June 11, 2021

The Weekly Gist: The Tapas Box Blues Edition

by Chas Roades and Lisa Bielamowicz MD

It wasn’t too long after getting our second doses of vaccine that we returned to our previous lives of nomadic business travel, and now the constant bag-drag through airports and hotels is back with a vengeance. Don’t get us wrong—we love being face-to-face with our members again! But now that we’re back among the swelling ranks of the traveling public, we’ve noticed a problem: those meager “perks” that make business travel bearable seem to have vanished. In-flight food service—suspended. Airline lounges—shuttered. Coffee in the hotel lobby at 6 am—absent. Even the typically horrid restaurants that line the concourses of America’s airports are still mostly closed. Sure, it’s a minor thing to complain about, but we hadn’t realized how reliant we’d become on those little extras, now missing due to “health concerns” (or more likely, at this point, “margin management”). While we were never big fans of the vats of free soup at the United club, we wouldn’t say no to a quick cup of coffee now and again. Who could have predicted we’d be pining for a post-pandemic, in-flight tapas box!


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

Backlash mounts over FDA approval of a new Alzheimer’s drug

On Monday the Food and Drug Administration (FDA) approved Biogen’s Aduhelm (aducanumab) for the treatment of Alzheimer’s disease, despite little evidence that it delivers meaningful clinical benefits. The drug, the first new treatment for the disease in 18 years, has been shown to reduce the amount of beta-amyloid plaques in the brains of Alzheimer’s patients. But many scientists, including some who worked on Aduhelm’s clinical trials and members of the FDA’s own advisory panel, raised doubts about the approval, given that the evidence demonstrated little clinical improvement for patients taking the drug. Across the week, three members of the FDA’s Peripheral and Central Nervous System Drug advisory committee resigned in protest, citing approval of the drug despite weak evidence and the committee’s overwhelming rejection after reviewing trial data. The FDA was also criticized for broadly approving the drug for all Alzheimer’s patients, even though the trial had only evaluated efficacy in early-stage disease. The drug also carries non-trivial risks of significant side effects like brain swelling and bleeding.

The controversial approval demonstrates the disconnect between regulatory drug approvals, insurance coverage decisions, and the actual cost-benefit analysis of new treatments. Biogen has priced Aduhelm at a whopping $56K per patient annually. However, the total cost of treatment will surely be tens of thousands of dollars higher, to cover additional costs such as drug infusion and MRI scans to monitor for side effects. The FDA approval process is solely based on scientific evidence, and the agency has no authority to consider the cost and fiscal implications of treatment. Medicare and Medicaid plans nearly always follow the FDA’s approval when choosing to cover a drug, and also don’t take into account cost effectiveness. As a piece in the Atlantic points out, Aduhelm could easily become the most expensive medication ever, and if one-third of the country’s Alzheimer’s patients receive the drug, it would cost the healthcare system $112B annually—significantly more than the $90B spent on Medicare Part D each year to cover all prescriptions for 46M beneficiaries—with no guarantee of improved outcomes. The approval highlights the dysfunction and regulatory capture in our fractured drug development, approval, and payment systems, and will likely spark renewed momentum for policy reforms aimed at managing prescription drug costs. Meanwhile, we continue to wait for the Biden administration to nominate a permanent FDA commissioner to lead an agency increasingly under fire.

UnitedHealthcare temporarily delays a controversial policy

Facing intense criticism from hospital executives and emergency physicians, the nation’s largest health insurer, UnitedHealthcare (UHC), delayed the implementation of a controversial policy aimed at reducing what it considers to be unnecessary use of emergency services by its enrollees. The policy, which would have gone into effect next month, would have denied payment for visits to hospital emergency departments for reasons deemed to be “non-emergent” after retrospective review. Similar to a policy implemented by insurer Anthem several years ago, which led to litigation and Congressional scrutiny, the UHC measure would have exposed patients to potentially large financial obligations if they “incorrectly” visited a hospital ED. Critics pointed to longstanding statutory protections intended to shield patients from this kind of financial gatekeeping: the so-called “prudent layperson standard” came into effect in the 1980s following the rise of managed care, and requires insurance companies to provide coverage for emergency services based on symptoms, not final diagnosis. UHC now says it will hold off on implementing the change until after the COVID-19 national health emergency has ended, and will use the time to educate consumers and providers about the policy. Like many critics, we’re gobsmacked by the poor timing of United’s policy change—emergency visits are still down more than 20 percent from pre-pandemic levels, and concerns still abound that consumers are foregoing care for potentially life-threatening conditions because they’re worried about coronavirus exposure. Perhaps UHC is trying to “lock in” reduced ED utilization for the post-pandemic era, or perhaps they never intended to enforce the policy, hoping that the mere threat of financial liability might discourage consumers from visiting hospital emergency rooms. While we share the view that consumers need better education about how and when to seek care, combined with more robust options for appropriate care, this kind of draconian policy on the part of UnitedHealthcare just underscores why many simply don’t trust profit-driven insurance companies to safeguard their health.

