August 17, 2018

The Weekly Gist: The Queen is Dead Edition

by Chas Roades and Lisa Bielamowicz MD

A sad week—the queen is dead. Like most Americans, we grew up to a soundtrack created by Aretha Franklin, whose legacy of 100+ Billboard hits, twenty #1 R&B hits, and 17 Top 10 pop chart singles only begins to tally the impact of the greatest singing voice our country has ever produced. We’ve nothing particularly eloquent to add to the flood of appreciations, retrospectives, and tributes that have poured out over the past couple of days, so instead, let’s all just Say a Little Prayer.

Quick editorial note: the Weekly Gist will be on end-of-summer hiatus for the next two weeks. In the meantime, we’ll be posting our in-depth analysis of the new Medicare Shared Savings Program rule next week on the Gist Blog, and if something truly momentous happens in healthcare (say, a combined Apple-Amazon-Google alliance headed by Elon Musk offers to employ every doctor in America) we’ll send out a Gist Alert. Otherwise, we’ll return to regular service on Friday, September 7th.

Now, on with the show.


THIS WEEK IN HEALTHCARE

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

Oscar moves into Medicare, with a big investment from Alphabet

In an interview with Wired magazine, Mario Schlosser, CEO of start-up insurer Oscar, announced a $375M investment from Google’s parent company, Alphabet. While Oscar has begun selling to some small businesses, the company has largely been focused on the individual insurance market, currently serving 250K members in eight markets, with plans to expand to 14 markets in nine states for 2019. Schlosser said that the cash infusion will allow the insurer to move more quickly into the Medicare Advantage (MA) space, with the launch of plans expected in 2020. Oscar also reported a profit for the first half of the year, with a medical-loss ratio of 72 percent (although the second half of the year will be more telling, as enrollees exhaust their deductibles and the company bears more of the cost of care).

We recently had the chance to meet with the Oscar team at their Manhattan headquarters, got a look at their technology platform and growth plans, and came away very impressed. (Read our interview with Dennis Weaver MD, Oscar’s Chief Clinical Officer, here.) Oscar’s consumer platform bests nearly any in healthcare today and drives high levels of engagement—over 70 percent of patients consult their Oscar “concierge team” for help choosing a provider. Oscar owns the complete “technology stack” from the consumer interface to claims processing and is amassing a formidable data asset focused on cost, outcomes and patient experience. And while the company has a reputation of focusing on mostly-healthy millennials, Dr. Weaver described a broad care management portfolio, ranging from telemedicine to home-base care providers, enabling the management of higher-cost, complex patients. Oscar’s growth has been tied to the individual market; this slower ramp-up has allowed focus on refining the consumer platform and care model. These capabilities, combined with a big, new war chest from Alphabet, could quickly make Oscar a formidable player in the Medicare Advantage market—provided they can manage to rapidly and profitably scale their platform and care model across new customer segments and markets. 

NYU announces free tuition for all medical students

On Thursday New York University announced that it will cover tuition for all of its medical students, regardless of financial need. The announcement is a result of an 11-year effort to raise a $600M fund to cover tuition for the roughly 100 students who matriculate annually (students will still be responsible for fees and room and board). The median medical school debt nationwide is $192K per student, according to the American Association of Medical Colleges (AAMC). With next year’s tuition set at $55,018, the average NYU student taking loans graduates with over $170K of debt. Leaders hope reducing the debt burden will remove a critical barrier swaying students away from lower-paying fields like pediatrics and primary care toward higher-paying specialties.

