Category Archives: Fee for Service Reimbursement

The genetic paradox: Yesterday’s solutions are today’s problems. Can U.S. healthcare shift gear faster than our genes?

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In a world where change is the only constant, the swift currents of modern life contrast starkly with the sluggish pace of genetic evolution—and of American healthcare, too.

Two relatively recent scientific discoveries demonstrate how the very genetic traits that once secured humanity’s survival are failing to keep up with the times, producing dire medical consequences. These important biological events offer insights into American medicine—along with a warning about what can happen when healthcare systems fail to change.

The Mysteries Of Sickle Cell And Multiple Sclerosis

For decades, scientists were baffled by what seemed like an evolutionary contradiction.

Sickle cell disease is a condition resulting from a genetic mutation that produces malformed red blood cells. It afflicts approximately 1 in 365 Black Americans, causing severe pain and organ failure.

Its horrific impact on people raises a question: How has this genetic mutation persisted for 7,300 years? Nature is a merciless editor of life, and so you would expect that across seven millennia, people with this inherited problem would be less likely to survive and reproduce. This curiosity seems to defy the teachings of Charles Darwin, who theorized that evolution discards what no longer serves the survival of a species.

Scientists solved this genetic puzzle in 2011, illuminating a significant evolutionary trade-off.

People living with sickle cell disease have two abnormal genes, one inherited from each parent. While the disease, itself, affects a large population (roughly 100,000 African Americans), it turns out that a far larger population in the United States carries one “abnormal” gene and one normal gene (comprising as many as 3 million Americans).

This so called “sickle cell trait” presents milder symptoms or none at all when compared to the full disease. And, unlike those with the disease, individuals who with one (but not both) abnormal genes possess a distinct evolutionary advantage: They have a resistance to severe malaria, which every year claims more than 600,000 lives around the globe.

This genetic adaptation (a resistance to malaria) kept people alive for many millennia in equatorial Africa, protecting them from the continent’s deadliest infectious disease. But in present-day America, malaria is not a major public-health concern due to several factors, including the widespread use of window screens and air conditioning, controlled and limited habitats for the Anopheles mosquitoes (which transmit the disease), and a strong healthcare system capable of managing and containing outbreaks. Therefore, the sickle cell trait is of little value in the United States while sickle cell disease is a life-threatening problem.

The lesson: Genetic changes beneficial in one environment, such as malaria-prone areas, can become harmful in another. This lesson isn’t limited to sickle cell disease.

A similar genetic phenomenon was uncovered through research that was published last month in Nature. This time, scientists discovered an ancient genetic mutation that is, today, linked to multiple sclerosis (MS).

Their research began with data showing that people living in Northern Europe have twice the number of cases of MS per 100,000 individuals as people in the South of Europe. Like sickle cell disease, MS is a terrible affliction—with immune cells attacking neurons in the brain, interfering with both walking and talking.

Having identified this two-fold variance in the prevalence of MS, scientists compared the genetic make-up of the people in Europe with MS versus those without this devastating problem. And they discovered a correlation between a specific mutated gene and the risk of developing MS. Using archeological material, the researchers then connected the introduction of this gene into Northern Europe with cattle, goat and sheep herders from Russia who migrated west as far back as 5,000 years ago.

Suddenly, the explanation comes into focus. Thousands of years ago, this genetic abnormality helped protect herders from livestock disease, which at the time was the greatest threat to their survival. However, in the modern era, this same mutation results in an overactive immune response, leading to the development of MS.

Once again, a trait that was positive in a specific environmental and historical context has become harmful in today’s world.

Evolving Healthcare: Lessons From Our Genes

Just as genetic traits can shift from beneficial to detrimental with changing circumstances, healthcare practices that were once lifesaving can become problematic as medical capabilities advance and societal needs evolve.

Fee-for-service (FFS) payments, the most prevalent reimbursement model in American healthcare, offer an example. Under FFS, insurance providers, the government or patients themselves pay doctors and hospitals for each individual service they provide, such as consultations, tests, and treatments—regardless of the value these services may or may not add.

In the 1930s, this “mutation” emerged as a solution to the Great Depression. Organizations like Blue Cross began providing health insurance, ensuring healthcare affordability for struggling Americans in need of hospitalization while guaranteeing appropriate compensation for medical providers.

FFS, which linked payments to the quantity of care delivered, proved beneficial when the problems physicians treated were acute, one-time issues (e.g., appendicitis, trauma, pneumonia) and relatively inexpensive to resolve.

