November 1, 2019

The Weekly Gist: The Winning on the Road Edition

by Chas Roades and Lisa Bielamowicz MD

Hearty congratulations to our hometown Washington Nationals, 2019 World Series champions! A tough end to a remarkable season for the Astros, who were the best team in baseball from start to finish. But what a comeback story for the Nats, and what an exciting Fall Classic—all the games won by the road team. We’ve always said we do our best work on the road, and the same held true for the entire series. Love that.

The victory parade is Saturday, but the most fun so far was watching the Stanley Cup-winning Washington Capitals react to the Nats’ win during their team Halloween party. Alex Ovechkin spraying champagne everywhere never gets old. District of Champions!

Note to readers: We won’t be publishing the Weekly Gist next week, but we’ll be back on Friday, November 15th with a new edition. In the meantime, you can check out our daily podcast to keep up with the latest in healthcare policy and business, every weekday morning.


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

Walgreens closes nearly half of in-store clinics

Walgreens Boots Alliance Inc. announced this week that they will close 160 of their nearly 400 in-store retail clinics. The company will shutter all of its wholly-owned and operated clinics, but keep the clinics operated by local health system partners. The move is part of an effort to cut costs in preparation for further paring back sales of tobacco products (last spring Walgreens raised its minimum age to purchase tobacco to 21). The company also announced plans to open smaller-scale stores focused on pharmacy and wellness services in urban areas, and a partnership to bring Jenny Craig weight loss services into 100 stores nationwide. Walgreens has lagged behind rival CVS in expansion into care delivery and insurance products, pursuing a strategy of partnerships rather than owned services and acquisitions. Just a few years ago, Walgreens seemed the more forward-looking of the two competitors, arranging with provider organizations to launch accountable care organizations, announcing co-branding deals with leading local health systems, and unveiling plans to get into the care management business. Since its combination with Alliance Boots, however, and its subsequent abortive acquisition of Rite Aid, the pharmacy retailer seems to have been in catch-up mode. By lagging CVS in ceasing tobacco sales, the company is not only likely to take a larger financial hit (since they surely saw cigarette sales spike after CVS took them off their shelves) but may fail to gain the same level of goodwill and positive coverage. Both CVS and Walgreens are pursuing a strategy of expanding into chronic disease management and wellness. However, Walgreens’ partnership-driven approach, with no “risk model” to capture cost savings from better health management, may leave it lagging its main rival in the healthcare space.

Seema Verma’s signature program is halted

Indiana announced on Thursday that it will delay the rollout of its Medicaid work requirements. The “Gateway to Work” program, which was scheduled to go into effect in January, would require non-exempt Medicaid beneficiaries to track and report their work hours (or time spent on another qualifying activity) each month to maintain benefits. The decision is in response to a lawsuit filed by four Indiana residents challenging the program, arguing it violates the primary goal of Medicaid, providing coverage. Work requirements in other states have faced similar challenges. A Federal appellate court is weighing the Trump administration’s challenge to a ruling that struck down work requirements in Kentucky, Arkansas and New Hampshire. Arizona recently announced it would also delay starting its work requirements until the court cases were resolved. A Government Accountability Office report found the infrastructure to administer work requirements comes at a significant cost to states, and in some models, could offset any savings.

Indiana was the first state to link value-based incentives and beneficiary premiums to Medicaid expansion under the Healthy Indiana Plan (HIP). The first iteration of HIP, launched in 2015, was architected by current Centers for Medicare and Medicaid Services Administrator Seema Verma, who was an advisor to then Indiana governor and current Vice President Mike Pence. A waiver extension in 2018 added more restrictions, including increasing premiums for tobacco users and imposing coverage lockout periods for adults who failed to complete the eligibility process on deadline. Indiana has been a national leader in implementing conservative Medicaid reforms, and HIP is the seminal achievement of Verma’s work prior to her tenure at CMS. The outcome of court cases on Medicaid work requirements could determine whether her work on those strategies at the national level is ultimately deemed a success.