One Medical acquires Iora Health

This week, concierge primary care provider One Medical announced it will acquire Iora Health, a chain of value-based primary care practices targeted to seniors, for $2.1B. The combined organization will have over 630K members (598K from One Medical, 38K from Iora) in 28 markets, bringing together two different patient populations and business models. Iora manages care for Medicare beneficiaries through risk arrangements, primarily under contract with Medicare Advantage plans, while One Medical manages a younger commercial population via a combination of fee-for-service reimbursement and employer and consumer subscription fees. As healthcare industry analyst Kevin O’Leary notes, the structure of the deal, which gives Iora 27 percent ownership of the combined company despite having just six percent of the patient base, signals One Medical’s strong desire to move into the booming Medicare Advantage space. Future growth will also be highly dependent on the company’s ability to expand membership in Medicare’s Direct Contracting program, judging from the investor presentation released by One Medical. While integrating cultures, business models, and care infrastructure could prove more difficult than anticipated, the combined company will field a nationwide physician network capable of managing patients across their life cycles, from cradle to grave, and will surely be a force to be reckoned with in primary care—and prime target for health plans and other investors looking to acquire a “soup to nuts” physician enterprise.


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

Healthcare M&A heats up in first quarter

Judging from the level of deal activity across healthcare in the first quarter of this year, post-pandemic euphoria is truly taking hold. After a substantial, COVID-related dip across most of last year, healthcare M&A began to accelerate in the fourth quarter of 2020, and hit a new high in the first quarter of 2021—up 19 percent. While all sectors saw an uptick in deal flow, the level of activity was particularly high among physician groups, as well as in the behavioral health and “e-health” spaces. Although hospital deal activity waned somewhat in the first quarter, the average value of deals increased: the average seller size by revenue was $676M, around 70 percent above historical year-end averages. This reflects a shift from bolt-on acquisitions by health systems looking to add isolated assets, to larger health systems seeking to combine their portfolios. Private equity continues to fuel a large portion of deal activity, especially in the behavioral health and physician group space, contributing to an 87 percent surge in the physician sector. We’d expect this flurry of M&A activity to persist—especially among physician groups and hospitals—as organizations seek financial security after a turbulent year, and as larger players look to scale their market presence and diversify revenue streams.


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

Health systems facing an uphill battle for MA lives

A number of the regional health systems we work with have either launched or are planning to launch their own Medicare Advantage (MA) plans. The good news is the breathless enthusiasm among hospitals for getting into the insurance business that followed the advent of risk-based contracting has been tempered in recent years. Early strategies, circa 2012-15, involved health systems rushing into the commercial group and individual markets, only to run up against fierce competition from incumbent Blues plans, and an employer sales channel characterized by complicated relationships with insurance brokers. Slowly, a lightbulb has gone off among system strategists that MA is where the focus should be, given demographic and enrollment trends, and the fact that MA plans can be profitable with a smaller number of lives than commercial plans. It’s also a space that rewards investments in care management, as MA enrollees tend to be “sticky”, remaining with one plan for several years, which gives population health interventions a chance to reap benefits. But as systems “skate to where the puck is going” with Medicare risk, they’re confronting a new challenge: slow growth. Selling a Medicare insurance plan is a “kitchen-table sale”, involving individual consumer purchase decisions, rather than a “wholesale sale” to a group market purchaser. That means that consumer marketing matters more—and the large national carriers are able to deploy huge advertising budgets to drive seniors toward their offerings. Regional systems are often outmatched in this battle for MA lives, and we’re beginning to hear real frustration with the slow pace of growth among provider systems that have invested here. Patience will pay off, but so will scale, most likely—the bigger the system, the bigger the investment in marketing can be. (Although even large, national health systems are still dwarfed by the likes of UnitedHealthcare, CVS Health, and Humana.) Look for the pursuit of MA lives to further accelerate the trend toward consolidation among regional health systems.