Today, the widespread prevalence of chronic diseases in 6 out of 10 Americans underlines the limitations of the fee-for-service (FFS) model. In contrast to “pay for value” models, FFS, with its “pay for volume” approach, fails to prioritize preventive services, the avoidance of chronic disease complications, or the elimination of redundant treatments through coordinated, team-based care. This leads to increased healthcare costs without corresponding improvements in quality.

This situation is reminiscent of the evolutionary narrative surrounding genetic mutations like sickle cell disease and MS. These mutations, which provided protective benefits in the past, have become detrimental in the present. Similarly, healthcare systems must adapt to the evolving medical and societal landscape to better meet current needs.

Research demonstrates that it takes 17 years on average for a proven innovation in healthcare to become common practice. When it comes to evolution of healthcare delivery and financing, the pace of change is even more glacial.

In 1934, the Committee on the Cost of Medical Care (CCMC) concluded that better clinical outcomes would be achieved if doctors (a) worked in groups rather than as fragmented solo practices and (b) were paid based on the value they provided, rather than just the volume of work they did.

Nearly a century later, these improvements remain elusive. Well-led medical groups remain the minority of all practices while fee-for-service is still the dominant healthcare reimbursed method.

Things progress slowly in the biological sphere because chance is what initiates change. It takes a long time for evolution to catch up to new environments.

But change in healthcare doesn’t have to be random or painfully slow. Humans have a unique ability to anticipate challenges and proactively implement solutions. Healthcare, unlike biology, can advance rapidly in response to new medical knowledge and societal needs. We have the opportunity to leverage our knowledge, technology, and collaborative skills to address and adapt to change much faster than random genetic mutations. But it isn’t happening.

Standing in the way is a combination of fear (of the risks involved), culture (the norms doctors learn in training) and lack of leadership (the ability to translate vision into action).

Genetics teaches us that evolution ultimately triumphs. Mutations that save lives and improve health become dominant in nature over time. And when those adaptations no longer serve a useful purpose, they’re replaced.

I hope the leaders of American medicine will learn to adapt, embracing the power of collaborative medicine while replacing fee-for-service payments with capitation (a single annual payment to group of clinicians to provide the medical care for a population of patients.) If they wait too long, dinosaurs will provide them with the next set of biological lessons.

A Ground-Breaking Transaction

Posted on by • Posted in Challenge, Federal Trade Commission (FTC), Fee for Service Reimbursement, For-Profit, Health System, Innovation, Mergers & Acquisitions, Private Equity, Shift, Shift to Capitated Payment Models, Value-Based Healthcare, Venture Capital • Leave a comment

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In mid-January, General Catalyst (GC) and Summa Health announced the
signing of a non-binding LOI for GC to acquire Summa, which, if
consummated, would be a groundbreaking transaction. Summa Health is a
vertically integrated not-for-profit health system located in Akron, Ohio that operates acute care hospitals, a network of health care services, a physician group practice, and a health plan. Like much of the health system sector, Summa has found the operating environment for the past couple of years to be challenging.


GC is a venture capital firm that had approximately $25B in assets under management at the end of 2022, across a dozen fund families and a number of sectors, including its Health Assurance funds, that have a stated mission of “creating a more proactive, affordable & equitable system of care.”


Health Assurance has investments in more than 150 digital health companies worldwide and has implemented working relationships with more than a dozen of the country’s most noteworthy health systems and hospital operators.


In October, GC announced the formation of a new venture called the Health Assurance
Transformation Corporation (HATCo), for the purpose of providing financial and operational advisory assistance to health systems, including using GC’s suite of digital health companies. At that time, HATCo announced plans to buy a health system in order to drive transformation in the delivery of care by leveraging technology, updating workforce/staffing models, and becoming more proactive in creating revenue streams for health systems.

Their plans included an intent to streamline operations
and find efficiencies using technology, as well as implementing value-based payment models,
including fully capitated risk contracts to incentivize better utilization management, an initiative that requires significant data analytics.


GC had been looking for a system with market relevance and a sweet spot in terms of size – big enough to have a full complement of services, but nimble enough to accept significant change. In Summa, it has also found a system that maintains its own health plan, which GC can use to help accelerate the shift to capitated models.


The transaction that Summa and GC are contemplating is a new and innovative attempt at
addressing the underlying problems that plague the acute care industry.

