February 1, 2019

The Weekly Gist: The Shadow of Belichick Edition

by Chas Roades and Lisa Bielamowicz MD

Finally, some warm weather is in the forecast, as the polar vortex is expected to loosen its icy grip on much of the nation this weekend. Just in time for the Big Game, too—we may be able to fire up our grills after all. Don’t forget that tomorrow is Groundhog Day, the annual tradition in which Bill Belichick emerges from his hoodie, sees his shadow, and decides we’ll get six more years of Tom Brady winning championship rings. (Shudder.)

THIS WEEK IN HEALTHCARE

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

A major change to drug pricing practices

This week the Trump administration announced its most aggressive proposal yet to address the high cost of prescription drugs. Under a new regulation that would go into effect next year, rebates paid by pharmaceutical companies to pharmacy benefit managers (PBMs) would no longer be given “safe harbor” from anti-kickback laws. These rebates, intended to encourage PBMs to include certain drugs in their plans, often represent as much as 30 percent of the list price of the drug, and can generate significant gains for insurers, who rarely pass those savings along to consumers at the point of sale. Meanwhile, discounts provided directly to consumers would receive new safe-harbor protections. The new proposal, which would cover Medicare and Medicaid drug plans, represents “the most significant change in how Americans’ drugs are priced at the pharmacy counter, ever,” according to Secretary of Health and Human Services (HHS) Alex Azar. By eliminating rebates for Medicare Part D and Medicaid drug plans—a move sure to be adopted in the commercial market as well—the plan would lower the price of drugs Medicare patients purchase and their out-of-pocket payments on those medications, but will likely result in higher premiums for drug plans, as insurers look to compensate for the loss in rebate revenue. In 2016, rebates paid by drug companies to PBMs amounted to about $89B, according to a recent study.

The PBM lobby swiftly condemned the proposal, which now enters a 60-day public review period, citing the expected increase in drug plan premiums that it will cause. PhRMA, the main pharmaceutical lobbying organization, expressed its support for the proposal; drug companies have long complained about the practice of paying rebates to PBMs, citing it as a key driver of inflated list prices for drugs. Policy analysts were mixed on the new approach, with some worrying that the increase in Medicare drug plan premiums could outweigh the benefit to many consumers at the retail counter. Seniors with many prescriptions, or who take very high-cost drugs, are likely to benefit the most from the change. The announcement is part of a string of recent initiatives by the Trump administration to address the high cost of drugs and comes as Congressional Democrats are also setting their sights on drug pricing practices. Meanwhile, newly-elected Senator Mitt Romney (R-UT) met behind closed doors this week with pharma company executives to warn that “change is coming”, signaling that the drug industry can expect continued bipartisan scrutiny from the new Congress, even as the Administration continues its campaign to address widespread public concern about the cost of medications.

The first thing we do, let’s kill all the…insurers?

In a CNN town hall meeting this week, California Senator and Presidential hopeful Kamala Harris planted a firm stake in the ground in the growing public dialogue over Democrats’ proposal for universal coverage known as “Medicare for All” (M4A). When pressed on the details of the plan, for which she and other 2020 Democratic contenders have expressed strong support, Harris said she’d be in favor of eliminating private health insurance companies entirely. While a Harris spokesperson walked back the statement the next day, saying that the candidate would support more moderate approaches to M4A as well, the remark drew immediate attention from across the political spectrum. Conservatives blasted the candidate as “jaw-droppingly radical”, while moderates, including some Democrats, were more reserved. Top-ranking Senator Dick Durbin (D-IL), told CNN, “I don’t want to guess what (Harris) is thinking but that is a massive part of the American economy…It would take a mighty transition to move from where we are to that.” Meanwhile, former Starbucks CEO Howard Schultz, who made the media rounds this week as he eyes a potential Presidential run as an independent, slammed Harris’s proposal as un-American.