The power of presence during the pandemic

A physician leader asked recently whether we saw many health system executive teams work remotely throughout the pandemic. At her system, nearly every non-clinical leader worked mostly from home. “It seemed like two of our executives spent most of last year at their vacation homes,” she shared. “I know that we were being socially distant, but when our CEO held a virtual town hall from his beach house, it felt really tone deaf to our doctors and nurses.” In our experience, we saw most leaders spending many days in the office, even if some meetings were on Zoom. One CEO mentioned he felt compelled to come to his office, even if it meant working alone: “If the people working on the front lines came in, I felt I needed to come in. And in the rare case someone needed to connect in person, they knew I was there.” There is power in just being visible to caregivers. One recently retired CEO shared that he knew colleagues who rarely stepped into a hospital during the pandemic, missing a critical leadership opportunity. “No one expects the CEO to be hanging out in the COVID unit,” he shared. “But being in our facilities, not just in the office, to hear directly from frontline workers and express gratitude, was so important—and caregivers remember that.” Now fully vaccinated, most health system leadership teams are back in the office. To remain competitive, health systems will likely need to create models that allow some non-clinical associates to work virtually—which will require evolution of cultures long centered around in-person collaboration.


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

This week Houston Methodist suspended 178 employees who didn’t comply with the health system’s COVID vaccination requirement. Make sure to listen to our recent episode with CEO Dr. Marc Boom, who explained to us that the system had been laying the groundwork for the mandate since last summer.

Coming up on Monday, we’ll hear from Dr. Farzad Mostashari, CEO and co-founder of Aledade, about his view that physician quality reporting has gotten out control and is no longer commensurate with incentives. He tells us the whole system is in need of “radical surgery”.

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We said it, they quoted it.

Outcry Forces UnitedHealthcare to Delay Plan to Deny Coverage for Some E.R. Visits
The New York Times; June 10, 2021

“In addition to its questionable timing, the policy shift seemed puzzling since there had already been significant declines in emergency room visits throughout the pandemic into this year. Emergency room visits across the country fell by 27 percent in 2020, compared with the previous year, according to Gist Healthcare, a consultant, which also predicted that people with less serious conditions would continue to stay away.

“United’s decision seemed aimed at making sure people did not go back to using the emergency room for nonurgent care, even as hospitals might try to encourage more people to return, said Chas Roades, a co-founder of Gist. Given the potential blowback, he did not believe United was likely to generate significant savings from the program. ‘I can’t quite believe the juice is really worth the squeeze on this policy right now,’ he said.”

UnitedHealthcare delaying policy to stop paying for ‘non-emergency’ care in ERs
Minneapolis StarTribune; June 10, 2021

“Minneapolis-based Allina Health System saw a 13% decline in emergency room visits during the first quarter compared with the first three months of 2020, according to a financial statement. The year-over-year first quarter drop in ER patients at Fairview Health Services was even steeper at 27%.

“There’s been a similar pandemic effect in emergency rooms across the country, which makes the timing of the UnitedHealthcare policy ‘a little tone deaf,’ said Chas Roades, chief executive of Gist Healthcare, a consulting firm based in Washington D.C.

“‘I still think we’re at a moment where we need to encourage people to use health care in a functional way again,’ Roades said. ‘The real concern still, coming out of COVID, ought to be: Are people taking care of themselves, or are they avoiding health care when they should be receiving it?’”


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

“What’s Going On?”; “There’s a Riot Goin’ On”; “Won’t Get Fooled Again”; “Ain’t No Sunshine”. And on, and on—the songs and albums of 1971 were not only among the most lasting in music, but also reflected a pivotal moment in culture. It was the end of the peace-and-love 60s, and the start of a darker, more tumultuous era. That’s the argument documentary filmmaker Asif Kapadia (“Senna”, “Amy”) makes, in an excellent new miniseries on Apple TV+, “1971: The Year That Music Changed Everything”. You could quibble with the causality—did the music make the change, or was it a mirror held up to a crumbling world? And you could quibble with the year—after all, 1970 gave us Neil Young’s “After the Gold Rush” and The Beatles’ “Let it Be”, and 1972 brought Bowie’s Ziggy Stardust and The Stones’ “Exile on Main St.” Better, though, to simply enjoy the bounty of great music, behind-the-scenes footage, and probing historical commentary Kapadia delivers across eight packed episodes. Hearing Marvin Gaye describe his battle with the studio over his desire to write a “political album”, watching John and Yoko tinker with melodies for “Imagine”, seeing the Stones slowly succumb to Keith’s heroin addiction in a chateau in the south of France—the series delivers these treasures among many others. (Never ones to miss a cross-promotion opportunity, Apple has also created an outstanding playlist on their music service, “inspired” by the series.) Witnessing the interplay between the broader movements of the time (Black power, women’s liberation, gay rights) and the landmark work of key artists (Bill Withers, Carole King, Elton John) is one of the great pleasures of the show. Convincing evidence that by the end of 1971, in the words of David Bowie, “we killed the 60s.” Fifty years on, the social issues remain, and the music is just as relevant and powerful as ever.


