. The fact that the administration has handed over the reins to a shadow group of inexperienced outsiders and allowed them to run roughshod over the day-to-day operations of the VA, is a disturbing abrogation of our nation’s (already woefully unmet) obligation to our veterans.


Many thanks for joining us for another round of the Weekly Gist! If you’re finding it worthwhile, may we ask that you pass it along to a friend or colleague? We love it when new readers subscribe, and we’re so grateful you’ve taken time to read our work. Let us hear from you—it’s always great to get your thoughts and feedback, and ideas for future topics.

Most importantly, please don’t hesitate to let us know if there’s anything we can do to be helpful in your work. You’re making healthcare better—we want to help!

Best regards,

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

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