Whether or not Harris stands by her initial statement, she does appear to have set the guardrail for the coming debate on M4A, which is sure to be a centerpiece of the 2020 Presidential campaign. With the field of candidates growing larger by the day, and a wide array of proposals for expanding public coverage already being proposed by Democrats, healthcare is poised to become a “litmus test” issue for those vying for the party’s nomination. As we saw from polling last week, Americans are broadly supportive of M4A at a high level, but are much more skeptical of the idea when they learn specific details. While Harris took a political risk by expressing her support for eliminating private insurance altogether, her stance does play a useful role in kicking off a discussion of the real trade-offs to be made in moving toward an M4A system. Legendary journalist Michael Kinsley once said that “a gaffe is when a politician tells the truth—some obvious truth he isn’t supposed to say.” In the coming weeks, we’re hoping for even more “gaffes” on health policy from politicians on both sides of the issue.

A step backwards on transparency

Bad news for healthcare data transparency this week, as UnitedHealth Group announced that it plans to discontinue its data-sharing partnership with a leading repository of claims data. Since 2011 the non-profit Health Care Cost Institute (HCCI) has provided an invaluable resource for healthcare researchers, consumers and policymakers. The organization, funded in part by insurance companies (including United), aggregates claims data from employer, Medicare Advantage, and individual market health plans, along with the full set of Medicare fee-for-service claims data, and has assembled a suite of analytical and transparency tools that have yielded important insights about healthcare costs and utilization patterns. Its annual reports have become a mainstay of policy research, and its consumer-facing transparency site Guroo.com was an early and important resource for patients seeking pricing information. In addition to United, HCCI also draws on data from Humana, Kaiser Permanente, and Aetna, although Humana has also signaled its intention to withdraw from the data-sharing venture. A spokesman for United declined to comment on the company’s rationale for disengaging, but did point to the insurer’s Optum division, which houses its own, proprietary data analytics capabilities.

HCCI CEO Niall Brennan, formerly the chief data officer of the Centers for Medicare & Medicaid Services, said that it was “definitely a surprise” that United will sever ties with the organization, and warned that the lack of a complete data set could result in problems for its 2018 reporting. Academics and policy analysts decried the announcement, with Carnegie Mellon health economist Martin Gaynor calling it “really bad” and “a step in the wrong direction”. Whatever the rationale for UnitedHealth Group’s decision to withdraw, the move highlights the need for more, not less data-sharing in healthcare. In our view, health plans, hospitals, PBMs, group purchasing organizations, physician groups and others should be mandated to reveal data on cost, utilization and pricing as a prerequisite to receiving public funding. A good first step might be to require all insurers and providers who participate in Medicare, Medicaid or the Obamacare exchanges to submit data to all-payer claims databases. Without full transparency, policymakers, purchasers, and individual consumers will continue to find themselves flying blind when it comes to making rational healthcare decisions.


GRAPHIC OF THE WEEK

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

The thing that swallowed the Federal budget

The Congressional Budget Office released its ten-year Federal budget outlook this week, providing revised estimates of the magnitude and growth of spending by the US government over the next decade. It’s always fascinating to pull back and take a high-level look at where our government spends its money, as we’ve done in the graphic below. We often joke that you could describe the US government as a large insurance company with a standing army, and the numbers bear that out. (Let’s hope it continues to be the only insurance company that pursues that particular kind of vertical integration!) As the graphic illustrates, most Federal spending is “mandatory”—meaning that it’s driven by commitments that Congress has made that must be funded to the level of their cost. That primarily includes the healthcare entitlement programs, Medicare and Medicaid, along with Social Security. Mandatory spending accounted for more than 64 percent of the total budget in 2018. “Discretionary” spending—money in the budget that Congress decides how to allocate each year—is nearly evenly split between defense and non-defense spending. The remainder is interest payments on the Federal debt.

We like to show this graphic to illustrate an important point: there aren’t a lot of places to save money in the Federal budget, and healthcare is a prime target for savings. It’s political suicide to suggest “tampering” with the Social Security program—politicians have learned that lesson the hard way over the years. Interest on the debt is only going to go up in future years, as we continue to run a sizeable Federal budget deficit. Given our turbulent world, and the need to modernize our armed forces, there’s little room to make significant cuts to defense spending. But most obviously, the growth rate of the healthcare programs, and especially Medicare spending growth, is going to have to be addressed at some point. Medicare is just over 17 percent of the Federal budget now, but in ten years it’ll be over 22 percentMedicare’s share of the budget will grow more than any other expense over the next decade—thanks to the aging of the population, the impact of chronic disease, and the rising cost of delivering care to seniors. (By comparison, Social Security will only rise from 24 percent of the budget in 2018 to 26 percent in 2028.) This fundamental budget reality, and the policy approaches we pursue to address it, will have a profound impact across the healthcare landscape.