Google gets a step—or 10,000—closer to monitoring your health

If you Google “Where is my Fitbit?”, you’ll get about 42 million results, most pointing to a popular app that helps users locate their lost activity tracking device. (Mine’s gathering dust at the back of my dresser drawer, and I bet yours is too.) This week Google provided another answer to that question—Fitbit is soon to be added to the growing portfolio of parent company Alphabet’s healthcare holdings. The company announced that it has finalized a deal to acquire Fitbit for $2.1B, putting it squarely in competition with rival tech giant Apple, which accounts for half of the global market for smartwatches. Fitbit has struggled in recent years, after the launch of the more richly featured Apple Watch, although the company has been engaged in stabilizing its sales and pivoting to more of a health management focus rather than its earlier, narrower focus on fitness and step-counting. Coming on the heels of a wave of recent hires by Alphabet that signal a serious intention to become a major player in the healthcare industry, the Fitbit acquisition indicates that Google—which is well-positioned to be the “information layer” in healthcare—is in search of more ways to collect health information from individual consumers. That aspiration is shared by other major healthcare disruptors, including UnitedHealth Group’s Optum division, which this week acquired Vivify, a remote patient monitoring platform. Vivify helps keep track of individual health status outside of traditional care settings and in the home—especially for people with chronic medical conditions. That’s an important component of reducing the need for expensive hospital and specialty care—a view clearly shared by both Google and Optum in their most recent acquisitions.


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

Healthcare delivery is moving “up and out”

Our graphic this week captures a phenomenon that we’ve observed in our strategy work with regional, “super-regional” and national health systems. We call it the “up and out” phenomenon—healthcare delivery is increasingly being pulled up and out from local, siloed hospitals. The traditional hospital enterprise, operating in what we refer to below as the “fee-for-service zone”, has typically pursued a service approach that delivers all things to all people. Commonly, the combination of reimbursement incentives and health system governance structures has encouraged hospital executives to prioritize facility profitability over system performance.

One important source of value creation for regional systems is service line rationalization—essentially, consolidating key services in one facility rather than performing duplicative services in every hospital. Centralizing open heart surgery, for example, in one “center of excellence” in a region often results in both lower cost and higher quality, thanks to clinical and operational scale economies. But the economies of scale don’t necessarily run out at the regional level—for some high-end specialty services (transplants, for example) it makes sense to consolidate at a super-regional or national level. For a better outcome and lower price, consumers will be increasingly willing to travel to receive the best value care.

Meanwhile, many services currently performed in the hospital can be more efficiently performed in non-hospital settings and should be distributed across the market in ways that are more convenient and accessible for patients. Traditional hospital economics make the “inpatient-to-outpatient shift” problematic, but as price and access become important consumer engagement levers, there’s little use fighting that shift. Indeed, the logical setting for much care delivery is in the patient’s home itself. This puts systems in the position of pushing care delivery to the hyper-local level, a strategy that can be powered by digital medicine delivered at a national level. All of this raises an important question for the regional health system: as hands-on care is increasingly pulled “up” to the national level (centers of excellence) and pushed “out” to the community setting (home-based care), and as national providers of digital health services can deliver services to anywhere, from anywhere, what is the value of the regional system? We’re working with a number of members to better understand and prepare for this new operating model.