In particular, 1) a continued
reliance on fee-for-service revenue when reimbursement has been pressured from every angle and rate increases have failed to keep pace with the rising cost of providing care, 2) capital to fund a growing list of competing needs, and 3) the challenges of staffing for quality in a tight market for clinical labor. Summa appears to be banking on the idea that GC and the data- and technology driven solutions that reside within their portfolio companies can ease those pressures.


HATCo’s proposed purchase of Summa requires a conversion of the health system to for profit. The purchase price of the health system will contribute to the corpus for a large foundation that will address social determinants of health in the Akron community, and the operating entities would become subsidiaries of HATCo.


HATCo has stated publicly that it will continue Summa’s existing charity care commitment, that Summa’s existing management team will stay in place, and the health system Board will continue to have local community representation. HATCo has also emphasized that
it plans to hold Summa for an extended period and have it serve as a digital innovation testing ground and incubation site for new healthcare IT, where it believes that aligning incentives will drive financial improvement and better care.


Innovative approaches to meaningful problems should be applauded but there is skepticism.

Will bottom line pressures affect the quality of care?

Will the typical investment horizon of venture capital align with the time frames needed to prove these solutions are taking hold?

Health system evolution has traditionally been measured in decades, rather than the 5-7 year hold periods that private capital prefers. There are also perceived conflicts to consider as Summa will be paying the GC-owned companies for their services.
Acute care hospitals are central elements of their communities and their constituents are broader than most companies, often including large workforces, union leadership, politicians, government regulators, and of course patients and their families.

This transaction will receive significant scrutiny with any number of constituents taking issue with a health system’s purchase by a venture capital firm. One hurdle is the conversion process itself, which requires review and approval by the Ohio Attorney General and regulators may want to impose restrictions on GCs ability to operate that are incompatible with its plans. The hurdles to closing are daunting, but the challenges facing health systems are equally daunting.

And while this proposed combination may not come to fruition, the need for innovative solutions remains.

Value-vased care battle: Kaiser-Geisinger vs. Amazon, CVS, Walmart

Posted on by • Posted in Amazon, Amazon Care, Competition, CVS Health, Disruption, Fee for Service Reimbursement, Geisinger Health, Health System, Hospital, Hospital Industry, Innovation, Innovative Care Models, Kaiser Permanente, Risant Health, Transformation, Transformation Strategy, Transformation Sustained, Transformational Change, Value-Based Healthcare, Walmart • Leave a comment

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For decades, research studies and news stories have concluded the American system is ineffective,

too expensive and falling further behind its international peers in important measures of performance: life expectancy, chronic-disease management and incidence of medical error.

As patients and healthcare professionals search for viable alternatives to the status quo, a recent mega-merger is raising new questions about the future of medicine.

In April,  Kaiser Permanente acquired Geisinger Health under the banner of newly formed Risant Health. With more than 185 years of combined care-delivery experience, Kaiser and Geisinger have long been held up as role models of the value-based care movement.

Eyeing the development, many speculated whether this deal will (a) ignite widespread healthcare transformation or (b) prove to be a desperate attempt at relevance (Kaiser) or survival (Geisinger).

Whether incumbents like Kaiser Permanente and Geisinger can lead a national healthcare transformation or are displaced by new entrants will depend largely on whether they can deliver value-based care on a national scale.

In Search Of Healthcare’s Holy Grail

Value-based care—the simultaneous provision of high quality, convenient and affordable medical care—has long been the aim of leading health systems like Kaiser, Geisinger, Mayo Clinic, Cleveland Clinic and dozens more.

But results to-date have often failed to match the vision.

The need for value-based care is urgent. That’s because U.S. health and economic problems are expected to get worse, not better, over the next decade. According to federal governmental actuaries, healthcare expenditures will rise from $4.2 trillion today to $7.2 trillion by 2031. At that time, these costs are predicted to consume an estimated 19.6% of the U.S. Gross Domestic Product.

Put simply: The U.S. will nearly double the cost of medical care without dramatically improving the health of the nation.

For decades, health policy experts have pointed out the inefficiencies in medical care delivery. Research has estimated that inappropriate tests and ineffective procedures account for more than 30% of all money spent on American medical care.

This combination of troubling economics and untapped opportunity explain why value-based care has become medicine’s holy grail. What’s uncertain is whether the transformation in healthcare delivery and financing will be led from inside or outside the healthcare system.

Where The Health-System Hopes Hang

For years, Kaiser Permanente has led the nation in clinical quality and patient outcomes based on independent, third-party research via the National Committee for Quality Assurance (NCQA) and Medicare Star ratings. Similarly, Geisinger was praised by President Obama for delivering high-quality care at a cost well below the national average.