Reaction from health care policy experts has been mixed, with some calling decision to offer free tuition to all students, regardless of need, a “wealth transfer to the middle and upper class”. Others predict that reducing debt will do little to reduce the drive to pursue a higher-paying specialty, suggesting that $200K of loans is small compared to the lifetime earning potential of a physician. We question that argument, having known many medical students wrestling with this decision. Most students in their mid-20s are thinking about their next rent payment, not calculating their lifetime earning potential. Stepping back, we think the movement toward free tuition is indicative of a larger shift in the organization of medical training and physician compensation structures. This and other moves to lower student debt, like reducing medical school to three years or combining medical school and undergraduate education, are the beginning of a path toward the undergraduate medical education model that exists in nearly every other country. Persistent salary differentials may continue to skew supply toward higher-paying specialties but removing the physician debt load also eliminates a common justification for doctors’ relatively high incomes. In countries with low student debt and flatter physician compensation structures, new doctors disproportionately choose primary care and its shorter training path. As the dollars and time invested to become a doctor decrease, so may the social status of the field—paving the way for the transition of medicine toward a vocational model of training and a more middle-class income profile. 

A new plan highlights healthcare’s complex entanglements 

This week, Aetna announced that it would introduce a new narrow network plan for the coming year that is composed of its four accountable care organization (ACO) joint venture provider partners in Southern CaliforniaThe new plan, called Aetna Whole Health – Southern California, will be targeted at the employer market, and will include Sharp HealthCare in San Diego, MemorialCare in Orange County, Providence Health & Services in Los Angeles County, and PrimeCare Physicians Plans in the Inland Empire. Plan enrollees will have access to 1,400 primary care physicians, 8,300 specialists, 51 hospitals and 122 urgent care centers across a five-county geography, according to Aetna. The combined plan puts together four separate ACO joint ventures that Aetna has been assembling in the region since 2012. Over the past several years, the insurer has pursued a strategy of partnering with leading health systems and physician groups to introduce co-branded health plans, with efforts underway in Phoenix, Dallas, Orlando, Minneapolis, Northern California, and elsewhere.

The launch of the new plan highlights several themes emerging in the payer-provider space. As health systems have struggled to find entrées into commercial risk to complement accountable care pilots on the public side of the business, the dominant strategy has shifted from launching in-house insurance companies to creating joint ventures with established carriers. While these payer-provider ventures have often struggled to become profitable, the losses associated with them pose a less-grave threat to the conservative financing structure of a typical hospital system than the prospect of taking heavy losses on a wholly-owned plan (as happened in 2016 with Partners HealthCare’s Neighborhood Health Plan and in 2017 with Northwell Health’s CareConnect plan). For health plans, provider joint ventures have been a means to build share in markets where they lack it. In California, for example, Aetna lags behind Kaiser Permanente, Anthem Blue Cross Blue Shield, and Blue Shield of California in market share.

But the new Aetna plan also underscores the growing complexity of the insurance landscape, as payers jockey for position and strategic advantage in a shifting environment. For example, as Aetna draws closer to a deal to become part of the retail pharmacy chain CVS, will the insurer prefer to steer patients to CVS’s Minute Clinics (likely to be reborn as full-service “care centers”), rather than the access points owned by its provider-partners? And how will Aetna respond to the increasingly aggressive moves by other health plans to tie up provider assets in the market? A perfect illustration of the crazy-quilt complexity emerging: Aetna’s new plan includes its Whole Health partnership with PrimeCare Physician plans, first launched in 2012. At the time that joint venture was launched, PrimeCare was an aggregation of independent practice associations (IPAs) owned by North American Medical Management (NAMM), which in turn was owned by New Jersey-based Aveta Inc., which operated similar subsidiaries in several other states. Thanks to a series of acquisitions over the past several years, PrimeCare, NAMM, and Aveta are all now owned by OptumCare, a subsidiary of UnitedHealth Group’s Optum. In other words, Aetna is now launching a narrow network plan in Southern California that includes its biggest competitor as one of its preferred providers. And soon, Aetna will be part of CVS, whose Caremark division competes directly with UnitedHealth Group’s OptumRx. As the healthcare landscape continues to shift, expect more strange bedfellows to find themselves caught up in a tangle of complicated relationships.


