December 21, 2018

The Weekly Gist: The Winter Solstice Edition

by Chas Roades and Lisa Bielamowicz MD

There’s a delicious irony to the fact that the shortest day of the year comes at the end of what seems like the longest week in history, at least here in Washington. As ready as you might be to flip the “out of office” email switch and enjoy the coming holidays, spare a thought for all the Federal workers and contractors spending this short day worried about a Christmas furlough. Will this crazy year never let up?

Note to readers: It’s our final Weekly Gist of the year! We’ll be off next week, but never fear, we’ve got you covered. We’ll be sending out a special edition on January 4th, with a look back at 2018 and our thoughts on what the new year will bring, with a regular edition to follow on January 11th. In the meantime, should there be any earth-shattering healthcare news over the holidays, we’ll fire up the Bat-signal and send out a Gist Alert.


THIS WEEK IN HEALTHCARE

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

Fallout from the Texas court ruling

Reactions to last Friday’s controversial ruling by a Texas district court judge, which held the Affordable Care Act (ACA) to be unconstitutional in its entirety, continued to reverberate across healthcare this week. In court, 16 Democratic state attorneys general petitioned Judge Reed O’Connor, who delivered the ruling in the case of Texas vs. Azar last Friday evening, to clarify whether he intended it to have “any immediate legal effect,” concerned about the widespread impact of overturning the landmark health reform law. The group also set in motion steps to begin the appeals process, asking the judge to certify his ruling by the end of the week so that they could file an appeal with the Fifth Circuit. Meanwhile, a spokesperson for the Department of Health and Human Services (HHS) said that the Trump administration would continue “administering and enforcing all aspects of the ACA”, despite a tweet from the President hailing the ruling as a victory. Democratic lawmakers in congress vowed to fight the ruling “tooth and nail”, although Senate Republicans shot down an attempt to intervene in the case.

The ruling appeared to have only a muted impact on the final day of open enrollment on the ACA exchange, although final signup numbers lagged last year’s tally, as had been anticipated. Financial markets reacted more negatively to the ruling, with shares of hospital and health plan stocks down sharply on Monday. Meanwhile, political observers began to analyze the longer-term consequences of the ruling on the 2020 Presidential campaign, with many pundits suggesting that the news could be a mixed blessing for Republicans, who have spent much of the past eight years campaigning against the Obama-era law. Others policy experts offered stopgap solutions for Democrats to defend the ACA, focused on amending—or perhaps abandoning—the largely toothless individual mandate. As some have pointed out, the ruling may provide added impetus for Democrats to pursue “Medicare for All” as a key element of their policy platform. As the year draws to a close, stakeholders across healthcare find the industry drawn again into political and legal uncertainty. While it would be a mistake to simply assume that the Texas ruling will be overturned—stranger things have happened and continue to happen with alarming frequency—the prudent reaction is to press ahead with the hard work of transforming American healthcare in ways that improve value for consumers, employers and taxpayers. No court ruling, legislative maneuvering, or regulatory action will eliminate the imperative to build a better, more sustainable healthcare system.

A tale of two mergers

Meanwhile, in other courtroom news with big implications for healthcare, US District Court Judge Richard Leon expressed satisfaction this week with a voluntary plan put forward by pharmacy retailer CVS to keep certain of its operations separate from those of newly-acquired insurer Aetna, while the court determines whether the merger can be finalized. Earlier this month, following the consummation of the deal, Judge Leon voiced concern that his court, which is required to oversee antitrust agreements between the Federal government and private companies, was being treated as a “rubber stamp”, indicating that he might call a halt to the merger. While CVS continues to insist that the two companies are now one entity, and Justice Department lawyers maintain that the judge lacks the authority to reverse the merger, the latest proposal from CVS appears to have bought the company some breathing room. Under likely supervision from a court-appointed monitor, CVS pledged to maintain Aetna’s traditional insurance pricing practices, and to restrict the flow of sensitive data between the two companies for a period of up to six months while the court reviews the case. In the interim, the $70B combination, which has captured the attention of traditional healthcare providers and payers as a potentially disruptive threat to the industry, appears to be in a state of suspended animation.