THIS WEEK AT GIST—ON THE ROAD

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

Puff, pass, and you’re fired

Lisa:
In the past few weeks, I’ve been working with physician leaders from two health systems on opposite sides of the country who are debating the same question: should we amend our marijuana drug testing policies for our doctors, given new laws allowing medical and recreational use in a growing number of states? Both systems, one in the South and the other in the Midwest, are located in states where recreational marijuana use is illegal, but they have had questions arise when employed doctors have tested positive for marijuana and claimed they legally consumed the drug while vacationing in Colorado. Several doctors have shared examples of situations in which unimpaired physicians tested positive, both on random screening tests and incident-triggered testing, and leadership has had to decide whether or not the doctor should be dismissed.

At both organizations, debate among physician leaders has been very much tilted toward tolerance of recreational marijuana use—and not just among the younger physicians in the room—with a real feeling of sympathy for the doctor who smokes a joint on vacation and could now be fired, and also face reporting to the state licensing board. While I am by no means an expert on physician drug testing policy, and I am not providing legal guidance, both conversations revealed gaps in clarity and communication in drug policies. While both organizations have policies about the consequences of a positive drug test, neither directly addresses legal consumption in another state. Having a specific position on this increasingly common situation and notifying doctors of the details is critical. (As one leader said, “smoking marijuana in the mountains last week was legal, but your urine this week is illegal, and we have to act on that. But our doctors need to know that consequence before they go on vacation.”)

Specifics about the circumstances in which marijuana will be included in a drug screen are also important. Given the prevalence—and rising acceptance—of occasional marijuana use, some organizations may elect to remove marijuana testing from random drug screening altogether. But should it remain included on a screen triggered by physician impairment or an incident, doctors need to know in advance they will be dismissed in the event they test positive. Doctors should also understand any differences in policy between their employer and the state medical licensing board. As more states move toward legalizing cannabis use, clarification and over-communication by hospitals and health systems of their drug testing policies is vital to helping doctors (or any employee) make choices that ensure they won’t lose their job due to a positive test. If the rules are clear, there will be fewer people who can claim to be accidentally breaking them. 

Building loyalty to an “unwanted” service

Chas:
During a talk I gave this week at a client board meeting, one of the board members raised a question that I’ve heard before from healthcare leaders, particularly in the health system space. I was making the argument that health systems need to reorient around consumer value and build a platform that engenders long-term consumer loyalty—one of our core convictions. “But wait,” this board member said, “no consumer wants to be loyal to a health system. We sell something that no one really wants to buy, and that no one is happy consuming.” Her point: for a consumer, hospital care is mostly something to be endured, not something that creates a sense of attachment or engagement. Aside from having a baby, it’s almost always an unpleasant surprise to have to deal with a hospital. And even if the hospital does a good job fixing the problem, the patient still wishes it had never happened. How can health systems, primarily in the hospital business, hope to build consumer loyalty? Who would want to be a “member” of a health system?

Fair enough. The hospitalization itself probably isn’t the right launching pad for a long-term loyalty play. But, of course, health systems are much more than hospitals; increasingly, they’re care ecosystems that provide a range of services across a consumer’s life. Primary and preventive care, urgent care, pharmacy, telemedicine, home-based care, nursing and rehab services, diagnostics, and on and on. Non-hospital care accounts for half of the average hospital’s revenue, according to recent data from the American Hospital Association. Many of those consumer interactions are routine—maybe not happy events, but service touches that can be delivered at a high standard and coordinated into a seamless experience. And health systems aren’t the only businesses that sell something consumers “don’t want”. For years, I’ve talked about my experiences as a member of USAA—an auto insurance company at its core, but with services across the financial spectrum and a consumer engagement model that drives fierce, lifetime loyalty among those it serves. I’ve never “wanted” to use my auto insurance, but USAA has made it nearly effortless to do so when I’ve needed to, and has worked hard to ensure that my larger relationship with them has been personalized, efficient, and high-quality. Just because health systems deal with consumers in difficult situations doesn’t mean they can’t build long-term loyalty—indeed, I’d argue it makes that aspiration even more important.


