|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 California. The 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.