Also this week, another cross-sector mega-merger that has been a focus of attention across 2018 finally drew to a conclusion, as insurer Cigna closed its $54B deal to purchase pharmacy benefit manager Express Scripts. The deal puts Cigna on level pegging with rivals UnitedHealth Group and CVS-Aetna in bringing together a full suite of health insurance and pharmacy benefit services. The company announced its intention to begin rolling out new offerings, initially focused on managing high-cost specialty pharmaceuticals for its corporate clients, as soon as next year. Cigna CEO David Cordiani pointed to data integration as one key source of value creation in the wake of the deal, telling CNBC that “there’s a lot of data that’s available today, but it’s either not aggregated…or coalesced in a way that’s intuitive.” That’s likely to be a key area of focus for CVS as well, once its merger with Aetna clears this latest legal hurdle—indeed, one of the most “disruptive” aspects of the new round of vertical mergers reshaping healthcare is the ability to reconfigure the flow of consumers, and their information and care delivery, across a variety of settings. While the promise of that kind of coordination is obvious, it’s one that’s proven difficult to realize for fragmented incumbents with misaligned incentives. Capturing the value of integration will require a relentless focus on breaking down traditional silos—an execution challenge that will make clearing today’s legal hurdles seem like a walk in the park.

CMS finalizes ACO rule, cracking down on upside-only “squatters”

Today the Centers for Medicare & Medicaid Services (CMS) completed its overhaul of the Medicare Shared Savings Program (MSSP). The final rule, released this morning, is largely consistent with the earlier proposed regulation, and is aimed at encouraging accountable care organizations (ACOs) to shift into more aggressive, downside-risk contracts to care for Medicare beneficiaries.

As a refresher, the rule creates two ACO tracks, “BASIC” and “ENHANCED”, each with a five-year contract term, and both requiring participants to take on downside risk. BASIC track participants would be required to assume downside risk after the first two years of participation, while ENHANCED participants would take on downside risk immediately. The proposal further distinguishes between “high-revenue” ACOs, hospital-based organizations which typically have greater combined spend across Medicare Parts A and B, and “low-revenue” ACOs, most made up solely of physician practices. In effectively eliminating the upside-only Track 1, the new program is designed to force high-revenue ACOs into the ENHANCED track more quickly, thus discouraging them from “squatting” in upside-only arrangements. After one stint in the BASIC track, new hospital-based participants would be required to move along into the more advanced version or exit the program entirely.

One significant change in the final rule: CMS set the sharing rate for ACOs in the BASIC track who are not taking downside risk at 40 percent, compared to 25 percent in the proposed rule, addressing concerns that the lower initial sharing rate would dissuade new ACOs, particularly physician groups, from joining. The rule contains a number of other important changes for providers. (For highlights of some of the key details, we’d recommend checking out the excellent “tweetstorm” analyses of Aledade executives Dr. Farzad Mostashari  and Travis Broome.) Pulling up from the weeds, our take on the ACO program remains the same. By moving ACOs more quickly to downside risk, the new approach will likely generate more savings for CMS compared to the MSSP’s lackluster performance so far. However, we continue to expect the continued shift to private, Medicare Advantage (MA) coverage to provide the bulk of the opportunity to reduce spending growth in the Medicare program, with the ACO program providing little more than a transition path to enable providers to move toward full Medicare risk.


GRAPHIC OF THE WEEK

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

Envisioning the “asset-light” hospital of the future

Across December we have been sharing our framework for helping health systems rethink their approach to investment in delivery assets, built around a functional view of the enterprise. We’ve encouraged our clients to take a consumer-oriented approach to planning, starting by asking what consumers need and working backward to what services, programs and facilities are required to meet those needs. That led us to break the enterprise into component parts that perform different “jobs” for the people they serve. We think of each of those parts as a “business”, located at either the market, regional or national level depending on where the best returns to scale are found (and on the geographic scale of any particular system). First we shared  our view of the “access business”, pushing systems to create a broad web of access points across their market, with the goal of building consumer loyalty over time. Last week we described our vision for the “senior care” business, where an array of assets traditionally providing postacute care, including rehabilitation and skilled nursing facilities (SNFs), home health, and even hospital-at-home programs, could expand their capabilities to manage chronic disease exacerbations in elderly patients in lower-acuity, lower-cost settings. This week we’ll describe how the changes in these outpatient care settings will affect the profile of the traditional acute care hospital.

