January 31, 2020

The Weekly Gist: The Super Bowl of Everything Edition

by Chas Roades and Lisa Bielamowicz MD

Sorry about that! We took an unplanned week off from the Weekly Gist last week, thanks to a thrilling combination of illness, travel snafus, and family commitments. But we’re back now, and just in time for Super Bowl weekend! Of course, there’s the big game between San Francisco and Kansas City on Super Bowl Sunday (go Chiefs!), but that comes sandwiched between the excitement of Impeachment Friday, Iowa Caucus Monday and State of the Union Tuesday. It’s the Super Bowl of Everything! (Wednesday can’t come soon enough.)

THIS WEEK IN HEALTHCARE

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

Taking another shot at Medicaid block grants

On Thursday, Centers for Medicare and Medicaid Services (CMS) Administrator Seema Verma unveiled a proposal to dramatically change the way states and the federal government fund the Medicaid program. Dubbing the proposal “Healthy Adult Opportunity”, Verma described the approach as giving states “unprecedented flexibility to administer and design their programs”, by converting federal payments for enrollees made eligible by the Affordable Care Act’s (ACA) expansion of Medicaid into so-called “block grants” or “per-capita caps”. Reviving a conservative policy idea first proposed by the Reagan administration, and again as part of the failed Republican attempt to “repeal and replace” the ACA in 2017, the approach would provide capped, lump-sum funding for expanded Medicaid to states that apply for a special waiver, allowing them to change provider payment levels, eligibility requirements, and benefit designs to generate savings relative to a capped payment. Of particular note, the program would allow states to implement narrower drug formularies, limiting the availability of certain high-cost drugs to enrollees.

The new waiver program is likely to attract the interest of red-state holdouts that have not expanded Medicaid under the ACA, along with some that already have. Oklahoma Governor Kevin Stitt, for example, described the new program as a “game changer” and announced plans to apply for the waiver. Meanwhile, Tennessee has separately applied for a block-grant waiver outside the scope of the newly announced program. Critics of the block-grant approach warn that it will result in fewer low-income people having access to Medicaid coverage, and will encourage states to divert funding away from critical health services. Experts are also dubious about the legality of the program, which will surely be challenged in court, as it may violate the statutory requirements Congress set for the Medicaid program. Given the lengthy process of applying for a waiver to allow the transition to block grants, it’s unlikely any state will be able to implement the program until sometime in 2021, adding political uncertainty to the legal and economic questions that loom over the new proposal. What’s clear is that the Healthy Adult Opportunity program represents another political shot across the bow of the ACA by the Trump administration, which has continued to administer the landmark 2010 law with a “fix what works, change what doesn’t” approach—ensuring a fierce political battle on the future course of Obamacare as part of the ongoing Presidential election campaign.

Betting on the growth of government insurance

As of late last week, the US now has a new #3 health insurance company, at least as measured by number of enrollees. Centene Corp. and WellCare Health Plans, Inc. completed their $17B merger, first announced last year, having cleared all regulatory hurdles and passed antitrust review by the Department of Justice. The combined company now ranks behind only UnitedHealthcare and Anthem among the nation’s largest insurers, but looks very different from its giant competitors. With the merger, Centene solidifies its position as the largest provider of Medicaid managed care insurance, while adding WellCare’s substantial Medicare Advantage (MA) and Medicare Part D books of business to its arsenal. The company now has operations in all 50 states, including 17 in which it offers plans in the Medicare, Medicaid, and individual exchange segments. Centene is much less reliant on the commercial insurance business than its peer companies, and earns much less revenue from administrative service only (ASO) arrangements with self-funded employer clients. Rather, it has focused squarely on the government business, which continues to grow rapidly thanks to the aging of the Baby Boom generation into Medicare, the growth of MA coverage, and the continued expansion of Medicaid managed care. According to Modern Healthcare, Centene President and CEO Michael Neidorff recently suggested that WellCare may become the MA brand of the combined company, serving about 1M enrollees. It will be worth watching how this government insurance behemoth continues to grow over time—particularly in states where it has a firm foothold in the Medicaid and individual marketplaces, like California, Florida, and Arizona. How it leverages that presence, and its expertise in navigating government insurance programs, to capture the coming wave of MA growth will determine just how nervous UnitedHealthcare, Aetna, and Humana should be.

