July 12, 2019

The Weekly Gist: The Purple-Haired President Edition

by Chas Roades and Lisa Bielamowicz MD

We’re back! Having enjoyed a relaxing Fourth of July holiday weekend, we’re excited to return to our weekly writing duties. By far the highlight of our time off was getting to watch the US Women’s National Team win the World Cup and receive a hero’s welcome back home this week. Here’s hoping their success inspires a legion of young people to take up the beautiful game, and that the team’s victories on the pitch are (finally) rewarded with the pay they deserve. Who knows, maybe someday we’ll even see a certain purple-haired candidate for President?

THIS WEEK IN HEALTHCARE

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

Worrisome courtroom drama in New Orleans

It was, in the words of one close observer of the healthcare legal scene, a “tough day in court” for defenders of the Affordable Care Act (ACA). In New Orleans on Tuesday, the Fifth Circuit Court of Appeals heard arguments in the ongoing Texas vs. Azar case, in which 18 Republican state attorneys general are contending that the ACA should be held unconstitutional in the wake of the 2017 tax reform, which zeroed out the penalty for violating the ACA’s “individual mandate”. Based on their questioning during the 90-minute session, judges seemed likely to uphold a lower court ruling that the mandate is unconstitutional and seemed sympathetic to the argument that the entire 2010 health reform law should fall along with the mandate. The appellate ruling is expected within the next couple of months and will almost certainly be appealed further to the US Supreme Court, no matter the outcome. As unlikely as it seems, if the ACA is struck down entirely, there will be nearly catastrophic repercussions across the healthcare industry and beyond. Along with the individual mandate would go the individual and Medicaid coverage expansions, consumer protections against lifetime coverage limits and out-of-pocket spending caps, protection for Americans with pre-existing conditions, and many other provisions that have become deeply interwoven into the healthcare economy. The case could have significant political implications as well, with a final outcome possible next year—right in the thick of the 2020 Presidential campaign. Keep a close eye out for further developments.

The kidney has a very special place in the heart” 

President Trump signed an Executive Order on Wednesday aimed at overhauling care for patients with kidney disease, instructing federal agencies to change how doctors are paid for caring for those patients, take steps to make more kidneys available for transplant, and increase education and treatment to reduce the incidence of the disease. Millions of Americans suffer from chronic kidney disease, and about 7 percent of Medicare’s annual budget is spent on treating patients with end-stage renal disease (ESRD). To support the President’s announcement, the Centers for Medicare & Medicaid Innovation (CMMI) announced five new payment reform models, designed to delay the need for dialysis, encourage transplantation, and move dialysis into patients’ home. Of particular note is the ESRD Treatment Choices (ETC) model, which is intended to increase use of in-home dialysis. Only 12 percent of kidney patients in the US currently get dialysis at home, compared to 80 percent or more in other countries. The new models will create incentives for doctors to reduce referrals to costly dialysis centers, which are mostly operated by two large, for-profit kidney care companies. The Executive Order was hailed by kidney specialists as a long-overdue step to modernize care for ESRD patients, although some observers noted the irony of the Administration turning to CMMI to pilot payment reforms in the same week as it argued in court that the Affordable Care Act (ACA), which authorizes the agency to conduct such pilots, should be declared unconstitutional. Nevertheless, the President’s new kidney care initiative brings welcome focus to a sector of healthcare that has been ignored for far too long, leading to expensive, inconvenient and underperforming care for millions of patients.

Twin setbacks on the effort to address rising drug spending

Two pillars of the Trump Administration’s plans to control rising drug prices toppled this week. On Monday, a Federal judge struck down a new rule which would have compelled drug companies to provide the wholesale list price of drugs in television ads, asserting that the Department of Health and Human Services (HHS) lacks authority to issue the rule. (The court didn’t address drug companies’ arguments that the rule violated their First Amendment rights.) Then on Wednesday, the Administration announced it was backing off its proposal to ban rebates issued by pharmacy benefits managers (PBMs) in Medicare and Medicaid. The now-dead proposal would have forced PBMs to take a flat fee for their services, and pass along any rebate savings directly to consumers. The reversal highlights the internal conflicts within the Trump Administration on the issue, with HHS Secretary Alex Azar championing the rule, and other officials worried it would raise drug prices $180B over ten years, and drive up Medicare premiums. In the near term, action on drug prices may be more likely to come from Congress, with Senator Chuck Grassley (R-IA) announcing this week that a bipartisan bill aimed at curbing drug prices will be released “very soon”. The collapse of these two major initiatives is a major setback for the Administration, which is now left without a strategy to address drug costs, an issue that resonates with consumers and will continue to gain momentum in the run-up to the 2020 elections.