Shifting demographics will dramatically change the patient mix of American hospitals across the next decade. As Baby Boomers age into their Medicare years, ED and hospital beds will fill with elderly patients admitted for exacerbations of chronic diseases like congestive heart failure and diabetes, their care reimbursed at public-payer rates. Over time it’s easy to imagine hospitals starting to look like giant SNFs, filled with elderly patients receiving nursing care and drugs. With current cost and labor structures, this shift will be financially unsustainable for hospitals, as Medicare payment for many medical admissions does not cover the cost of the inpatient admission, forcing hospitals to pursue alternative care settings for these patients. As we described last week, as many as half of chronic disease admissions could be managed by an expanded “senior care” platform. Adding to this potential shift of medical admissions to an outpatient setting, we anticipate that an expanded postacute and home care platform could also accelerate the shift of inpatient surgeries to an ambulatory setting. If surgery centers could manage patients for 24- to 48-hour stays, and hospital-at-home capabilities supported recovery at home, some experts believe that a majority of non-emergent inpatient surgeries—including many orthopedic and general surgery cases—could shift away from the hospital. If this shift to alternative settings bears out, demand for traditional “med-surg” beds could decline significantly, even in the face of demographic shifts.  

The graphic below describes an alternative vision for the future acute-care hospital that takes into account these changes. This “hospital of the future” will be asset-light, focused on providing higher levels of emergency, medical and surgical care, with capacity weighted toward more intensive patient management. The acute care facility will be supported by a network of connected and expanded ambulatory resources, including outpatient surgery, postacute services, home care and access services, all enabled by remote monitoring technology. While payment changes covering expanded outpatient care will accelerate this movement, we believe that payer and patient mix shifts alone will provide motivation for hospitals to pursue these strategies. The cost of adding a new med-surg bed now tops $2M in most markets—trimming even a few beds that may not be needed will provide capital that can go a long way in expanding outpatient capabilities to support lower-acuity care.


THIS WEEK AT GIST—ON THE ROAD

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

Wrapping up a busy and inspiring year

Lisa and Chas:

As you’ve read in this space over the year, we spend most of our time out on the road with clients, providing (as our website says) “unbiased insight and guidance” to healthcare leaders. It’s been a whirlwind year—between the two of us, we’ve racked up more than 300,000 frequent flier miles, working with dozens of institutions across the country, ranging from the nation’s largest health systems to smaller hospitals, national and regional payers, physician groups of all sizes, Federal and state governments, trade associations, professional societies, technology companies, media outlets and more. We’ve presented to boards of directors on the future of healthcare, advised CEOs on some of the big mergers you’ve read about in the news, rolled up our sleeves and done demand forecasting and capacity planning, and engaged in policy roundtables. And writing: besides spending every Friday putting the Weekly Gist together, we’ve written blog posts, white papers, conducted newsmaker interviews and more.

In short, we’ve been busy. What a blessing that’s been. And how fortunate we’ve been to have worked with so many incredible people from across healthcare and beyond. As we think about all that we’ve learned this year, our biggest takeaways from the road aren’t about policy, or strategy, or economics. They’re about people. Three things this year taught us more clearly than anything else:

  1. Our industry is loaded with talent. As much as we complain about lack of innovation and paucity of strategic thinking in healthcare, and as hungrily as disruptors are eyeing incumbents in the payer and provider space, the truth is that some of the smartest people we’ve ever met work in healthcare. There’s no doubt in our minds that for all of healthcare’s problems, the best solutions and the sharpest answers are to be found inside our organizations.
  2. Our industry is full of passionate, mission-driven people. It’s easy to be jaded about the motivation of different players in healthcare, and there’s certainly a lot of blame-casting and stone-throwing that goes on between various segments of the industry—payers, providers, pharma companies, lawyers, regulators, and on and on, each responding to different (and often conflicting) incentives. But on an individual basis, the vast majority of people we’ve met are motivated by mission, the higher calling of care. It’s not always easy, but a good rule of thumb is simply to assume everyone’s operating with the best intentions, even if interests sometimes collide.
  3. Healthcare people are amazingly generous. Maybe it’s because everyone loves a start-up, or maybe we’ve just been lucky, but everyone we’ve come in contact with this year has been unfailingly giving of their time, support and guidance. At least once a week, one of us has had occasion to marvel at how genuinely nice people are, and encouraging, and helpful. Sounds maudlin, but it’s been so affirming to interact with everyone we’ve had a chance to work with this year, old friends and new, and our greatest hope is to be able to repay that generosity in kind.

