VC Viewpoint: Cash-pay Care Delivery Has a Serious Social Stratification Problem

http://www.medcitynews.com

When it comes to her feelings about investing in care delivery startups, it’s a real “mixed bag” for Ulili Onovakpuri, managing partner at Kapor Capital. This is because a lot of them operate on a cash-pay model. She summarized the issue quite succinctly: there’s an incredible amount of innovation happening, but the people who could benefit the most from this type of care will be the last ones to receive it.

Healthcare investors are facing a myriad of care delivery startups seeking their capital. And it’s an interesting time in the care delivery startup space — there’s more and more questions arising about how much scrutiny should be applied to the way these companies are growing, what should be included in their gross margins, and how they should be valued.

When it comes to her feelings about investing in care delivery startups, it’s a real “mixed bag” for Ulili Onovakpuri, managing partner at Kapor Capital. She said so Sunday at Engage at HLTH, a patient engagement summit hosted by MedCity News in Las Vegas.

Healthcare is a stratified experience in the U.S. Onovakpuri drew attention to the fact that this stratification is getting worse with the advent of provider startups that operate on a cash-pay model, such as Sesame and Tia

These types of cash-pay providers usually offer a simpler healthcare experience compared to the endless bureaucracy and billing confusion patients face in the traditional healthcare system. This can be very attractive to patients — they don’t want to deal with months-long wait times to see a provider, nor do they wish to navigate the Kafkaesque ordeal of trying to understand and pay their healthcare bills.

In Onovakpuri’s view, these cash-pay providers “are good for some” — those who can afford it. But those who lack the means to pay for care outside the traditional healthcare delivery system don’t get to take part in these startups’ care model, regardless of how innovative or convenient it may be.

“If I’m honest, it’s hard for me because I see a lot of great tech every single day, and when I talk to them, I’m like, ‘Wait, this is awesome — how much is this?’ and then I say, ‘Well, we can’t do it because the people that we care the most about can’t afford it.’ And it’s hard, because they’re probably the folks who need it the most,” Onovakpuri said.

She summarized the issue quite succinctly: there’s an incredible amount of innovation happening, but the people who could benefit the most from this type of care will be the last ones to receive it.

“Innovation is great, but it’s another dividing factor we face,” Onovakpuri declared.

Onovakpuri noted another key concern: the fact that many of the country’s most talented physicians are opting to leave their hospitals and health systems to work for cash-pay care delivery startups. She said she can understand why they make this choice (they are understandably fed up with the inefficiency of standard systems), but it still is a problem because it exacerbates hospitals’ labor shortage crisis and makes their patients wait times even longer to receive care.

The next health care wars are about costs

All signs point to a crushing surge in health care costs for patients and employers next year — and that means health care industry groups are about to brawl over who pays the price.

Why it matters: The surge could build pressure on Congress to stop ignoring the underlying costs that make care increasingly unaffordable for everyday Americans — and make billions for health care companies.

[This special report kicks off a series to introduce our new, Congress-focused Axios Pro: Health Care, coming Nov. 14.]

  • This year’s Democratic legislation allowing Medicare to negotiate drug prices was a rare case of addressing costs amid intense drug industry lobbying against it. Even so, it was a watered down version of the original proposal.
  • But the drug industry isn’t alone in its willingness to fight to maintain the status quo, and that fight frequently pits one industry group against another.

Where it stands: Even insured Americans are struggling to afford their care, the inevitable result of years of cost-shifting by employers and insurers onto patients through higher premiums, deductibles and other out-of-pocket costs.

  • But employers are now struggling to attract and retain workers, and forcing their employees to shoulder even more costs seems like a less viable option.
  • Tougher economic times make patients more cost-sensitive, putting families in a bind if they get sick.
  • Rising medical debt, increased price transparency and questionable debt collection practices have rubbed some of the good-guy sheen off of hospitals and providers.
  • All of this is coming to a boiling point. The question isn’t whether, but when.

Yes, but: Don’t underestimate Washington’s ability to have a completely underwhelming response to the problem, or one that just kicks the can down the road — or to just not respond at all.

Between the lines: If you look closely, the usual partisan battle lines are changing.

  • The GOP’s criticism of Democrats’ drug pricing law is nothing like the party’s outcry over the Affordable Care Act, and no one seriously thinks the party will make a real attempt to repeal it.
  • One of the most meaningful health reforms passed in recent years was a bipartisan ban on surprise billing, which may provide a more modern template for health care policy fights.
  • Surprise medical bills divided lawmakers into two teams, but it wasn’t Democrats vs. Republicans; it was those who supported the insurer-backed reform plan vs. the hospital and provider-backed one. This fight continues today — in court.

The bottom line: Someone is going to have to pay for the coming cost surge, whether that’s patients, taxpayers, employers or the health care companies profiting off of the system. Each industry group is fighting like hell to make sure it isn’t them.

CFOs need to prep for healthcare’s lagging inflation

Healthcare costs are expected to jump 6.0% next year. CFOs must prepare accordingly, advises WTW’s Tim Stawicki.

CFOs need to be prepared for a “higher tail” of medical inflation — even if general inflation eases in the near future, Tim Stawicki, chief actuary, North America health & benefits of Willis Towers Watson (WTW) told CFO Dive.

With the Consumer Price Index (CPI)  rising to 8.5% in July and the recent rise in the core Producer Price Index (PPI), the Federal Reserve will probably look to hike interest rates even farther. 

“CFOS need to be prepared for the case that if general inflation eases, there may be two or three more years where they need to think about how they are managing the costs of health care plans,” he said in an interview. 