Nation’s second-largest physician group supports Medicare for All

Discussions of Medicare for All (M4A) continue to dominate healthcare policy debates in the run-up to next week’s Iowa caucuses. Last week the American College of Physicians (ACP) provided progressive Democrats perhaps their most critical M4A endorsement yet. In a series of articlesACP, which represents nearly 160,000 internists, called for universal coverage through either a move to a single-payer healthcare system or a publicly-financed option with regulated private insurance. The organization issued the guidance as a bold call to action, saying it rejects the view that the status quo is acceptable, or that it is too politically difficult to achieve needed change. Last summer the American Medical Association (AMA) narrowly voted to maintain the group’s opposition to single-payer healthcare, but shortly after exited a coalition focused on blocking M4A and public option proposals. ACP’s support for M4A is another sign of a sea change among physician attitudes toward acceptance of more sweeping healthcare reform proposals, which will likely continue to grow as younger doctors enter the field. As the 2020 elections near, candidates would be wise to remember that patients trust their doctors: a rising tide of physician advocacy for universal coverage could provide a huge boost to voter support for M4A and similar proposals.


GRAPHIC OF THE WEEK

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

Understanding the details of surprise billing

Media coverage of surprise billing—like the story of the teacher in Texas who owed over $100,000 after having a heart attack, or the doctor who was charged over $56,000 for an air ambulance trip—can make it seem as though surprise bills of tens of thousands of dollars are pervasive. The reality is more nuanced, if still incredibly troubling. The graphic below illustrates the increase from 2010 to 2016 in both the incidence and size of surprise bills received by privately insured patients seeking care at in-network hospitals. Even though the amount of the average surprise bill is not quite as headline-grabbing, nearly 40 percent of American adults wouldn’t be able to cover even a $400 bill with cash or savings.

Despite this steep growth, the impact of surprise billing is unevenly felt. Surprise billing rates vary greatly among hospitals, with a small number of facilities accounting for the vast majority of surprise bills: 15 percent of hospitals have out-of-network ED billing rates above 80 percent, while for 50 percent of hospitals, rates are lower than 2 percent. The main driver of the difference: whether or not the hospital has an exclusive contract with a large physician staffing company, some of which have an explicit strategy of profiting from surprise bills. Outside of the ED, most surprise bills in the hospital setting result from out-of-network physicians working at in-network hospitals, for specialties where patients usually have little choice of provider: anesthesiologists, radiologists, pathologists, and assistant surgeons. Despite the fact that Congress’s bipartisan proposal to eliminate surprise billing remains stalled, media attention to this flashpoint issue continues to grow—and we expect this and other consumer “pocketbook” issues will dominate healthcare policy debates in the run-up to this year’s elections.


THIS WEEK AT GIST—ON THE ROAD

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

A look at value-based emergency medicine

Lisa:
Last week I spent time with the leaders of Integrative Emergency Services (IES), a Dallas, TX-based emergency medicine group that partners with health systems across Texas and Indiana. IES was launched in 2011 by a group of physicians who separated from a national, venture-backed emergency staffing firm, with the goal of creating a new clinical and financial model centered around value-based emergency care, which has since grown to represent over 600 doctors and advanced practice providers. The group has been successful in striking value-based contracts with both commercial payers and the accountable care organizations (ACOs) with which they are affiliated. A focus on the creation and implementation of emergency medicine care standards, with demonstrated cost and quality improvements for conditions like chest pain management, are at the center of these arrangements. So is an insistence on being in-network for local payers. For a time, this resulted in their providers being compensated at a lower level than some venture-backed emergency staffing firms who profit handsomely from surprise billing—but IES’s doctors are now seeing the tables turn, as some of their competitors are having to cut physician pay as pressure against surprise billing mounts.