We’re just getting started. In many ways, this has been a preparatory year for us, testing out new ideas, making new connections, and getting our feet under us. As we enter the new year, we’ll have more to share about our plans for Gist Healthcare and where we hope to go from here—new services, a deeper bench, a broader footprint. But the lessons of this year will stick with us, and we’re so grateful for every minute we’ve gotten to spend in service to and collaboration with such amazing people.


BINGE WATCH ALERT

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

Confessing an unpopular opinion here: we’re not huge Bruce Springsteen fans. Maybe it’s that we both came of age during the height of the Boss’s Born in the U.S.A. bombast, or maybe it’s having come in contact with one too many rabid fans eager to recount their life-changing experience attending a concert by the “hardest working band in rock and roll”, or that one annoying cousin who has all the Bru-u-u-ce lyrics memorized. And to be honest, we rolled our eyes when he brought his act to Broadway last year, assuming it was just another aging rocker settling in for a long and comfortable “residence”, basking in the old hits.

Boy, were we wrong. Just hours after Springsteen on Broadway closed its 236-show run at the Walter Kerr Theatre, the show launched as a Netflix special, recorded during the course of two performances back in July. Simply put, it’s one of the best concert films ever made, easily in a league with Stop Making Sense from Talking Heads or The Band’s The Last Waltz. In an intimate, emotional, two-and-a-half-hour musical monologue, Springsteen engages in a remarkable act of performance-as-therapy, laying bare the biographical detail, personal pain, and artistic technique that turned a seven-year-old kid putting on a pantomime rock show in his New Jersey backyard into a rock legend.

What’s most striking about the show is its stripped-down honesty: performing on a dark stage in front of a largely unseen audience, the taut and wiry, 69 year-old Springsteen weaves together a 15-song cycle with vignettes from his life, with frank admissions about what’s autobiographical and what’s fictional in his work. And so much of Springsteen is pure invention—the blue-collar persona he portrays in much of his work is really a costume, borrowed from his hard-working, hard-drinking father, which has allowed him over the years to build the mythos of downtrodden American rebellion that his fans adore. Springsteen himself admits, “I’ve never held an honest job in my entire life.” Here’s the “magic trick”, as he puts it: in the confessional construct of this stage show, his well-worn radio anthems become something much more compelling than they ever seemed before. Springsteen on Broadway is a rare instance of a retrospective performance that elevates the original material, instead of bathing it in nostalgia. For the diehard fan, the casual listener, and yes, even for skeptics (tramps?) like us—the film is an absolute treasure.


WHAT WE’RE READING

Stuff we read this week that made us think.

Hospitals seeking to add hotel-style amenities should aim higher 

Hospitals have been hiring patient experience leaders with out-of-industry experience for years now, courting executives who can bring the Ritz-Carlton or Disney “experience” to a hospital stay. A piece this week in the Wall Street Journal provides an update on how a handful of hospitals are moving to deploy the expertise of these hospitality leaders—but not in the way we expected. Rather than focusing on high-end experience and “moments of wow”, the article describes how leaders at two systems are working to bring basic customer service principles to hospital care. Some successful tactics: consider “emotional intelligence” when hiring staff and build empathy into culture and training. Make sure basic technology, like the phone system and wi-fi network, works. Improve lighting and wayfinding. And pick up the trash.