Inflation, which can more immediately impact consumer prices, works somewhat differently when it comes to costs of medical care. “Employers are paying healthcare costs based on contracts that their insurer has with providers, which are multiple years in length. So if a deal with the hospital or contract does not come up until 2023, then that provider has the opportunity to renegotiate higher prices for three years,” said Stawicki. 

The recent Best Practices in Healthcare Survey by WTW consisting of 455 U.S. employers found that employers project their healthcare costs will jump 6.0% next year compared with an average 5.0% increase expected by the end of this year.

Further, employers see little relief in sight — seven in 10 (71%) expect moderate to significant increases in costs over the next three years. Additionally, over half of respondents (54%) expect their costs will be over budget this year.

Balancing talent retention and healthcare costs

Talent retention has also remained an entrenched challenge for CFOs over recent months and continues to be top of mind. 

Given inflationary pressures and a potential looming recession, employers are having trouble finding the workers they need to run their businesses. A rise in healthcare benefit costs will make this all the more challenging, said Stawicki. “Employers are looking around and saying ‘I need to find talent to help me run my business and I can’t do that if I have an ineffective program in healthcare benefits,’” he said. 

There is a direct link between business outcomes and in particular employee productivity and employees’ ability to manage their health and financial environment, according to WTW’s Global Benefits Attitude Survey. “Losing the ability to offer programs and benefits that meet employee needs is impacting business,” said Stawicki.

It comes down to finding the balance between cost management in an environment where talent is hard to come by, he said. In order for CFOs to be successful in financing benefit programs they need to look at finding ways to partner with their counterparts in human resources, said Stawicki. 

Sixty-seven percent of employers said that managing company costs was a top priority in the company’s August Best Practices in Healthcare Survey, versus the 42% who said that achieving affordability for employees was a top priority. In the near future, CFOs need to establish a relationship with HR counterparts that can facilitate “ways to manage company costs without shifting it to employees,” said Stawicki. 

Ultimately, company costs remain paramount for employers but running a successful business will also require keeping employee affordability top of mind.

Private equity (PE)-backed physician practices increase healthcare spending and utilization

https://mailchi.mp/6a3812741768/the-weekly-gist-september-9-2022?e=d1e747d2d8

A recent JAMA study of 578 US dermatology, gastroenterology, and ophthalmology practices acquired by PE firms from 2016 to 2020 found a steady rise in spending in the two years after acquisition, indicating that the average charge per commercial claim increased 20 percent, and the average allowed amount per claim rose 11 percent. It also found that, compared to a large control group with similar patient risk scores, PE-acquired practices saw new patient visits increase by 38 percent and total visit volume increase by 16 percent. 

The Gist: While the study’s authors note that these findings could be explained by changes in practice operations or management, they point out they could also be caused by an overutilization of profitable services not tied to an increase in value or benefit to the patient. 

We think the latter is likely the case here, and that this study provides evidence of PE-induced overutilization aimed at meeting aggressive growth targets.

But this is just the latest wave of ownership-induced overutilization: 20 years ago the same spotlight was on physician-owned imaging, cardiac, and other outpatient diagnostics, with several studies then documenting higher utilization in these facilities. Nonetheless, this latest trend is an important one to document and quantify, as the number of physicians working in PE-backed organizations continues to rise.

Dollar General: Rural America’s new health hub?

Dollar Stores and food deserts: The latest struggle between Main Street and  corporate America - CBS News

Dollar General hired its first CMO and plans to become a destination for affordable healthcare offerings.  

The retail giant will bring an increased assortment of medical, dental and health aids to its shelves as part of its first major jump into the healthcare industry, according to a July 7 news release.

Three things to know:

  1. In the United States, 75 percent of the population lives within five miles of one of the chain’s 17,400 stores. The chain recognizes that it’s postured to deliver care to rural communities that are traditionally underserved in the healthcare ecosystem, the release said.
  2. “At Dollar General, we are always looking for new ways to serve, and our customers have told us that they would like to see increased access to affordable healthcare products and services in their communities,” said Todd Vasos, Dollar General CEO. “Our goal is to build and enhance affordable healthcare offerings for our customers, especially in the rural communities we serve.”
  3. The chain selected Albert Wu, MD, as its first CMO and vice president. Dr. Wu will strengthen relationships with healthcare service providers to build a network for its customers. In his previous position, Dr. Wu worked at McKinsey, where he oversaw the care model for 250,000 rural patients and drove $2-5 billion in revenue.

1 in 3 Americans skip care due to cost concerns, survey shows

Americans most likely to skip health care due to cost: survey

In the past year, cost was a bigger factor driving Americans to skip recommended healthcare than fear of contracting COVID-19, according to a report released June 1 by Patientco, a revenue cycle management company focusing on patient payment technology.

Patientco surveyed 3,116 patients and 46 healthcare providers, finding 34 percent of female patients and 30 percent of male patients have avoided care in the past year citing concerns about out-of-pocket costs.

Below are three more notable findings from the report:

  1. Healthcare affordability is not an issue that affects only Americans with low incomes, as 85 percent of patients with household incomes greater than $175,000 are less likely to defer care when flexible payment options are offered.
  2. Across all ages, income levels and education levels, most patients said they struggled to understand their medical bills and what they owed. Nearly two-thirds of patients said they did not understand their explanation of benefits, did not know what they should do with the information in their explanation of benefits, or waited too long to obtain their explanation of benefits.
  3. Forty-five percent of patients said they would need financial assistance for medical bills that exceed $500, and 66 percent of patients said the same for medical bills that exceed $1,000.