October 26, 2018

The Weekly Gist: The Spooky Season Edition

by Chas Roades and Lisa Bielamowicz MD

When the headlines are as depressing and frightening as they have been this week, it’s a good time to do what people have always done to take their minds off the situation at hand—think about baseball! Two games into the Fall Classic, we’ve already had plenty of great hitting, jaw-dropping pitching, and a bullpen chess-match between the Dodgers and Red Sox that will be studied for years to come. Here’s hoping for five more gems. (Better yet, four!)


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

Taking aim at Medicare Part B drug spending

This week, the Trump administration announced plans for a major change to the way the Medicare program pays for drugs administered in physician offices and hospital outpatient departments. Targeting high-cost “biologics” and other single-source drugs reimbursed under Medicare Part B, the proposal aims to close the gap between the amount paid to US providers, and prices paid for the same drugs in other countries. At the same time, Medicare will experiment with placing caps on reimbursement for those drugs, replacing the current approach of paying average sales price (ASP) plus 6 percent with a flat fee paid to providers who administer the drugs. Announcing the initiative on Thursday, President Trump said his goal is to combat “global freeloading”, in which other countries pay far less for some drugs than the US does. “Americans pay more so that other countries can pay less,” said the President. “It’s wrong. It’s unfair.” Medicare estimates that the new proposal could save the program $17.2B over a five-year period, by implementing an “International Pricing Index” that comprises 16 other countries, and benchmarking reimbursement to that index.

The proposal comes just two weeks before the hotly-contested midterm elections and is one of several high-visibility steps being taken by the Trump administration to demonstrate its commitment to addressing high healthcare spending. Earlier this month, the administration announced its intention to require pharmaceutical companies to include list prices for drugs in their television ads. Unsurprisingly, the drug lobby reacted negatively to the new Part B proposal, saying the administration was imposing “foreign price controls from countries with socialized health care systems” and that the plan would be “to the detriment of American patients”. In addition to drug companies, hospitals and physician groups (particularly those involved in cancer care, in which the targeted drugs are most often used) are likely to oppose the new initiative. Notably, an earlier proposal by the Obama administration targeting Part B drug spending—one not nearly as far-reaching as the current plan—was shelved after heavy opposition from industryIn our view, the new proposal—like the earlier one targeting TV drug ads—is more posturing than substance. Neither is likely to make a substantial dent in the amount paid by Medicare for drugs, or the amount paid out of pocket by consumers. Deeper structural reforms, including allowing Medicare to negotiate directly with drug companies, and addressing the pernicious role of pharmacy benefit managers (PBMs) in driving prices higher, are needed.

Chipping away at the Affordable Care Act

In other pre-election healthcare policy news, the Centers for Medicare & Medicaid Services (CMS) unveiled new guidance on Monday that opens the door for states to reshape their insurance markets in a way that loosens Obama-era regulations. Under the new guidance, states can now apply for “State Relief and Empowerment” waivers under section 1332 of the Affordable Care Act (ACA), allowing consumers to purchase insurance plans that do not meet stringent requirements for coverage and other consumer protections initially set by the ACA. The new policy enables short-term plans and “association health plans”—both favored by the Trump administration as ways to encourage younger, healthier people to access coverage—to be sold on ACA marketplace exchanges starting in 2020. Critics of these plans worry that by offering cheaper, “skinnier” coverage alongside ACA-compliant plans, insurance markets will bifurcate in a way that causes the cost of coverage to increase dramatically for those with pre-existing conditions. In a blog post on the CMS website, Administrator Seema Verma promised that more such waiver proposals would be forthcoming, saying that “CMS is preparing to publish a series of Waiver Concepts”.