Stuff we read this week that made us think.

Was Hahnemann Hospital acquired for the value of its real estate?

Philadelphia lost its largest safety net hospital in late 2019, when Hahnemann Hospital closed after 171 years of operation. While much has been written about the downfall of the hospital, which also served as the primary teaching site for Drexel University’s medical school, a recent piece in the New Yorker sheds light on the actors and motives leading to the closure. In early 2018, Tenet Healthcare, which acquired the hospital in 1998, sold Hahnemann and St. Christopher’s Hospital for Children to American Academic Health System, a company controlled by Paladin Healthcare Capital, a California-based private equity firm that previously managed hospitals in Washington, DC and Los Angeles. Joel Freedman, founder and CEO of Paladin, moved to Philadelphia to oversee the organization. Freedman, a charismatic entrepreneur, made grand promises to physicians and staff for clinical and facility improvement, taking funding from large institutional investors.

In the space of just 18 months, the organization went through six CEOs, and its finances continued to deteriorate as Freedman grew frustrated with the Pennsylvania regulatory environment, and found that the standard playbook of hospital cost-cutting tactics had long been exhausted by Tenet. Hahnemann’s impending closure ignited a frenzy among real estate investors and developers, as Freedman had placed the organization’s real estate in separate holding companies, beyond the purview of bankruptcy proceedings. Critics speculated that, from the beginning, Freedman’s acquisition of the hospital may have been “a ploy to acquire the land on which it stood”, in order to sell it to developers. Hahnemann’s closure was a tragedy for Philadelphia and the thousands of safety-net patients it served. Many safety net hospitals across the country sit on prime real estate in gentrifying urban areas, potentially at risk of succumbing to a similar fate if investors are allowed to acquire and manage community assets unchecked.

Spare a thought for the poor scooter riders

If you’re looking for signs that life after the pandemic might be different, New York Times technology columnist Kevin Roose has some evidence for you: the “Millennial Lifestyle Subsidy” seems to be disappearing. That’s his term for the ultra-low prices we used to pay for all manner of convenience-oriented services in the Before Times, all thanks to aggressive, VC-fueled strategies among start-ups which were hyper-focused on attracting new consumers to their offerings. Things like cheap Uber and Lyft rides, ridiculously inexpensive fees for home delivery of restaurant food and groceries, or ubiquitous and low-cost “shareable” electric scooters. You know, all the little amenities that Silicon Valley entrepreneurs dreamed up during the past decade to make the life of aspirational young adults in urban areas ever-so-slightly more comfortable. (Technology writer Kara Swisher famously called it “assisted living for millennials”.) Turns out a lot of those unsustainably discounted prices have now given way to a desire on the part of those companies (and their funders) to—hold on to your hats—actually turn a profit. Ridesharing trips are now 40 percent more expensive, Airbnb rentals are up an average of 35 percent, and that gingham-shirted fellow that just whizzed by you on a Bird scooter, Oatly-frothed latté in hand and leather backpack on his shoulder, is paying 280 percent more per minute to feel the breeze in his beard. There’s a lesson here for healthcare, though Roose doesn’t draw the parallel in his entertaining article: all that outside money flooding into previously money-losing services (bespoke primary care, home visits, wellness apps, and so forth) may be subsidizing false economics in exchange for attracting “lives”. Right now, healthcare is in the grips of a “platform boom”, with insurers, health systems, and disruptors all vying to corral as many patients as possible into their ecosystems. As with the feverish lifestyle start-ups, eventually a sustainable business model will have to emerge. Meanwhile, we’re all along for the ride.

That’s all for this week! Thanks for taking the time to read the Weekly Gist, and for listening to our daily podcast…we really appreciate it. Please let us know what you think—we love hearing your feedback and suggestions. And if you have a moment, share this with your friends and colleagues, and encourage them to subscribe, too.

As always, please let us know if 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