And yet, these organizations, and many other highly regarded national and regional health systems, are extremely vulnerable to disruption, especially when their strategy and operational decisions fail to align.

Kaiser, for its part, has struggled with growth while Geisinger’s care-delivery strategy has proven unsuccessful in recent years. Failed expansion efforts forced KP to exit multiple U.S. markets, including New York, North Carolina, Kansas and Texas. More recently, several of its existing regions have failed to grow market share and weakened financially.

Meanwhile, Geisinger has fallen on hard times after decades of market domination. As Bob Herman reported in STAT News: “Failed acquisitions, antitrust scrutiny, leadership changes, growing competition from local players, and a pandemic that temporarily upended how patients got care have forced Geisinger to abandon its independence. The system is coming off a year in which it lost $240 million from its patient care and insurance operations.”

Putting the pieces together, I believe the Kaiser-Geisinger deal represents an industry undergoing massive change as health systems face intensifying pressure from insurers and a growing threat from retailers like Amazon, CVS and Walmart. This upcoming battle over the future of value-based care represents a classic conflict between incumbents and new entrants.

Can The World’s Largest Companies Disrupt U.S. Healthcare?

Retail giants, including Amazon, Walmart and CVS, are among the nation’s 10 largest companies based on annual revenue.

They have a broad geographic presence and strong relationships with almost all self-funded businesses. Nearly all have acquired the necessary healthcare pieces—including clinicians, home-health services, pharmacies, insurance arms and electronic medical record systems—to replace the current medical system.

And yet, while these companies expand into medical care and financing, their core businesses are struggling, resulting in announced store closures and layoffs. As newcomers to the healthcare market, they have been forced to pay premium dollars to acquire parts of the delivery system. All have a steep learning curve ahead of them.

The Challenge Of Healthcare Transformation

American medicine is a conglomerate of monopolies (insurers, hospitals, drug companies and private-equity-owned medical practices). Each works to maximize its own revenue and profit. All are unwilling to innovate in ways that benefit patients when doing so comes at the sacrifice of financial performance.

One problem stands at the center of America’s soaring healthcare costs: the way doctors, hospitals and drug companies are paid.

The dominant payment methodology in the United States, fee-for-service, rewards healthcare providers for charging higher prices and increasing the number (and complexity) of services offered—even when they provide no added value.

The message to doctors and hospitals is clear: The more you do, and the greater market control you have, the higher your income and profit. This is the antithesis of value-based care.

The alternative to fee-for-service payments, capitation, involves paying a single, up-front sum to the providers of care (doctors and hospitals) to cover the total annual cost for a population of patients. This model, unlike fee-for-service, rewards effectiveness and efficiency. Capitation creates incentives to prevent disease, reduce complications from chronic illness, and diminish the inefficiencies and redundancies present in care delivery. Capitated health systems that can prevent heart attacks, strokes and cancer better than others are more successful financially as a result. 

However, it’s harder than it sounds to translate what’s best for patients into everyday decisions and actions. It’s one thing to accept a capitated payment with the intent to implement value-based care. It’s another to put in place the complex operational improvements needed for success. Here are the roadblocks that Kaiser-Geisinger will face, followed by those the retail giants will encounter.

3 Challenges For Kaiser-Geisinger:

  1. Involving Clinical Experts. Kaiser Permanente is a two-part organization and when the insurance half (Kaiser) decided to acquire Geisinger, it did so without input or involvement from the half of the organization responsible for care-delivery (Permanente). This spells trouble for Geisinger, which must navigate a complex turnaround without the operational expertise or processes from Permanente that, in the past, helped Kaiser Permanente grow market share and lead the nation in clinical quality.
  2. Going All In. To meet the healthcare needs of most its patients, Geisinger relies on community doctors who are paid on a fee-for-service basis. Generally, the fee-for-service model is predicated on the assumption that higher quality and greater convenience require higher prices and increased costs. With Geisinger’s distributed model, it’ll be very difficult to deliver consistent, value-based care.
  3. Inspired Leadership. Major improvements in care delivery require skilled leadership with the authority to drive clinical change. In Kaiser Permanente, that comes through the medical group and its physician CEO. In Geisinger’s hybrid model, independent doctors have no direct oversight or central accountability structure. Although Risant Health could be an engine for value-based medical care, it’s more likely to serve the role of a “holding company,” capable of recommending operational improvements but incapable of driving meaningful change.