Meanwhile, in an effort to further reform the health insurance markets, this week the Trump administration announced plans to reverse an Obama-era policy, and allow companies to use health reimbursement arrangements (HRAs) to pay for employees’ premiums on the ACA exchanges. Aimed at small-to-medium sized firms, the new approach would let employees purchase coverage on the exchanges using tax-exempt dollars as long as their employer continues to provide a traditional health plan option as well. Critics of the change are concerned that it will encourage some employers to “dump” their higher-cost employees onto the ACA marketplaces, driving up premiums in the individual insurance market. Both moves—relaxing the 1332 waiver process and loosening requirements on HRA spending—are further examples of the Trump administration turning to regulatory changes to “remake the ACA”, having failed to garner support for a full legislative repeal of the law. Expect this regulatory approach to continue to take center stage, particularly if control of Congress changes after the midterm elections.

A new path forward for Medicaid in North Carolina

This week CMS approved a Medicaid waiver for North Carolina under section 1115 of the Social Security Act, paving the way for the state to transition to Medicaid managed care—one of the last remaining states to do so. Having received waiver approval, the state will begin transitioning its 2.1M Medicaid enrollees into new managed care plans starting next November. The state applied for the 1115 waiver after the General Assembly directed the transition to Medicaid managed care three years ago. Spending $14B of its state budget on Medicaid every year, North Carolina had been the largest holdout in the nation-wide trend toward Medicaid managed care. Notably, it becomes the first state granted authority to spend Medicaid dollars on new care management approaches that address social determinants of health such as homelessness, violence, food insecurity, and transportation infrastructure—an approach hailed by CMS Administrator Seema Verma as a “new and exciting reform”. The state plans to take a hybrid approach to Medicaid managed care, contracting not just with traditional insurance carriers but also with regional “provider-led entities” that can include hospitals, physician groups and others who agree to manage populations of Medicaid enrollees.

Disappointingly, the new waiver did not include approval for Carolina Cares, a proposal that would have provided a path to extending coverage for low-income residents who earn too much to qualify for Medicaid but too little to qualify for subsidies on the ACA marketplace. Still, North Carolina’s approach to Medicaid managed care is reason for optimism. In particular, having provided some input to the state’s policymaking process along the way, we’re pleased to see the inclusion of payer-provider coalitions among those eligible to contract with the state for Medicaid risk. Rather than simply handing the keys to the Medicaid program to managed care companies, which can often lead to dramatic rate cuts for providers and access problems for enrollees, the state has dealt providers into the game, enabling them to take advantage of the waiver’s expanded spending authority to develop robust care management approaches for Medicaid enrollees. It will be worth keeping a close eye on the groundbreaking North Carolina program as it evolves.


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

Rethinking the model for managing chronic disease 

As we’ve discussed before, the greatest challenge facing health system economics is demographics. Today’s hospital economics are built on a cross-subsidy model in which profits from commercially-insured surgeries offset losses incurred taking care of Medicaid and Medicare patients. This balance is destabilized as the Baby Boom generation ages. Simply put, with 80M Boomers entering their Medicare years, hospitals’ beds will fill with elderly patients receiving treatment for exacerbations of congestive heart failure (CHF), diabetes, or other chronic conditions, of which the average Medicare beneficiary has four. It’s easy to envision the hospital becoming a giant nursing facility, with the vast majority of beds occupied by Medicare patients receiving nursing care and drugs, only to be sent home until their chronic disease flares again and the cycle repeats, four or five times a year.

Health systems must create a new model for managing Medicare patients with multiple chronic conditions, one that does not rely on care delivered in an inpatient setting. In the graphic below, we outline two approaches for managing a Medicare patient with advanced CHF. The top path illustrates today’s legacy model, where limited support for ongoing care management leaves the patient vulnerable to multiple exacerbations, leading to numerous ED visits and admissions for diuresis, after which the patient returns home to a sub-optimal diet and lifestyle and is likely to return.

A better alternative is illustrated in the second path. Here our CHF patient has access to the ongoing support of a care team, which regularly monitors her status from home with the help of remote monitoring and can communicate with the patient to adjust therapy if early symptoms are detected. Today we’re working with clinicians to understand just how to build this system of care and maximize its impact. One example: a leading heart failure specialist told us that admissions for CHF could be reduced by one-third if patients with severe heart failure were monitored with a CardioMEMS implantable device, which can detect changes in pressure before the patient has symptoms, allowing for very early intervention. Developing these kind of care approaches to manage chronic disease outside of the hospital will be the key to sustainable health system economics—and may have the greatest impact on lowering the total cost of care for the growing Medicare population.