The group has also moved outside the hospital to support care management of their highest-utilizing patients, creating a model centered around partnership with paramedics, medication management, and solutions for patients’ social needs. Few things faze emergency physicians and their teams, and they are masters of triage and stabilizing crises for ED “frequent fliers”. Their perspective—distinct from and complementary to the primary care practice-focused work of typical care management—could prove even more effective for improving long-term outcomes for the most clinically complex and at-risk patients.

“Advocacy is the new revenue cycle”

Chas:
At a recent member board meeting, when the agenda turned to the report from the CFO, I steeled myself for what can often be a dry recitation of bond ratings, balance sheet metrics, and debt financing updates. There was some of that, but much more interesting was the overview of how all of the various federal and state payment reforms of the past few years have affected the health system’s financial outlook. Between legislative and regulatory payment changes, the CFO estimated that the system would “lose” several billion dollars in revenue by the end of the two decades following passage of the Affordable Care Act (ACA). By far the largest chunk—more than half—will be driven by the impact of the “productivity adjustment” to the Medicare “market basket update”—the ACA’s downward adjustment of annual price increases to reflect the supposed increase in hospital productivity (a productivity boost that has yet to materialize for most hospitals).

Other downward pressures include cuts to “disproportionate share” payments, the impact of federal budget sequestration, and regulatory changes to how inpatient cases are coded for reimbursement. On the horizon: the unknown but potentially significant impact of CMS’s proposed Medicaid Fiscal Accountability Regulation (MFAR), slated to go into effect later this year. The new regulation significantly changes how states can use “provider taxes” and other accounting approaches to maximize Medicaid funding from the federal government—changes that could be “catastrophic” for this particular health system, which cares for a large number of Medicaid beneficiaries in a non-expansion state. Given the outsized impact of legislative and regulatory reimbursement changes on the system’s finances, the CFO highlighted the strategic importance of educating lawmakers on the impact of new payment rules as a key risk-mitigation strategy. “Advocacy is the new revenue cycle”, was the phrase that stuck in my mind. With no end in sight for major changes to how governments pay for healthcare delivery, it’s sure to become even more accurate in years to come.


THIS WEEK AT GIST—ON THE PODCAST

All the headlines in healthcare policy, business, and more, in ten minutes or less every weekday morning.

In last Monday’s episode, we featured a conversation with Dan Gorenstein, former Marketplace health care reporter and now executive producer and co-host of the Tradeoffs podcast. Along with a team of reporters and economists, he examines the different tradeoffs involved in various health policies. In his latest episode, Dan explores evidence about the pharmaceutical industry’s claim that lowering drug prices will stifle innovation—worth a listen!

Next Monday on Gist Healthcare Daily, we’ll hear from Anne Karl, a partner at the policy advisory firm Manatt Health. She has written about the extensive changes proposed as part of the new Medicaid Fiscal Accountability Regulation (mentioned above). She explains how these proposed changes to supplemental payments and other Medicaid financing mechanisms could have significant implications for both providers and state budgets. Make sure to tune in!

[Subscribe on Apple, Spotify, Google, or wherever fine podcasts are available.]


BINGE WATCH ALERT

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

This month brings yet another gem from the “international” section of Netflix, with the launch of Giri/Haji (Duty/Shame), a collaboration between the streaming service and BBC Two. It’s an eight-part detective series about a Japanese crimefighter who finds himself chasing around London to catch his brother, a Yakuza assassin. Along the way he teams up with a down-on-her-luck Scottish detective, an Anglo-Japanese male prostitute, and his own teenage daughter. The unlikely group gets caught in the crossfire of an ultraviolent war between rival Yakuza factions, the Albanian mafia, and corrupt Japanese and British police officers. Throw in a couple of complicated love stories, and you’ve got a busy, fascinating crime drama, with a stylized (almost manga-like) feel. The gritty depictions of Tokyo and London beneath their usual tourist veneers provide a perfect backdrop for this noir-ish show, which is in English and subtitled Japanese. The performances are universally excellent, including the Japanese actor Takehiro Hira as the hardbitten hero, veteran Scottish actress Kelly Macdonald (familiar from HBO’s Boardwalk Empire) as his Scotland Yard partner, and the revelatory Will Sharpe, whose nuanced portrayal of a worldly-wise rent boy is simply extraordinary. It’s unclear whether a second season is in the offing, but the series stands on its own as a bingeworthy treat for fans of crime drama with an international flavor.