3 Challenges For The Retail Giants:

  • More Medical Offerings. Amazon, Walmart and CVS are successfully acquiring primary care (and associated telehealth) services. But competing with leading health systems will require a more wholistic, system-based approach to keep medical care affordable. This won’t be easy. To avoid ineffective, expensive specialty and hospital services, they will need to hire their own specialists to consult with their primary care doctors. And they will have to establish centers of excellence to provide heart surgery, cancer treatment, orthopedic care and more with industry-leading outcomes. But to meet the day-to-day and emergent needs of patients, they also will have to establish contracts with specialists and hospitals in every community they serve.  
  • Capitalizing On Capitation. Already, the retail giants have acquired organizations well-versed in delivering patient care through Medicare Advantage, a capitated alternative to traditional (fee-for-service) Medicare plans. It’s a good start. But the retailers must do more than dip a toe in value-based care models. They must find ways to gain sufficient experience with capitation and translate that success into value-based contracts with self-funded businesses, which insure tens of millions of patients.
  • Defining Leadership. Without an effective and proven clinical leadership structure, the retail giants will be no more effective than their mainstream competitors when it comes to implementing improvements and shifting the culture of medicine to one that is customer- and service-focused.

Be they incumbents or new entrants, every contender will hit a wall if they cling to today’s failing care delivery model. The secret ingredient, which most lack and all will need to embrace in the future, is system-ness.

For all of the hype surrounding value-based care, fragmentation and fee-for-service are far more common in American healthcare today than integration and capitation.

Part two of this article will focus on how these different organizations—one set inside and one set outside of medicine—can make the leap forward with system-ness. And, in the end, you’ll see who is most likely to emerge victorious.

The Glaring Disconnect between the Fed and CMS

Posted on by • Posted in Center for Medicare and Medicaid Services (CMS), Federal Reserve, Fee for Service Reimbursement, Health Policy, Health System, Healthcare Reform, Hospital, Hospital Industry, Inflation, Medicaid, Medicare, Medicare Advantage, Medicare Part D, Physician, Population Distribution, Population Growth, Prescription Drugs, Price Transparency, Value-Based Healthcare • Leave a comment
The Glaring Disconnect between the Fed and CMS

Two important reports released last Wednesday point to a disconnect in how policymakers are managing the U.S. economy and how the health economy fits.

Report One: The Federal Reserve Open Market Meeting

At its meeting last week, the Governors of the Federal Open Market Committee (FOMC) voted unanimously to keep the target range for the federal funds rate at 5% to 5.25%–the first time since last March that the Fed has concluded a policy meeting without raising interest rates.

In its statement by Chairman Powell, the central bank left open the possibility of additional rate hikes this year which means interest rates could hit 5.6% before trending slightly lower in 2024.

In conjunction with the (FOMC) meeting, meeting participants submitted projections of the most likely outcomes for each year from 2023 to 2025 and over the longer run:

Median202320242025Longer RunLonger Run Range
% Change in GDP1.11.11.81.81.6-2.5
Unemployment rate &4.14.54.54.03.6-4.4
PCE Inflation rate3.22.52.12.02.0
Core PCE Inflation3.92.62.2**

*Longer-run projections for core PCE inflation are not collected.

Notes re: the Fed’s projections based on these indicators:

  • The GDP (a measure of economic growth) is expected to increase 1% more this year than anticipated in its March 2023 analysis while estimates for 2024 were lowered just slightly by 0.1%. Economic growth will continue but at a slower pace.
  • The unemployment rate is expected to increase to 4.1% by the end of 2023, a smaller rise in joblessness than the previous estimate of 4.5%. (As of May, the unemployment rate was 3.7%). Unemployment is returning to normalcy impacting the labor supply and wages.
  • inflation: as measured by the Personal Consumption Expenditures index, will be 3.2% at the end of 2023 vs. 3.3% they previously projected. By the end of 2024, it expects inflation will be 2.5% reaching 2.1% at the end of 2025. Its 2.0% target is within reach on or after 2025 barring unforeseen circumstances.
  • Core inflation projections, which excludes energy and food prices, increased: the Fed now anticipates 3.9% by the end of 2023–0.3% above the March estimate. Price concerns will continue among consumers.

Based on these projections, two conclusions about nation’s monetary policy may be deduced the Fed’s report and discussion:

  • The Fed is cautiously optimistic about the U.S. economy in for the near term (through 2025) while acknowledging uncertainty exists.
  • Interest rates will continue to increase but at a slower rate than 2022 making borrowing and operating costs higher and creditworthiness might also be under more pressure.