ON THE GIST TURNTABLE

Give this a spin, you might like it.

Having trouble keeping warm this week? Have we got the solution for you! Queue up the self-titled, debut release from the Franco-Cuban jazz septet ¿Que Vola? and be instantly transported to the steamy, tropical heat of a Havana street party. Taking its name from the Spanish vernacular for what’s up?, the project was created by French trombonist Fidel Fourneyron, who spent time in Havana in 2012 and was inspired by the Afro-Cuban rhythms he heard there. Recruiting three Cuban percussionists to join his Paris-based jazz ensemble, he set out to reimagine the post-bop/free-jazz sound he’d been working with by adding a heavy dose of complex beats and tempos from the Latin tradition. The result is a tight 40-minute album that propels forward through seven tracks of pure energy. The release vibrantly announces ¿Que Vola? as the 21st-century heirs of Afro-Cuban legends like Mario Bauzá and Machito, and tracks like the sly, brief “Calle Luz” and the funky “Iyesa” are as exciting as anything you’ve heard from the Latin jazz genre. The album closes with the epic “Resistir”, a nearly 12-minute tour through every sensation Afro-Cuban jazz can produce. You’ll be up and dancing in seconds, and reaching for a mojito instead of your earmuffs. Enjoy!


WHAT WE’RE READING

Stuff we read this week that made us think.

Why don’t more patients get dialysis at home? 

Over the past few months a dozen health systems have asked us about building “hospital at home” programs. But not one provider has ever asked us about options for home dialysis. An article this week in Modern Healthcare highlights a key reason why: the companies who control the vast majority of dialysis services across the country have been very slow to invest in home dialysis capabilities, or to actively shift patients to the model despite growing evidence of its benefits. There are two clinical options for home dialysis: standard hemodialysis, where the patient’s blood is filtered through a portable dialysis machine, and peritoneal dialysis, where waste products are removed via a catheter inserted in a patient’s abdomen. Both methods have been found to be safe at home, and are reimbursed by Medicare, which covers more than 90 percent of patients with end-stage renal disease (ESRD). Moreover, not only is home dialysis more convenient, but research shows it may result in better outcomes for patients, as shorter, more frequent sessions may extend lifespan and reduce complications. Despite these benefits, the percent of patients receiving treatment at home increased only 0.5 percent between 2013 and 2016.

According to the article, a home dialysis treatment is 16 percent cheaper than one provided in a dialysis center. Given that Medicare has used bundled payments for ESRD patients since 2011, providers receive the same payment whether patients receive dialysis in facilities or at home, so you’d expect them to move quickly to adopt home treatment. However, dialysis care is a controlled by an oligopoly, with two companies, DaVita and Fresenius Medical Care, owning over 80 percent of the 6,500 sites nationwide—and experts suggest the companies are motivated to keep patients filling the chairs in those expensive facilities. Physician executives from those companies cite several reasons for slow adoption. It’s true that many physicians aren’t sufficiently educated on the techniques, as they claim, and that there may be a shortage of staff to train and manage patients (although both of these can be remedied). But we’re skeptical of claims that adoption is hampered because patients don’t have transportation to training sessions (who gives them a ride to the dialysis facility three times per week?) or don’t have room at home for the equipment (NxStage, a maker of home dialysis equipment in the process of being acquired by Fresenius, says its machine is the size of an end table).

A shakeup in the dialysis market may be in the works, with CVS Health announcing last year that they plan to move into home dialysis services. Their entry could expand patient and physician demand for the service and push incumbents to move faster. Regardless, the dynamics of dialysis care illustrate that even with better outcomes and convenience, and equivalent reimbursement, incumbents still have motivation to slow-play a treatment option that is in the best interest of consumers. A disruptive market entrant, coupled with pressure from doctors and patients, may be needed to jump-start adoption.