GRAPHIC OF THE WEEK

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

Provider payments at the heart of Medicare spending growth

One of the points we always emphasize in our work with providers is that the realities of the Federal budget are the most significant burning platform for finding lower-cost ways to deliver care. A quick look at this week’s graphic illustrates why. On the left, based on Congressional Budget Office (CBO) forecasts, we show how the expected $680B of growth in Medicare spending breaks down over the next ten years. Little wonder there’s been so much focus on Medicare drug spending, which is expected to more than double over the next decade. But the proportion of payment today (and in ten years’ time) paid to providers via Part A and Part B reimbursement dwarfs spending on drugsAddressing spending growth on hospitals, doctors, and postacute providers is simply a much bigger priority for Medicare.

As to how Medicare intends to control that spending, look at the pie chart on the right. Here, we show a different way to cut the ten-year spending growth—by recipient. Note that a full 60 percent of payment is expected to flow through insurance companies—either Medicare Advantage (“Part C”) payers or Part D drug plans. From the provider’s perspective, spending on Medicare Advantage is just a means of exercising control over provider spending by shifting accountability to private insurers. Most of that $294B increase in spending on “payers” will actually go to providers, but will flow through a mechanism that will deploy “managed” approaches to control spending—HMO-style networks, patient steerage, and so forth“Traditional” Medicare is not really a payer, it’s just a bill-payer. Handing over such a huge chunk of spending to private insurers will mean that true payer strategies will increasingly pervade the Medicare program.


THIS WEEK AT GIST—ON THE BLOG

What we’ve been writing about this week on the Gist Blog.

Talking with Oscar, a New Kind of Health Insurer

This week we published our recent interview with Dennis Weaver MD, Chief Clinical Officer of Oscar. With this week’s announcement of Alphabet’s $375M strategic investment in the health insurance start-up, Oscar is poised to continue its growth into new geographies and new market segments (notably, Medicare Advantage). We chatted with Oscar’s top doc about his perspectives on provider partnerships, consumer engagement, and care management. We were fortunate to spend a day with Dennis and the team at Oscar and came away convinced that their consumer-oriented approach and technology-enabled partnership strategy make them a disruptor worth watching.


THIS WEEK AT GIST—ON THE ROAD

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

Surveying provider reaction to Medicare’s new ACO rule

Lisa:
As I’ve been developing our take on the impact of Medicare’s proposed changes to the Medicare Shared Savings Program, I’ve had several conversations with providers who are beginning to digest what the changes mean for their Accountable Care Organizations (ACOs). They represent a range of geographies and markets: some are in upside-only Track 1, and others have already moved to take downside risk. All have questions and concerns about the specifics of the rule (and most plan to submit comments), but what I’m hearing stands in striking contrast to survey data from the National Association of ACOs suggesting that 70 percent of ACOs would leave the program if forced to take downside risk. Only one ACO in my (admittedly anecdotal) survey was considering dropping out of the program—and then only to more aggressively pursue higher levels risk in Medicare Advantage. I was struck by the general support for a faster transition—especially from those doing the hard work of leading ACOs, who felt that more pressure from CMS could help them overcome resistance from stakeholders above (executives and boards) and below (rank-and-file providers) who have been reticent to move away from fee-for service. Regardless, their feedback was consistent with our early take on the rule that moving providers to downside risk will separate those who are serious about shifting to value from those who are merely in the program to juice referrals, and that the shared savings program is largely viewed by providers as a transition program to a future model with greater risk.

Customizing our point of view about the future of care delivery

Chas:
We’re working with a large, multi-market health system to develop a new approach for making capital allocation decisions, premised on the notion that the “health system of the future” will look significantly different from its current configuration, given changes in how care is paid for and delivered. In particular, we’re helping this system navigate trade-offs between continuing to invest in expensive inpatient capacity versus allocating capital toward less-intensive sites of care (both pre- and postacute), with the aim of creating a more streamlined, “asset-light” health system. As you might expect, the crux of the matter is developing a point of view about timing—when is the right time to shift away from reliance on fee-for-service-oriented volume growth toward a total-cost-of-care view of system economics? That’s a question facing every hospital system in the US.