WHAT WE’RE READING

Stuff we read this week that made us think.

Debunking the myth of savings from self-funding

A new data analysis from Kaiser Family Foundation (KFF) released this week in Axios casts doubt on a long-held piece of conventional wisdom in healthcare: that self-funded insurance plans provide businesses cost savings over fully-insured plans. The thinking had always been that eliminating the overhead from insurer marketing costs and profit margins, along with a variety of tax savings and cash flow benefits, made maintaining a self-funded plan more cost effective than paying for a traditional plan. After the passage of the ACA, the trend toward self-funding accelerated, as firms attempted to skirt the new insurance market regulations in the health law. But as the KFF data show, large firms have never enjoyed much of a cost advantage by choosing to self-fund their plans, and now actually pay premiums that are on average higher than those paid to fully-insured plans. It’s a confounding finding, but one potential explanation stands out above the rest: self-funded firms have been reticent to purchase healthcare services differently. The tight labor market, coupled with the wide geographic diversity of many large firms, has made it difficult for self-funded employers to exercise market power that would allow them to negotiate lower rates or narrow provider networks. And restricting choice for employees has remained a no-fly zone for many employers. The result: large, self-funded employers are in the same boat as the rest of us, paying more than $20,000 annually for family coverage—more than the price of a new car every year, for every employee.

Mounting “chaos” inside retail pharmacies

Hundreds of grocery stores nationwide are closing their in-store pharmacies as they continue to lose share of the prescription drug market to CVS and Walgreens, according to a Wall Street Journal report this week. One in nine US pharmacies closed between 2009 and 2015, with the greatest number of closures occurring among independent pharmacies. This latest wave of closures has largely been centered in regional chains like Northern California’s Raley’s and Minnesota-based Lunds & Byerlys, which lack the negotiating power of larger chains and the ability to launch retail clinics and other adjacent services. Grocery store share of retail prescriptions peaked at 14 percent, but has been declining since 2017.

Grocers’ exit from the prescription business should be a boon for CVS, Walgreens and other large chains. However, a report in today’s New York Times reveals an alarming rate of errors and operational challenges, raising the question of whether CVS and other large pharmacy chains can accommodate continued rapid growth. In addition to filling 500 or more prescriptions per shift, retail pharmacists juggle a growing number of duties, including flu shots, patient counseling, and endless calls with doctors and insurance companies—all linked to an expanding number of performance metrics. This, coupled with staffing cutbacks, has led pharmacists to flood state regulatory agencies with complaints about job stress and increasing prescription errors, or “misfills”, some of which have proved fatal. Also troubling are pharmacist incentives to encourage patients to switch to automatic or 90-day refills—at times enacted against the direct instructions of physicians. The article notes that when errors are reported to state boards, action is usually taken against the pharmacist alone. Large retail pharmacies are expanding their care offerings, and many plans include a growing care delivery role for the pharmacist. As CVS and others evolve, increased scrutiny may be needed on staffing and operations to ensure that pharmacists and caregivers are resourced for their most important role—ensuring patient safety.


That brings us to the end of another Weekly Gist—it’s good to be back. Thanks so much for taking time to read our work, and for sharing your thoughts and feedback with us. We love hearing from you! And we’d be so grateful if you’d share this with a friend or colleague and encourage them to subscribe (and to listen to our daily podcast).

Most of all, we’d love for 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