While perhaps a little uninspiring at first blush, we believe the focus on these basic service standards is critical as consumers take an increasingly active role in healthcare decision-making. Having watched many systems pursue higher-end amenities without having this foundation in place, we’ve seen some fail to provide a differentiated consumer experience—better toiletries and linens won’t paper over unresponsive staff. In our work with providers across the country, we’ve spent thousands of nights in hotel rooms. Sure, hotels do a decent job with easy scheduling and check-in and chaining us to their brand with loyalty programs—but healthcare should aim higher in providing a patient-centered experience. Patients are vulnerable, afraid, and often in pain—true consumer-centered hospital care will require health systems to develop an experience model that not only meets the basic service expectations of a hotel stay, but provides the comfort, communication and compassion needed by patients and families during a challenging time. 

More Americans now work in healthcare than any other industry

According the Bureau of Labor and Statistics (BLS), healthcare now employs more people than any other segment of the economy. Healthcare added 32,000 new jobs to the economy in November, on top of the 328,000 jobs the industry has created since early 2017. A new Kaiser Health News article takes a deeper look at the BLS data, examining the kinds of new jobs healthcare is creating. A few trends emerge. First, job growth is shifting from the inpatient setting to the ambulatory space, which accounted for 19,000 of the 32,000 new jobs created in November. This trend may be bigger than the numbers show, as BLS counts physicians, nurses and others who provide care at hospital-owned ambulatory facilities as hospital employees.

Cutting the data by profession, registered nurses made up the largest share of new jobs added since 2016. However, healthcare continues to add more jobs not directly related to the provision of care, and BLS is predicting outsized growth in “non-medical staff”, which it expects to account for 30 percent of jobs in the ambulatory setting. These numbers bring both welcome and worrisome news for the industry. A shift of jobs to settings outside the hospital may signal that providers are increasing investments in lower-cost, convenient care settings. However, health systems should keep a close watch on adding additional non-clinical and administrative staff. As cost pressures increase and systems look to capture returns from scale and consolidation, we’d hope that non-clinical job growth would slow rather than increase.

A landmark study on prostate cancer treatment

A recent NEJM article provided an update on one of the longest and most extensive prostate cancer outcomes studies, finding that intensive treatments such as radical prostatectomy likely only benefit younger men and those who have more aggressive cancers. Conducted in Sweden, the study randomly assigned 695 men diagnosed with localized prostate cancer between 1989 and 1999 to either radical prostatectomy or “watchful waiting” and followed those men for the past twenty years. Researchers found that radical prostatectomy was effective—the “number needed to treat”, or the number of patients needed to treat to save one life, was just 8.4. Men with long life expectancies gained 2.9 years from surgery; however, most patients diagnosed at an older age were likely to die of other causes, leading the authors to conclude that surgery was unnecessary in older patients with tumor pathology showing less aggressive disease. Other research has shown that half of African-American men and over a third of Caucasian men, who die of any cause between ages 70-79, have detectable prostate cancer on autopsy—leading experts to conclude that mass screening for prostate-specific antigen (PSA) is likely finding cancers that would never have been clinically significant during the patient’s lifetime, and would not benefit from aggressive treatment. While many prostate cancer programs have already deployed “active monitoring” for a growing number of low-risk older patients, the Swedish study is critical in providing the long-term outcomes confirmation needed to expand this practice.

Press coverage of this study also provided an example of the danger of relying on the media as a source of medical knowledge. Compare these two headlines: “Radical surgery for some prostate cancers adds three years to life” and “Long-term study shows most prostate cancer patients don’t need aggressive treatment”. While both are technically correct, they lead patients and lay readers to very different conclusions about the state of prostate cancer treatment—and highlight the responsibility of anyone reporting on medical research to understand the details of the research they’re covering.


That’s a wrap on 2018! Thank you from the bottom of our hearts for taking the time to read our work this year, and for your engagement, support and feedback. We’ve had a terrific time writing these weekly updates, and we’re so grateful for our readers and subscribers. Stay tuned for our special edition in early January. In the meantime, if there’s anything we can do to be of assistance in your work, please let us know. You’re making healthcare better—we want to help!

With our best wishes for a holiday season filled with family and friends, and a wonderful and prosperous New Year,

Chas Roades
Co-Founder and CEO
chas@gisthealthcare.com

Lisa Bielamowicz, MD
Co-Founder and President
lisa@gisthealthcare.com