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

Adopting the most frustrating of fee-for-service tactics

Dentistry has been ahead of traditional healthcare on many elements of “consumer-driven care”. Some are good for patients: I wish my doctor was aggressive in reminding me to get my flu shot or cholesterol screening as my dentist is when I miss a semi-annual cleaning. Others are more questionable: not sure my dentist sold me on the need to spend thousands of dollars for UV light treatments for my slightly receding gums. Neither is surprising, given that despite dental insurance, much of dentistry has been a cash business. This is surely frustrating for consumers who don’t have the cash to pay, but at least it’s relatively straightforward to evaluate what you’re buying. Two recent anecdotes suggest that may be changing. First, it appears that the dynamics of dental insurance are becoming more like health insurance. My family’s Texas-based small business has always offered good health insurance, but for the first time they feel compelled to offer dental insurance. It’s not because candidates are asking for the coverage, which will be skimpy. Rather, employees are complaining about skyrocketing cash prices for fillings, crowns and the like, and the need to be able to access a “network rate”. As more patients come in with insurance, it seems dental practices may be embracing a chargemaster-driven payment model, with dramatically different rates for those with coverage, even if they’re paying cash, compared to those who don’t. Second, while traveling this week, I came across an airport ad urging that “pain or no pain…your wisdom teeth should be checked every year”. (See the ad, developed by the American Association of Oral and Maxillofacial Surgeons, here.) Given how frequently it’s suggested wisdom teeth should be extracted, it seems like a clear ploy to encourage paid mass screening—by oral surgeons—to drive surgery volumes. Imagine if orthopedic surgeons advertised “knee pain or not, you should be evaluated annually by an orthopod!” Dentistry appears to be moving toward more opaque, healthcare-style “fee-for-service” economics and incentives—running the risk of becoming an industry focused on driving “covered” high-end procedures, and flooded by middlemen adding questionable value for the end consumer.

Planning ahead to avoid a long goodbye

Succession planning is a frequent topic of conversation among the boards and executive teams we work with at health systems, and for good reason. There’s a large cohort of CEOs and other C-suite members in their late 50s to mid-60s who are probably two or three years away from retirement. Smart organizations are way ahead of these transitions, creating a deliberate bench of next-generation leaders, and explicitly evaluating their performance at a board level to determine who will fill key leadership spots in the future. One aspect of succession planning that’s gotten less attention but can prove equally disruptive to the organization if ignored, is what role the CEO will play after retirement. We’ve worked with a number of systems over the years whose CEOs have been in seat for a decade or more, and who are reluctant to take a full step away from the post once their time is over. Of course, it’s ideal to have a transition period that lasts for a defined time, to give the new executive time to get up to speed and build confidence. But what we sometimes see is former CEOs whose shadows loom large over the system, as they continue to provide (often unsolicited or unwanted) advice, stay in close touch with former subordinates, or keep a running dialogue with board members. This creates an awkward situation for the new CEO, who finds her own plans and ideas constantly tested, sometimes explicitly, against the “What does [former CEO] think of that?” standard. The key to avoiding this problem is to address it well in advance. We’ve been part of explicit conversations between incoming and outgoing CEOs about expectations and role definition post-exit, and even seen a few outgoing CEOs engage career counselors to help them manage the personal challenge of letting go of the organizations they’ve poured their hearts and souls into. A delicate situation to be sure—but a critical one to get right.


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

On this past Monday’s episode, host Alex Olgin spoke with healthcare antitrust attorney Jon Jacobs about the settlement between Sutter Health and the state of California in a closely watched case. Jacobs explains that in his experience, such settlements are highly regulatory and often include a range of monitoring provisions. He provides his take on what to look for next, and implications of the case for other hospital systems.

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


Give this a spin—you might like it.

British-Ugandan singer-songwriter Michael Kiwanuka is out today with his third studio album, titled simply Kiwanuka. Expectations have been running high for this release—ever since he burst on the scene with his Mercury Prize-winning debut Home Again, Kiwanuka has been hailed as a new incarnation of Bill Withers, Marvin Gaye, and even Otis Redding. His exposure grew exponentially with his 2016 follow-up album, which provided the theme song and much of the soundtrack for the HBO series Big Little Lies. The good news is that this new release meets—and after repeated listens, even exceeds—those high expectations. Working with the famed producer Danger Mouse, Kiwanuka has produced a record that approaches Gaye’s What’s Going On in its soulful depth, political message, and musical warmth. There’s a lot going on behind Kiwanuka’s groovy-soul vocals—orchestral strings, harps, and piano sequences, along with spoken word snippets that give the album a rich, urban 70s vibe. The album’s only flaw is slight over-reliance on atmospherics—a few of the intros drag on too long, and it sometimes sounds as if the producers are consciously constructing a cinematic backing track for some future film. But Kiwanuka shines here—easily earning his growing status as a torchbearer for the sound of soul. Best tracks: “Hero”; “You Ain’t The Problem”; “Piano Joint (This Kind of Love)”.


Stuff we read this week that made us think.