For-profit insurers really are different 

Do for-profit insurers behave differently than nonprofit insurers? A new study led by Harvard Business School professor Leemore Dafny finds that for-profit insurers are more likely to exercise their market power to raise premiums. Dafny evaluated what happened when eleven Blue Cross Blue Shield plans converted from nonprofit to for-profit status and compared those markets to others where Blues plans’ attempts to convert failed. The findings are striking: compared to premiums in the control markets, fully-insured premiums went up 13 percent after plans’ conversion to for-profit status; a smaller but significant increase was also seen in self-insured premiums. The rate hikes appear to have several spillover effects. After the for-profit conversion, rates for comparable plans offered by other insurers also increased, suggesting the Blues plans are driving up baseline rates. Medicaid enrollment also rose in those markets, likely due to low-income consumers being driven out of the commercial market. The study found no differences in quality or medical-loss ratio (MLR) between the groups.

For-profit insurers have argued that their business model creates incentives for them to provide services more efficiently. This study raises real questions for regulators: if health plan conversion to a for-profit business model is likely to result in higher premiums with no improvement in efficiency or quality, does it create any value for consumers or employers? Dafny expects more nonprofit insurers to look to convert in coming years. Any health plan looking to make the transition should be required provide detailed plans for how a change in business model will create value beyond mere survival of the plan, and should be held publicly accountable for their cost and quality.

The view from inside healthcare whistleblowing     

We were fascinated by a piece in this week’s New Yorker magazine that dives into two high-profile whistleblower cases against insurers accused of fraud in the Medicare Advantage (MA) program. Whistleblower laws were first passed in 1777 and expanded during the Civil War to include “qui tam” cases (from the longer Latin phrase for “he who brings action for the king as well as for himself”). Qui tam suits constitute most of today’s whistleblower cases and allow for whistleblowers to share in recovered damages. While the article is full of colorful industry characters (including a physician-turned-health plan CEO-turned-philanthropist building himself a 68,000 square-foot home north of Tampa designed to be “a cross between the Taj Mahal and Versailles”), it centers on the personal and professional toll on two executives who filed qui tam suits against their MA plan employers, Florida-based Freedom Health, and industry giant UnitedHealthcare.

Darren Sewell, the whistleblower-physician employed by Freedom Health, set the path for fraud investigations against MA plans. His concerns began with the company’s practice of incentivizing sales agents to “cherry pick”, or recruit healthy enrollees, and “lemon drop” the sicker ones. Freedom kept lists of high-cost patients and offered bonuses to agents for getting those individuals off the rolls. His inquiry expanded to reveal the company’s policy of “renting” doctor practices in expansion markets, which were then dropped after approval was granted. Sewell was also the first to define the practice of inappropriate risk adjustment or “upcoding”, previously unrecognized by regulators. This was the basis for the suit filed by the second profiled whistleblower, Benjamin Poehling, against United.

Freedom’s case was settled for $31.7M last year; a portion of the case against United has been dismissed but the remainder is ongoing. Both cases required years of data-gathering by Sewell and Poehling before the suits were even filed. During this time, the whistleblowers could only talk to their attorneys or spouses about the cases. Many whistleblowers suffer high rates of stress-related health issues, financial problems and divorce. While there is the potential of a big payout at the end of the process, studies show most are motivated by moral outrage and frustration, not money. Whistleblower cases recovered $2.6B in healthcare fraud in 2017, a small amount compared to the estimated of $70B in MA overpayments to insurance companies over a five-year period, as evaluated by the Center for Public Integrity. Medicare fraud, in both the MA and fee-for-service programs, is far from the most significant driver of healthcare spending. But the work of whistleblowers, often conducted at a large personal cost, not only recovers big dollars but reveals structural and regulatory gaps in healthcare and is vital to maintaining the integrity of the system.


Thanks for joining us this week and taking the time to read our thoughts on what’s going on in healthcare. We really appreciate your generous feedback, comments and suggestions, so please keep in touch! And if you’ve found this edition of the Weekly Gist worthwhile, may we suggest you forward it to a friend or colleague and encourage them to subscribe?

Most importantly, if there’s anything we can do to be of assistance in your work, we hope you’ll let us know. 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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