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

Avoiding strategic paralysis during CEO transition 

I met recently with the board and executive team of a regional health system who were still reeling from news announced earlier in the week that their long-tenured CEO would be retiring within the year. Greatly respected by the board and his team, he will be leaving on a high note after decades of service: the system has grown market share, finances are strong, and physician and employee engagement are the highest in a decade. But the announcement comes at a time when the system is on the cusp of addressing critical strategic questions. Just a few on the list: what is our scale strategy, and should we act on a time-sensitive opportunity to acquire or partner with a nearby system? Are we ready to make a big move into Medicare Advantage? In sidebar conversations, a few leaders expressed concerns about the potential loss of momentum during the search for and transition to a new CEO. They wanted to avoid a “lame duck year” during which priorities are put on hold while waiting for the new CEO to be chosen.

It feels overwhelming to absorb the changes and pressures of today’s market while also contemplating the cultural transition of a tenured leadership team. I was reminded of conversations we had with a handful of CEOs in the wake of the passage of the ACA in 2010. It was not uncommon for a late-career CEO to express relief that he had only a few years left in seat, and that figuring out how to manage in a new payment environment would be the next person’s job.  This was not the sentiment expressed by this CEO and his board. They have a clear plan for what the system needs to accomplish. The best candidate will be one who shares the same vision for how healthcare should be delivered and what the role of the system should be in the market—one who wants the team to continue to execute and not remain in a holding pattern. Building a plan for maintaining momentum and ensuring cultural and operational continuity is a priority for this system, as it should be for any system undergoing a similar leadership transition. I’d be curious to hear what successes (or breakdowns) you’ve seen as a new generation of leaders takes the reins across the organizations you work with as well.

Making progress on value in Virginia

This was a landmark week for the Virginia Center for Health Innovation (VCHI), an organization that I’ve been involved with for many years and where I’ve had the privilege of serving as board chair for the past year. VCHI is a nonprofit, public-private partnership that brings together all of Virginia’s healthcare stakeholders—payers, providers, employers, patient groups, and government—to advance the adoption of value-based models of healthcare to improve the physical and economic well-being of Virginians. It’s an incredibly impressive group of healthcare leaders, whose organizations have agreed to work together to find ways to accelerate innovation in the state. Over the past several months, we’ve been developing a state-wide dashboard to measure progress against three key goals: increasing high-value care delivery, reducing low-value care, and ensuring that the state is moving toward rewarding value-driven care models. As part of the effort, we’ve been working with the Catalyst for Payment Reform (CPR) and the Virginia Association of Health Plans as one of three states (along with Colorado and New Jersey) involved in a project to measure progress toward value.

At this week’s stakeholder meeting, we unveiled the first findings from the project, and showcased the final version of our dashboard. The results were very encouraging. Based on an independent review of data from commercial and Medicaid health plans that cover 4.6 million residents of the state, the study found that 67 percent of commercial healthcare payments to hospitals and doctors in Virginia contained a value-based incentive, and 37 percent of payments in the Medicaid program were tied to value. Further, drawing on 2016 data from Virginia’s all-payer claims database, our dashboard set initial benchmarks around several key areas of focus: reducing unnecessary emergency visits, avoiding wasteful testing, increasing immunization rates, ensuring clinically-appropriate cancer screenings, and improving diabetic testing rates. Next month, we’ll be able to report on 2017 progress against those initial benchmarks.

It’s been terrifically rewarding to be involved in this effort, and to see the power of stakeholders from across the healthcare landscape coming together around a common goal of improving value. There’s a ton of work ahead for Virginia, but I came away from the meeting feeling very optimistic about the progress we’ve already made. Kudos to the incredible team at VCHI, and the organizations involved. I’ll keep you posted on future developments.