We’ve suggested breaking the question into two parts, each of which will require the system to develop its own point of view. First, we think the system will need to come together around a clinical perspective: how should care ideally be delivered in the future? Here, we are proposing a process to come to consensus among the system’s doctors and other clinicians about the best approach for providing care across key service lines. What kind of care, delivered in what location, according to what set of clinical protocols? While there are national standards and evidence, we believe these must be adapted and owned by the system’s own clinicians. Second, we believe the system needs to develop a point of view about its posture toward innovation: how do we want to deliver care, given our own market realities (payer contracts, competitive position, appetite for change, and so forth)? This second “policy-making” step should allow the system to adapt ideal clinical practice to local market realities, helping them build a sustainable approach to care transformation. For example, while it might be clinically possible (even preferable) to care for heart failure patients at home, the system might not have access to payment for that kind of care. If not, then they’ll have to decide whether to implement home-based care protocols in spite of the lack of reimbursement (making a bet on innovation to drive lower cost and garner payer interest), or to continue to favor care approaches that more closely reflect current payment. Our view is that by explicitly developing a point of view about clinical practice and innovation posture, the system can build an investment approach tailored to their own perspective on the timing of transformation.


ON THE GIST TURNTABLE

Give this a spin, you might like it.

Two years ago, at Austin, TX’s eclectic music and tech festival SXSW, the indie singer-songwriter Mitski Miyawaki burst onto the national scene with her critically-acclaimed hit “Your Best American Girl”, the lead single from her breakthrough album Puberty 2. Making many of 2016’s “top 25” lists, Mitski’s fuzzed-up, intensely personal music was hailed as the work of a compelling, emotional “voice of her generation”, vaulting her to the top of the indie-rock genre. Mitski is out today with her follow-up release, Be the Cowboy, and it’s better and more powerful than anything she’s done to date. Mitski’s shifted from her earlier, punk-influenced sound to a more pop-friendly approach, and the new album is packed end-to-end with short, crystalline gems of indie perfection, with all of the emotional punch of her earlier work but a cooler, more crafted sound. Every track is a short story worth savoring, but check out “Nobody” for a sense of what she’s up to—mournful, introspective lyrics set to a lightly-spinning pop track that belies the power of its message. She’s in Stephin Merritt territory with this new release, if a few dozen tracks shy of his iconic 69 Love Songs. Without question, her new album will top many of this year’s “Best Of” lists—and rightly so.


WHAT WE’RE READING

Stuff we read this week that made us think.

Nearly 20% of inpatient stays come with a surprise bill 

Despite growing state and federal regulation, balance billing (also known as surprise billing) continues to plague consumers. A new study from the Kaiser Family Foundation and Peterson Center shows just how pervasive these out-of-network claims are: 18 percent of commercially-insured patients receive an out-of-network bill following an inpatient stay. A “surprise” bill occurs when a patient unexpectedly receives an out-of-network bill for care they assumed was in-network, leaving patients, especially those with high deductibles and co-insurance, with a much larger bill than anticipated. Patients often have little knowledge or ability to control whether they get out-of-network care during an inpatient stay. Does choosing an in-network hospital help? Not much, as 15 percent of patients who choose an in-network facility still receive a surprise bill, often from a physician group who contracts separately with health plans. Services such as anesthesia and pathology—which patients have little ability to choose once in the hospital—are among the biggest offenders.

While states such as California and New York have passed regulations to mitigate out-of-network bills for care received at in-network facilities, the impact of state regulation is limited, as self-funded plans are often exempt. Federal policy changes—which are unlikely in the near-term—would be required to comprehensively protect patients. Hospitals cite the difficulty of working with independent doctors, who may be essential to care delivery but conduct their own negotiations with payers. However, this leaves hospitalized patients, who have almost no ability to exercise choice of provider, holding the bag for a large out-of-network bill. As health systems strive to increase consumer value, ensuring in-network coverage of all hospital-based providers will be a critical part of “curating” the provider network and ensuring a consumer-focused patient financial experience. 

Will changes in physician payment undermine value-based care? 