Elizabeth Warren has a plan to pay for M4A

After weeks of withering criticism from rival Democratic presidential candidates, Elizabeth Warren released details today of her plan to pay for “Medicare for All” (M4A), the single-payer restructuring of the American healthcare system that she favors. In it, she promises that no middle-class taxpayer will pay “one penny” in increased taxes, and her plan lays out both an estimate of what she thinks the shift to single payer will cost and the bundle of business taxes and cost savings she thinks can be used to pay for the plan. As to the cost of M4A, Warren estimates a price tag of $20.5T over 10 years, which is lower than recent estimates from the Urban Institute and other policy analysts. Her optimistic assessment is based on expected savings from setting hospital payment at 110 percent of today’s Medicare levels, reducing administrative costs by eliminating private insurancecutting the amount Medicare pays for prescription drugs by 70 percent, and scaling value-based payment reforms that reduce the overall cost of delivering care.

On top of the money that the federal and state governments currently pay for healthcare, which would all be redirected to pay for M4A, Warren proposes a combination of business and individual revenue sources to fund the plan. Businesses that pay for their employees’ healthcare today in the form of premiums would be forced to continue to do so, with a two percent reduction in the amount, but with all of that money paid to the government for M4A—essentially turning employer health benefits into a business tax. Increased taxes on billionaire wealth, capital gains, and stock market transactions are also proposed to help fund the program. Warren also assumes that individual income tax receipts would rise, given that income previously spent on premiums, deductibles and copays would be pocketed and thus liable to taxation. Loosening immigration rules and lowering defense spending also contribute significantly to funding Warren’s vision.

There’s a lot of detailed analysis in the Warren proposal, and that’s to her credit—she goes much further than even her progressive rival Sen. Bernie Sanders in outlining how she’d fund her plan. But the details are likely to spark fierce opposition from all sides—insurers who would likely be put out of business, hospitals and doctors who would face dramatic payment cuts, financial services firms and wealthy individuals who would see their taxes go up substantially. There are ways to ameliorate some of those opponents; for example, reducing payment to providers is not a load-bearing part of the plan, and Warren could easily “give back” enough reimbursement to hospitals to get them to 140 percent of Medicare, which would mirror rates currently (and sustainably) paid to Maryland hospitals under that state’s rate-setting regime. For all the numbers in Warren’s plan, however, the only one that really matters is 60—that’s the number of votes she’d need in a Democratic Senate to pass M4A into law. Even in the most optimistic scenarios, Democrats will fall well short of that tally, meaning that M4A remains for the most part an academic exercise, and a partisan rallying cry, rather than a likely outcome of the 2020 election. One thing’s for sure: Warren’s healthcare plan is sure to be a key talking point in the upcoming candidate debate on November 20th.

Expecting a “tsunami” of heart failure deaths

A new report in JAMA Cardiology revealed that US adult deaths from heart failure increased a whopping 38 percent between 2011 and 2017; deaths from heart disease increased 8.5 percent. Multiple factors are behind this rapid rise. Demographic shifts are at the core: heart failure death rates are highest in the elderly, and the rapid rise in the over-65 population has increased the number of cases. But the incidence of heart failure is increasing in both older and younger adult populations. And as we continue to improve treatment for heart attacks, fewer people die of the acute event, but are at risk for longer-term effects from heart failure. With the aging of the Baby Boomers, we’ve long predicted that hospitals will be overwhelmed with elderly patients admitted for exacerbations of chronic disease. This study confirms we are seeing the beginning of a “tsunami” of heart failure patients that will swell to epic levels as the number of Americans over 65 is expected to rise by 44 percent by 2030. Finding new ways to manage these patients outside of the acute care hospital will be critical for sustaining both health system economics, and the larger economics of the Medicare program.

That brings us to the end of another Weekly Gist. Thanks for reading our work, and for passing it along to a friend or colleague and encouraging them to subscribe. We’d love to hear your thoughts and feedback—let us hear from you! And if you haven’t yet, please check out our new podcast—Gist Healthcare Daily. We’re really proud of it, and we hope you like it too.

Most importantly, please 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

Lisa Bielamowicz, MD
Co-Founder and President