We would’ve worked harder, but we watched this instead.

Fans of nail-biting intrigue and tense televised action will not want to miss Bodyguard, a six-episode series from the BBC that launched on Netflix this week. The show, working in the tradition of Homeland and 24, but also great British crime procedurals like Line of Duty (whose creator Jed Mercurio is also responsible for this new offering), aired in the UK last month to rave reviews. In fact, the show’s finale was the most-watched drama on the BBC in over a decade. You’ll want to set aside a weekend to work your way through the show, which tells the story of David Budd, an Afghan war veteran returned to London (with a bad case of PTSD and a heavy dose of antiwar sentiment) to join the police force, only to end up serving as the bodyguard for the Home Secretary, the hawkish cabinet minister in charge of fighting domestic terrorism.

The show starts fast and never slows down, weaving high-stakes political intrigue with counter-terrorism and crime-fighting plots that all revolve around Budd, played to perfection by Richard Madden (the short-lived Robb Stark from Game of Thrones). Naturally there’s steamy romance and double-dealing galore, with a cliffhanger plot twist coming at least twice an episode. Bodyguard breaks shop-worn genre stereotypes, casting Madden not as a tough guy but as a broken, manipulated man whose fate is determined by the scheming of several strong female characters. And it raises hard questions about security policy, homegrown terrorism and racial profiling. But more than anything it’s an incredibly entertaining roller-coaster ride—you’ll find yourself glued to the screen to see what happens next. Highly recommended.


Stuff we read this week that made us think.

Keeping an eye on Prop 8 in California

As we’ve already said, sometimes we just want to watch baseball and not think about healthcare. This fall, that’s been harder than usual, thanks to spending on advertising for a California ballot initiative that’s so high the ads are spilling into the national coverage of the World Series. Not being California residents, we decided to take a closer look at what these ads are all about, which led us to this helpful piece on Proposition 8, from California Public Radio. For those who live in the Golden State, you can move along to the next item. For the rest of you, here’s what’s going on. Prop 8, or the “Fair Pricing for Dialysis Act” as it will appear on the California ballot this November, concerns how dialysis providers spend their money. It would cap overhead and administrative expenses at dialysis clinics, by dividing expenses into “allowable” and “other” categories—with anything not directly related to patient care being classified as “other”. Any spending over a proposed limit in that category would have to be paid back to insurance companies. The argument made by supporters is that dialysis clinics—which are used by more than 140,000 Californians each year—are stinting on patient care quality, leading to frequent complaints about quality shortfalls. By limiting non-care spending, supporters hope to force dialysis providers to address these issues.

What’s ensued is the most expensive proposition campaign in California’s history, with more than $120M being spent by both sides of the issue on advertising to voters. Most of that money, as you’d expect, is being spent by dialysis companies—in particular DaVita and Fresenius Medical Care—on the “Vote No on 8” campaign. (Those are the ads that made their way onto the national broadcast of the World Series.) On the “Yes” side of the issue, spending has largely been driven by the labor union SEIU, which has been described as seeking to leverage the issue in an attempt to unionize workers at dialysis clinics. Spending by the dialysis providers will likely continue to grow, as the measure is currently polling at 47% “Yes” to 34% “No”. Industry observers predict that if Prop 8 passes, it could lead the clinics to reduce services in California, leading to access challenges for kidney patients. The dialysis providers are surely concerned over the broader implications of a “Yes” vote as well, which might lead other states to take up similar measures. As is often the case, people across the country are closely watching to see what happens in California—even if we’d all rather just be watching the game.