With much fanfare, CMS released the proposed 2019 Physician Fee schedule last month, calling proposed efforts to streamline physician documentation and payment codes for evaluation and management (E&M) visits “historic changes to modernize Medicare and restore the doctor-patient relationship”. Writing on the Health Affairs blog, health policy lion Bob Berenson and geriatrician Alan Lazaroff critique a key element of the CMS proposal, the move to reduce the number of E&M visit codes, noting that such a move will increase costs and adversely impact patient care. Today, physicians bill CMS for office visits using E&M codes, choosing based on the complexity of the visit (separate codes exist for new and established patients), documenting a list of elements of patient history, physical exam and systems review to justify the level of payment. The impact of the proposed change across specialties is varied, with some specialties expected to receive a net payment gain and others, particularly those treating more complex patients, facing a potential cut. Berenson and Lazaroff assert that the proposal creates perverse incentives that will motivate some doctors to shorten visits, or even attempt to spread care over multiple (separately billable) appointments. These moves, they argue, will create more visit “volume” and hamper efforts to move to value-based care.

While we agree with the authors’ argument, we are skeptical that many doctors will push patients toward multiple visits—and if they did, patients would push back. Shorter in-person visits could be supplemented by telemedicine support, which is increasingly covered by Medicare. The authors suggest time-based billing is more equitable and aligned with value; however, it’s easy to argue time-based billing incentivizes inefficiency. Given opposition from physician organizations, it’s doubtful that these E&M coding changes will make it to the final rule—but any alternate proposal must also be budget neutral and will likely create winners and losers. The ultimate solution for reducing unnecessary coding complexity will not come from any magical, new set of codes, but from doctors taking on greater accountability for the total cost of care for their patients.

The brewing battle over who gets to perform a high-end surgery

We were interested in a new piece on NPR this week from Kaiser Health News that provided an overview of the ongoing controversy surrounding the availability of transcatheter aortic valve replacement (TAVR). The procedure, which allows cardiac surgeons and interventional cardiologists to replace defective heart valves without requiring open-heart surgery, has grown in popularity over the past several years, with more than 135K mostly elderly patients having undergone TAVR. Medicare began to pay for TAVR in 2011, but the number of hospitals allowed to perform the procedure on Medicare patients has been limited by regulations stipulating minimum volume requirements for a number of key cardiac procedures. This limitation, which is aimed at concentrating cases in high-volume centers with greater expertise, has resulted in lower mortality rates and better outcomes for patients, but has shut many smaller facilities out of the TAVR business entirely. With demand for TAVR expected to double in just the next couple of years, many excluded hospitals and surgeons are now pressing Medicare to expand eligibility for reimbursement, pitting community hospitals and rural providers against larger urban and academic centers. As the article describes, the debate has drawn in competing interest groups representing device manufacturers, specialty societies, and patient advocates.

The dust-up over TAVR highlights a larger policy question regarding access to highly-specialized (and often very lucrative) surgical procedures. On one side are those who argue for concentrating procedures like TAVR in high-volume centers, which can build expertise that allows them to improve both outcomes and efficiency, resulting in higher-value care. We are largely sympathetic to this “centers of excellence” approach, believing that high-end services should be rationalized both within individual health systems and across regional geographies. But there are compelling arguments on the other side as well, having to do with access to specialized care for underserved communities, and regulatory limitations on market competition. In our view, the best way to ensure broad access to communities and the ability of smaller providers to offer highly-specialized services is to build out the linkages between specialized centers and local programs. Integrated care management, local provider education, and logistical support for patients and families are critical to making the center of excellence model effective. And central to all of this is a payment structure that rewards collaboration across stakeholders—precisely the kind of coordination that bundled-payment models are intended to create. It’s worth keeping an eye on Medicare’s impending decision on whether and how to expand access to this innovative and life-saving procedure.


Thanks again for reading the Weekly Gist, and for sharing you feedback and comments. We’re always gratified when our work sparks a reaction, and we love hearing from you, so let us know what you think! And if you’ve found it helpful, we’d love for you to share it with a friend or colleague and encourage them to subscribe as well.

We’ll be back in a couple of weeks, and we hope you enjoy a relaxing Labor Day holiday and end of summer. In the meantime, please don’t hesitate to reach out 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