March 6, 2020

The Weekly Gist: The Purell Price Gouging Edition

by Chas Roades and Lisa Bielamowicz MD

We’re back—did we miss anything? What a two weeks! A pandemic, a panoply of Presidential primaries, and Peter’s penultimate pick! Not familiar with that last alliteration? Don’t worry, we don’t watch The Bachelor either, but if we end up having to hunker down at home to avoid the virus, we might just have to tune in for the season finale. Until then, we’ll continue to slather ourselves in Purell (only $348 for a four-pack on Amazon!) and hope for the best.

THIS WEEK IN HEALTHCARE

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

Settling in for a long fight against coronavirus

As of Friday, the number of confirmed cases of the novel coronavirus, or COVID-19, has surpassed 100,000 worldwide, with over 3,400 deaths. In the US, there have been 250 confirmed cases and 14 deaths reported so far—although the actual number of cases is certainly many times higher, with testing yet to be widely available and many patients exhibiting only mild to moderate symptoms. Vice President Mike Pence, who was put in charge of federal response efforts last week, conceded Thursday that the country does not yet have enough coronavirus tests to meet demand, and the administration will not meet its goal of having 1M tests ready by the end of the week; perhaps the $8B emergency funding package approved by Congress will help expedite efforts. Public worry and concern among officials hit new levels, with the Director-General of the World Health Organization warning that time to contain the virus may be running out, and expressing concern that countries may not be acting fast enough. New levels of containment effort have begun to take shape. Schools shut down in areas of the country most affected by the virus, including Seattle and some New York City suburbs. All told, the New York Times reports that 300M students are out of school around the world. Companies began to cancel conferences and other large gatherings—next week’s Health Information and Management Systems Society (HIMSS) conference was called off despite a planned appearance by President Trump, given rising cancellations and vendor exits.

Hospitals around the nation have rallied to prepare for a growing wave of patients that has yet to hit. Experts expressed concerns about whether hospitals have enough open capacity, but even more critical will be gaps in the supply of staff and equipment—especially the ICU beds and ventilators necessary for critically ill patients, and the nurses and respiratory therapists needed to care for them. The vast majority of hospitals report having a coronavirus action plan in place; however, a recent survey of nurses suggests that critical information may not be making its way to frontline clinicians. Only 44 percent of nurses reported that their organization gave them information on how to identify patients with the virus, and just 29 percent said there is a plan in place to isolate potentially infected patients. Worries about patient financial exposure to the costs of diagnosis and treatment intensified, with fears that individuals could be held accountable for the cost of government-mandated isolation. Most patients with high-deductible plans saw their deductibles “reset” at the beginning of the year, raising concerns that individuals might refrain from seeking treatment. The heightened worry is palpable as we connect with hospital and physician leaders around the country, and we are deeply grateful for their around-the-clock efforts, and the willingness of doctors, nurses and other caregivers to put their own safety at risk to provide the best possible care to patients under increasingly difficult circumstances.

Two candidates remain: Mr. Medicare for All and Mr. Public Option

The past week in Presidential politics has been momentous—but not clarifying—for determining both the eventual Democratic nominee and the healthcare platform of the party. Between the first ballots cast in South Carolina and the last votes counted in California, the field of viable candidates for the nomination has been winnowed to two: Vermont Sen. Bernie Sanders and former Vice President Joe Biden. The coming weeks will feature a knock-down, drag-out fight for delegates in the run-up to what is likely to be a contested convention in Milwaukee in mid-July, pitting Biden’s “establishment” wing of the party against Sanders’ “progressive” wing. On the healthcare front, that means a continued debate between defenders of the Affordable Care Act (ACA), who want to extend coverage, as Biden does, using a government-run “public option” plan, and supporters of single-payer, “Medicare for All” (M4A) coveragewhich Sanders advocates. That’s the same argument Democrats have been having since the campaign started, and while healthcare remains the top issue of concern for primary voters, polls indicate that both plans are popular with the electorate.