Remembering the deadliest October

We are drawing to the close of the 100th anniversary of the deadliest month in US history, so it’s a good time to stop and remember that it wasn’t war or pestilence or famine that killed 195,000 Americans in October of 1918, it was something we still battle every year: the flu. A hundred years after the height of the so-called “Spanish flu”, which swept the globe in the midst of the First World War and killed more than 50M people, we are still fighting a war against the genetic descendants of the same virus, armed today with vaccines and an arsenal of preventive measures that were unknown during the Great Influenza. There have been a number of excellent retrospective articles looking back on the legacy of the 1918 pandemic, but perhaps the best place to start is the outstanding web commemoration created by the Centers for Disease Control and Prevention (CDC) that provides an overview of events of the time. From there, move on to the terrific documentary “Influenza 1918” from PBS’s American Experience, which aired earlier this year. And if, like us, your interest is piqued, check out John Berry’s definitive, book-length history of The Great Influenza, which places the pandemic in the context of the history of modern medicine and medical education.

Despite this year’s many retrospectives, the 1918 pandemic has been largely forgotten by history. It is not frequently covered in history classes, there are no major memorials to the victims of the influenza, and aside from the CDC website there’s been little official commemoration of the centenary of the event. (Surprising, since the flu killed more Americans than died in all of World War I.) Perhaps this historical ignorance explains why only 37 percent of American adults got the flu shot last year, a drop of more than 6 percentage points from the year before, according to CDC data released this week. The result? Last year’s flu virus killed more than 80,000 Americans, including more than 180 children—the most in any year since the CDC began tracking the data. So, please: read your history, get your flu shot, and encourage others to do the same.

Stop, you’re scaring the children

We’re officially into the political silly season in this country, with the midterm elections just a couple of weeks away. By now it’s well understood that our country has become incredibly polarized, with the space for reasonable policy debate becoming vanishingly small. Sometimes heightened political passions lead to dark and frightening outcomes, but other times what results is just plain goofy. That’s the case with a new report released this week by the august Council of Economic Advisors (CEA), often referred to as “the White House’s think tank” for its traditional role in providing sober economic policy analysis to the President. (Previous CEA thrillers include “Long Term Interest Rates: A Review”, and “Economic Benefits of Increasing Electric Grid Resilience to Weather Outages”.) What’s on CEA members’ minds this week? The looming threat of socialism in America. In a 71-page piece that spends a lot of time comparing Mao, Lenin and Marx to Sen. Bernie Sanders (I-VT) and Sen. Elizabeth Warren (D-MA), two potential 2020 Presidential contenders, the CEA lays out an argument that growing support for “Medicare for All” (M4A) proposals among Democrats is the first step on the road to full-blown socialism. In case you miss the point, the White House issued a statement reinforcing the argument that M4A would lead to a bankrupt government, shorter life expectancy, and a future of (shudder) “Nordic” conditions in America. As former CEA head and University of Chicago professor Austan Goolsbee told the New York Times“It feels like the CEA has a lot of time on its hands.”

Whatever you think of Sanders’s proposal for Medicare for All, and there are plenty of reasons to oppose it (not least its glaring lack of detail), it’s risible to argue as the CEA does that it’s in the same category as Lenin’s collectivization of Soviet agriculture or Mao’s persecution of the “landlord class”. This is pure, pre-midterm politics, raising the specter of “socialism” to counter a policy idea that Democrats have identified—correctly—as hugely popular with voters. At least the CEA is operating in the venerable tradition of the Gipper himself, who famously warned against another popular healthcare reform back in 1961, saying that the proposed Medicare program would lead us to socialism, and predicting that “We are going to spend our sunset years telling our children and our children’s children, what it once was like in America when men were free.” Perhaps this year for Halloween we’ll dress up as a Medicare card. Or maybe as Bernie Sanders, with a Karl Marx beard. Boo!

Thanks for reading the Weekly Gist! We really appreciate your time, readership and feedback, and we hope you’ll let us know what you think. If you don’t mind, we’d love it if you’d forward this to a friend or colleague and encourage them to subscribe too. The more the merrier!

Most especially, we hope you’ll let us know how we can be of assistance in your work. You’re making healthcare better—we want to help!

Best regards,

Chas Roades
Co-Founder and CEO

Lisa Bielamowicz, MD
Co-Founder and President