A closer partnership built around broader patient access

This week Downers Grove, IL-based Advocate Aurora Health announced a new partnership with One Medical, a national, membership-based primary care group. The partnership extends the relationship between one of the nation’s largest nonprofit health systems, serving 3 million people across Illinois and Wisconsin, and the innovative medical practice, operating more than 70 primary care offices in nine major metropolitan areas. Advocate Aurora had already included One Medical as part of its clinically-integrated physician network, and it will now become the preferred health system partner in Illinois for the practice, opening new cobranded care sites and tightening specialist and hospital referral ties. We’ve long been fans of One Medical’s access-forward, telemedicine-enabled primary care model, and we’re especially intrigued to see the practice integrate more tightly with system partners like Advocate Aurora, Mount Sinai Health System in New York, and UC San Diego Health in California. Advocate Aurora’s strategy of partnering across access channels—including with Oak Street Health (for Medicare patients) and Walgreens (for retail clinics)—has allowed the system to expand access for a range of different patient populations. The closer partnership between the two is certainly worth watching closely.

New roles for two key healthcare leaders

Two key leaders in the Centers for Medicare and Medicaid Services (CMS) will be moving into new positions in the midst of a leadership reshuffle in the Department of Health and Human Services (HHS). Adam Boehler, currently the head of the Center for Medicare & Medicaid Innovation (CMMI) has been nominated by President Trump to lead the International Development Finance Corporation. Boehler, who came to CMMI last year after a career as a healthcare entrepreneur, led the development of several new payment and delivery reform pilots in Medicare and Medicaid, including efforts to shift more accountability for cost and quality to physician practices, rationalize drug purchasing in Medicare, and the newly-announced pilot to overhaul kidney care for Medicare beneficiaries. We had the good fortune to meet with Boehler shortly after he took the CMMI posting and found him to be pragmatic and results-oriented. His departure is a loss for the healthcare industry. Meanwhile, Paul Mango, who served as chief of staff at CMS for the past year, has been promoted to deputy chief of staff for HHS, charged with planning and coordinating policy. Mango is a well-known healthcare leader, having been a senior advisor to healthcare organizations for many years at McKinsey & Co. before joining CMS. We’ve enjoyed getting to know him across the past year as well, and we’re looking forward to his continued thought leadership in his new posting. Congratulations to both on their level-headed impact in the midst of an often-turbulent Administration.


GRAPHIC OF THE WEEK

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

Where will CVS HealthHUBs land next? 

This week CVS Health announced its next wave of HealthHUB expansions, which will bring expanded clinical services to stores in seven additional states and Washington, DC in the first half of 2020. CVS is moving fast—so fast that their announcement outpaced our analysis aimed at predicting the locations of the next wave of HealthHUBs based on company data, including CVS store location and Aetna’s insurance footprint. It turned out that our approach to understanding CVS’s strategy was accurate. To determine where HealthHUBs might arrive next, we looked at the states and markets where Aetna has the most commercial and Medicare Advantage covered lives. The graphic below shows the company’s announced HealthHUB expansions beyond the first pilot stores, which launched in Houston this February. All but two of the states announced for expansion, Maryland and Massachusetts, have more than 125K lives covered by Aetna. We’d bet the states shaded teal—Illinois, California, Missouri and Kansas—which are also Aetna strongholds, are likely next on the target list as CVS continues to plot the rapid expansion of their care delivery footprint.


THIS WEEK AT GIST—ON THE ROAD

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

Anticipating the impact of M4A on employed medical groups

Lisa:
This week the Chief Clinical Officer from one of our member health systems called to discuss a well-trod topic, the economics of the health system-employed medical group. But his question led to a more forward-looking concern: “How would we have to redesign physician compensation if Congress were to pass Medicare for All?” It’s the third time this month we’ve been asked a version of that question. As we’ve discussed before, we think it’s unlikely that Medicare for All (M4A) would pass even if Democrats sweep the 2020 elections—and it’s far too early for health systems to dedicate energy to a M4A strategy. But hearing this question tied specifically to the employed medical group is indicative of larger questions about physician practice economics, in particular, a growing concern about the disconnect between physician compensation and the economics of the health system and the physician practice.

In the near term, health systems are much more exposed by the push toward site-neutral payments. How large is the potential hit? One mid-sized regional health system we work with recently estimated they stand to lose nearly $80M of annual revenue if site-neutral payments are fully implemented—catastrophic to system margins. Preparing for this inevitable payment change or the outside possibility of M4A both require the same strategy: serious and relentless focus on cost reduction. This still leaves a giant elephant in the room: the long-term impact on physician salaries. As referral-based economics crumble, health systems will find it increasingly difficult to maintain current physician salaries, further driving the need to move beyond fee-for-service toward a health system economic model based on total cost of care and consumer value and building physician compensation around those shared goals. 