We continue to believe that the public option plan is a far more likely outcome than M4A, but only if the Democrats win control of the Senate—a prospect which appears more possible given billionaire Mike Bloomberg’s post-Super Tuesday endorsement of Biden, and plans to devote his substantial campaign resources to support Democratic candidates across the ballot. Some of that money will surely be spent in Montana, where Gov. Steve Bullock is poised to announce plans to run against incumbent Sen. Steve Daines (R-MT), in a critical race that could be the most expensive Senate contest in history. And for an indication of how the politics of a public option would play out, look no further than Colorado, where the Democratic legislature moved forward with its version of the plan this week, over the objections of the hospital and insurance lobbies. Finally, looming over the general election campaign will be the pivotal Texas vs. California case, which the Supreme Court agreed to take up in this fall’s term. That case will ensure that healthcare will remain the centerpiece of American political debates regardless of who leads the Democratic ticket. Buckle up.

Employee benefits platform Accolade files to go public

Accolade, a Seattle-based health benefits company, filed last week to raise up to $100M in an initial public offering (IPO). The company uses mobile apps, machine learning and artificial intelligence to help its clients’ employees navigate health benefits and access care. Accolade aims to reduces employers’ healthcare spending by targeting high-cost employees with dedicated health assistants, mobile and online messaging, a fully integrated benefits center, and member activation campaigns. According to its S-1 filing, Accolade serves more than 1.5M employees across 53 employer customers, the majority of whom joined within the past year. Like several other recent healthcare startups, Accolade derives a significant portion of revenue from its largest handful of customers. Comcast Cable, its largest customer, accounted for nearly half of its revenue in fiscal year 2019. The company also recently deepened its partnership with Humana, one of its investors, developing a joint solution for a broader base of fully-insured and self-insured clients. While Accolade touts impressive employee engagement and net promoter scores, it reports a wide range of customer outcomes and impact—from reducing inpatient length of stay to increasing telehealth use. As it grows, Accolade will need to do more than deliver on its early value proposition of providing high-service concierge functions for its customers’ employees. Its future success will be determined by its ability to lower healthcare costs and grow its customer base at a pace the public markets will demand.


GRAPHIC OF THE WEEK

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

Health plans ramp up physician practice acquisitions

Health systems and private equity firms aren’t the only ones aggregating physician practices—many large insurers are rapidly acquiring or affiliating with physician groups, especially to support their Medicare Advantage (MA) strategies. As the map below shows, most insurers are focusing this vertical integration in states like Florida, Texas, and California—places where they also have large populations of MA beneficiaries. Astonishingly, UnitedHealth Group—through its Optum division—is likely the largest employer of physicians in the US, employing or affiliating with 50,000 physicians—roughly 5,000 more than HCA Healthcare and nearly double the number of Kaiser Permanente. The number of Optum-controlled physicians has increased rapidly in recent years, the result of many large-scale deals, including the $4.3B acquisition of DaVita Medical Group.

When it comes to leveraging this growing physician network, United is setting its sights well beyond Medicare Advantage, as demonstrated by its recent introduction of Harmony, a commercial narrow network health plan in Southern California based almost exclusively on a network of Optum physicians. Meanwhile, Humana’s physician strategy has focused more on affiliations with non-traditional groups serving MA patients, including Iora Health and Oak Street Health—though Humana also has two large primary care groups, Conviva and Partners in Primary Care, the latter of which just secured a $600M private equity investment to expand. Notably absent from this map is Aetna, which has been pursuing a different strategy, focused around steering its MA population to its advanced practice provider-run HealthHUBs in CVS pharmacies. This trend of insurer acquisition of physicians is obviously worrisome for health systems, as the health plans they negotiate with for payment are now directly competing with them at the front end of the delivery system.  


THIS WEEK AT GIST—ON THE ROAD

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

Transforming healthcare from a position of market strength

Lisa:
A healthcare investment analyst recently asked us a logical question: why would a health system that is dominant in its market want to move to downside risk and transform its business model? Of course it makes sense that any system with the lion’s share of the hospital and outpatient business would want to ride the current business model as long as possible—and in fact, most of the systems who command that kind of market position are very reticent to change, fearful of moves that could “kill the golden goose”. But among the systems that have been most aggressive in transforming their business models, some of the most successful have long occupied the top position in their market. These systems tend to share common characteristics which have helped them go against the grain. They’re led by charismatic CEOs who can passionately articulate the “why” of transformation and rally leaders, physicians and board members around a vision. And behind the vision are careful and methodical strategies, based on a foundation of physician alignment and clinical quality. The systems actively cultivate increased risk tolerance: board members and executives understand that margins may shrink during the transition, but the systems are financially and mentally prepared to weather the storm. While broad geographic presence and depth of resources across the continuum provide a strong starting point, we’ve seen time and again that organizational drive and the steadfast will to stay the course are what sets these leading systems apart.

Getting serious—and rigorous—about community benefit

Chas:
How should health systems spend their “community benefit” dollars? That question was at the heart of a discussion we participated in recently at a member board meeting. To maintain their not-for-profit status, all health systems are required to devote a portion of their earnings to activities that benefit the communities in which they serve, based on an assessment of local health needs. The question our member’s board was grappling with, led by the system’s executive team, was how to ensure their “investment” in the community is as leveraged as possible, and generates the greatest “bang for the buck” in terms of better community health. As the importance of addressing the social determinants of health grows, many systems are trying to target their resources toward activities that that enhance their ability to improve health status, and to reduce the barriers to better health faced by many. That requires a level of rigor and commitment to “community ROI” that goes beyond simply pointing to charity care statistics and the number of uninsured served. What most impressed us in the discussion was the application of the same investment mindset to community benefit that the system brings to capital allocation decisions—with due attention to implementation plans, outcomes metrics, and accountability. As the system’s COO framed it, “We don’t just want to be a ‘piggy bank’ for charitable causes, we want to make sure our investment in the community is really making a difference” in local residents’ health. At the same time, the board recognized that its role extends beyond simply contributing dollars to acting as a convener and facilitator of other community organizations working together toward a common set of goals. A worthy discussion for the board, for sure, and a priority we’re seeing leading systems begin to embrace in a serious way.


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, Gist Healthcare’s Senior Vice President of Member Insight Teresa Breen discussed her recent research into private equity (PE) investments in physician practices. PE investments have increased in recent years, and are now expanding beyond hospital-based specialties into gastroenterologists and orthopedic surgeons. Breen told our listeners this could hasten the shift of diagnostics and imaging into non-hospital settings.

Next Monday, we’ll hear from Aneesh Chopra, Co-Founder of healthcare analytics company CareJourney and former US Chief Technology Officer (CTO) during the Obama administration. Chopra will share his thoughts on efforts by the Trump administration to ensure consumers have free access to all of their health data—a goal he worked toward during his time as CTO. Make sure to tune in Monday to listen!

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


FROM THE GIST BOOKSHELF

Feed your head—read this.

Income inequality has become a central topic in our national political debate in the wake of the financial crisis. The gap between the “haves” and “have nots” has grown steadily, and addressing that gap has become a key priority for a new generation of politicians, economists, and policymakers. But inequality has also become a lucrative business opportunity in many parts of the economy, a phenomenon that New York Times economics reporter Nelson Schwartz entertainingly (and unsettlingly) describes in his new book, The Velvet Rope Economy: How Inequality Became Big Business. Based on a series of Times articles by Schwartz from the past several years, the book describes life on both sides of the “velvet rope”: how services have become faster, better, and higher quality for those with the ability to pay extra, and how the rest of us are getting left behind. He describes how the familiar amusement-park “Fast Pass” approach has pervaded other parts of our lives, from school sports to social services to travel, and yes, to healthcare. Across the economy, businesses increasingly cater to the top tier of customers, providing privileged access, concierge services, and special perks. As Schwartz describes it, “This pattern—a Versailles-like world of pampering for a privileged few on one side of the velvet rope, a mad scramble for basic service for everyone else—is being repeated in one sphere of American society after another.” It’s a phenomenon we see in healthcare every day, as rural hospitals are shuttered, access to care is restricted for Medicaid patients, and wait times for new primary care appointments soar to six weeks or more, while concierge physician practices and cash-based, on-demand services proliferate. Most troubling, in Schwartz’s view: this intentional, class-based separation causes those on one side of the “velvet rope” to misunderstand, and even denigrate, those on the other. That aptly describes our current political dynamic—Schwartz provides a useful (and highly readable) window into how businesses seek to profit from that division. Worth a read. (Available for $23.98 on Amazon, plus free shipping if you pay $199/year for Amazon Prime…res ipsa loquitur.)