Aligning executive comp with long-term strategy

Chas:
I recently had a conversation with the CEO of a regional health system we’ve worked with for many years. It’s a system at the forefront of the shift to risk-based contracting—rather than the 3-5 percent of revenue at risk common across the industry, his system already has a third of its revenue fully at risk. (That’s not counting performance bonuses and other “value-based” reimbursement—it’s true, delegated risk for total cost of care.) The system managed to get to this point without owning its own insurance plan, but now the CEO is considering whether that’s the right next step, which was the topic of our discussion. We talked through the pros and cons of launching a provider-sponsored plan, which has proven to be a difficult step for many other health systems. When I asked the CEO how his team was able to move so much faster to risk than other systems, he told me an important component of their approach was the incentive structure put in place for executives and facility leaders. Rather than continuing to pay bonuses based on hospital or system profitability, the board agreed to encourage executives to take a longer-term, strategic view by paying straight salary. Eliminating P&L-based bonuses allowed leaders to focus on making the right decisions to transform the business, without being overly concerned about the short-term impact on profitability. It’s an idea worth considering for other systems committed to leaving fee-for-service behind. The critical ingredient, of course, is ensuring the board is fully bought into the strategy and has a high degree of trust in system executives to make the best long-term decisions on behalf of the organization.


ON THE GIST TURNTABLE

Give this a spin—you might like it.

Music is what you make of it, or, as the debut album from the Congolese DIY collective Kokoko! proves, it’s what you make it on. Lacking funds for expensive electronic instruments but with a passion for what they call “tekno kintueni”—a blend of western techno and the traditional sounds of their native Kinshasa—the group relies on found objects to produce their unique version of electronic dance music. Discarded typewriters, recycled water bottles, and oil-can guitars all contribute to the readymade aesthetic of Fongola, their first studio release, made in collaboration with the French producer Debrúit. Their frenetic tracks will have you up out of your chair, moving to the pulsating rhythm and chanting along to the lyrics (even if you don’t speak a lick of Lingala, one of the native tongues of the Democratic Republic of Congo). It’s “world music” that moves far beyond the safe clichés that genre typically denotes, bringing the wild sounds of Kinshasa’s street music to the sterile dance floors of electronica. Kokoko! are a joyful surprise, and highly recommended listening. Best tracks: “Azo Toke”; “Tongos’a”; “Buka Dansa”.


WHAT WE’RE READING

Stuff we read this week that made us think 

In following medical advice, doctors are just as bad as their patients

It turns out doctors are a lot like parents when it comes to following their own advice: “Do as I say, not as I do”. A new paper out this week from the National Bureau of Economic Research shows that physicians, arguably the most informed health care consumers, make the same poor decisions as the rest of us when they become patients. Using data from the Military Health System (one of the few medical records systems to consistently track the occupation of patients), researchers evaluated utilization rates of recommended care for physicians compared to the general population and found few differences. When it comes to low-value care, doctors are no more likely to “choose wisely”, having similar C-section rates and consuming the same level of low-value pre-operative testing and low-value diagnostics. Doctors are also no more likely to follow high-value care guidelines, including preventive screening, and filling prescriptions for cholesterol and diabetes medications. One bright spot: doctors are a bit more likely to immunize their kids. Many public health initiatives are built on the premise that access to more information will spark changes in health behaviors. This study shows the limits of what information alone can achieve. Solutions beyond transparency and education will be necessary to truly improve outcomes and lower the cost of care.  

What happens when a teaching hospital shuts down 

It’s been less than a month since Hahnemann University Hospital in Philadelphia, the primary teaching hospital for Drexel University College of Medicine, announced that it will close in September. (A judge this week ordered the hospital to remain open while final bankruptcy and closure plans are approved.) The hospital was acquired by for-profit firm American Academic Health System (AAHS) from Tenet Healthcare Corp. just last year. AAHS cited untenable and irreversible financial losses as the reason for closure. Hahnemann’s shuttering not only deprives the city of a 150-year old institution providing a large portion of its healthcare safety net, but also displaces 570 resident physicians, many of whom just arrived to begin training. The Philadelphia Inquirer eloquently captured the personal stories behind and implications of the closure. Many industry experts, including us, have questioned whether the country may be better served by fewer, larger teaching and research centers. With four medical schools, Philadelphia is a market where there may be too many academic medical centers, each operating at suboptimal scale. But the Hahnemann saga illustrates the myriad difficulties of actually closing a financially-strained teaching hospital: challenges of for-profit “turnaround” management and performance goals, disruption for hundreds of trainees, and impact on access for the neediest patients. Getting to the right academic training and care delivery model for a region won’t come from reactive responses to abrupt closures, but will require community, government, academic and hospital leaders across organizations to collaborate on a long-term plan aimed at delivering greater value, scale and productivity.


Thanks for taking time to read this week’s edition. Things are really getting busy at Gist Healthcare, but no matter how much we have going on, we’re always grateful for the opportunity to sit down and share our observations with you. We hope you’ll do the same—let us know what’s on your mind, and what you think about the events of the day in our crazy industry! We love hearing from you, and we especially appreciate you sharing our work with a friend or colleague, and encouraging them to subscribe.

Most of all, we want you to 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