GIST IN THE NEWS

We said it, they quoted it.

Physicians, Hospitals Meet Their New Competitor: Insurer-Owned Clinics
Wall Street Journal; February 23, 2020

“Generally, plans built around a health insurer’s own clinics include smaller networks with more limited choices of doctors and hospitals. That can lower premiums—but the insurers also can benefit because they keep revenue inside their own holdings rather than paying outside companies for the care of their members.

“‘It’s very worrisome for hospitals,’ said Chas Roades, a health-care consultant. ‘Suddenly, the plan you’re relying on for payment is also competing with you at the front end of the delivery system.’”


WHAT WE’RE READING

Stuff we read this week that made us think.

Caught in the crossfire of payer-provider strategies

The aggressive push among insurers to purchase physician practices—one that mirrors the vertical integration strategies pursued by hospital systems over the past few years—has some asking what the end game looks like for health plans. A recent investigative piece from Kaiser Health News shows where this payer-physician integration might lead. Focused on the activities of UnitedHealth Group in the New Jersey Medicaid market, the article describes a move by the company’s insurance subsidiary, UnitedHealthcare, to shift the Medicaid beneficiaries it covers in its Medicaid managed care plan into physician practices owned by its sister subsidiary, Optum. That effort is the target of a lawsuit brought by some physician practices in the state, who allege they are losing patients as a result of an attempt by UnitedHealthcare to “narrow” its physician networks by terminating their contracts. It’s an obvious, and clever, strategy on the part of the insurer, which likely hopes to capture savings and generate greater revenue by integrating insurance and provision of care. But as the piece describes, it’s proving significantly disruptive to the care of many patients, who are losing access to physicians with whom they’ve built relationships with over time. Insurers have pursued these strategies less aggressively in their commercial and Medicare businesses, turning instead to referral management tactics like specialist steerage, mandatory pre-authorizations, and discounted rates instead of shifting primary care patients care. But, as in many other aspects of care, it may be easier to implement such aggressive “management” techniques in the low-income population, because patients have so few alternatives to care. As vertical integration strategies play out on both the hospital and insurer sides of the industry, it’s worth paying attention to how “grand strategy” of the sort depicted in our map above plays out on the ground, in the lives of individual patients.

Weighing the decision to close schools in a pandemic

As parents, we are among the tens of millions of Americans with school-age children who view the prospect of school closures to prevent the spread of COVID-19 with conflicting emotions. So our interest was piqued by this Twitter thread in which a Yale professor adopted a data-driven approach to the question. He highlighted a 2007 JAMA study which drew lessons from the 1918-19 flu pandemic, finding that school closures were among the most effective “non-pharmaceutical interventions” in preventing disease spread. Not only can disease spread quickly among children, school closures have the added benefit of keeping many parents at home. Comparing cities shows timing matters: mortality was dramatically reduced when schools were closed before disease came widespread in a community. In fact, the earlier and longer schools were closed, the lower the excess death rate. Writing in the New York Times’ Upshot blog, another infectious disease expert drew similar conclusions, looking at data from the 2009 H1N1 flu epidemic and positing that “reactive” school closures, (i.e., closing once a positive case presents in the school) are much less effective than closing schools pre-emptively when cases appear in the area but before students or staff test positive. Comparing outcomes in countries that have proactively canceled school and other events, like China, Italy and South Korea, with countries like Singapore, which have been less aggressive, will be telling. It remains to be seen which path the US will take. Given the economic consequences, particularly for lower-income families, it’s a difficult decision, but past experience strongly argues for acting broadly and early.


That’s it for another exciting week! We’ll see you back here next Friday—until then stay safe, wash your hands, and cover your cough. (When we see you next, we’ll be bumping elbows instead of shaking your hand.) We’re so grateful that you’ve taken the time to read our work in these crazy times, and we hope you’ll let us hear your feedback and suggestions. Don’t forget to pass this along to a friend or colleague and encourage them to subscribe (and tell them to give a listen to our daily podcast, too).

Most of all, 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 regards,

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

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

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