Report Two: CMS

On the same day as the Fed meeting, the actuaries at the Centers for Medicare and Medicaid Services (CMS) released their projections for overall U.S. national healthcare spending for the next several years:

“CMS projects that over 2022-2031, average annual growth in NHE (5.4%) will outpace average annual growth in gross domestic product (GDP) (4.6%), resulting in an increase in the health spending share of GDP from 18.3% in 2021 to 19.6% in 2031. The insured percentage of the population is projected to have reached a historic high of 92.3% in 2022 (due to high Medicaid enrollment and gains in Marketplace coverage). It is expected to remain at that rate through 2023. Given the expiration of the Medicaid continuous enrollment condition on March 31, 2023 and the resumption of Medicaid redeterminations, Medicaid enrollment is projected to fall over 2023-2025, most notably in 2024, with an expected net loss in enrollment of 8 million beneficiaries. If current law provisions in the Affordable Care Act are allowed to expire at the end of 2025, the insured share of the population is projected to be 91.2%.  In 2031, the insured share of the population is projected to be 90.5%, similar to pre-pandemic levels.”

The report includes CMS’ assumptions for 4 major payer categories:

  • Medicare Part D: Several provisions from the Inflation Reduction Act (IRA) are expected to result in out-of-pocket savings for individuals enrolled in Medicare Part D. These provisions have notable effects on the growth rates for total out-of-pocket spending for prescription drugs, which are projected to decline by 5.9% in 2024, 4.2% in 2025, and 0.2% in 2026.
  • Medicare: Average annual expenditure growth of 7.5% is projected for Medicare over 2022-2031. In 2022, the combination of fee-for-service beneficiaries utilizing emergent hospital care at lower rates and the reinstatement of payment rate cuts associated with the Medicare Sequester Relief Act of 2022 resulted in slower Medicare spending growth of 4.8% (down from 8.4% in 2021).
  • Medicaid: On average, over 2022-2031, Medicaid expenditures are projected to grow by 5.0%. With the end of the continuous enrollment condition in 2023, Medicaid enrollment is projected to decline over 2023-2025, with most of the net loss in enrollment (8 million) occurring in 2024 as states resume annual Medicaid redeterminations. Medicaid enrollment is expected to increase and average less than 1% through 2031, with average expenditure growth of 5.6% over 2025-2031.
  • Private Health Insurance: Over 2022-2031, private health insurance spending growth is projected to average 5.4%. Despite faster growth in private health insurance enrollment in 2022 (led by increases in Marketplace enrollment related to the American Rescue Plan Act’s subsidies), private health insurance expenditures are expected to have risen 3.0% (compared to 5.8% in 2021) due to lower utilization growth, especially for hospital services.

And for the 3 major recipient/payee categories:

  • Hospitals: Over 2022-2031, hospital spending growth is expected to average 5.8% annually. In 2023, faster growth in hospital utilization rates and accelerating growth in hospital prices (related to economy wide inflation and rising labor costs) are expected to lead to faster hospital spending growth of 9.3%.  For 2025-2031, hospital spending trends are expected to normalize (with projected average annual growth of 6.1%) as there is a transition away from pandemic public health emergency funding impacts on spending.
  • Physicians and Clinical Services: Growth in physician and clinical services spending is projected to average 5.3% over 2022-2031. An expected deceleration in growth in 2022, to 2.4% from 5.6% in 2021, reflects slowing growth in the use of services following the pandemic-driven rebound in use in 2021. For 2025-2031, average spending growth for physician and clinical services is projected to be 5.7%, with an expectation that average Medicare spending growth (8.1%) for these services will exceed that of average Private Health Insurance growth (4.6%) partly as a result of comparatively faster growth in Medicare enrollment.
  • Prescription Drugs: Total expenditures for retail prescription drugs are projected to grow at an average annual rate of 4.6% over 2022-2031. For 2025-2031, total spending growth on prescription drugs is projected to average 4.8%, reflecting the net effects of key IRA provisions: Part D benefit enhancements (putting upward pressure on Medicare spending growth) and price negotiations/inflation rebates (putting downward pressure on Medicare and out-of-pocket spending growth).

Thus, CMS Actuaries believe spending for healthcare will be considerably higher than the growth of the overall economy (GDP) and inflation and become 19.6% of the total US economy in 2031. And it also projects that the economy will absorb annual spending increases for hospitals (5.8%) physician and clinical services (5.3%) and prescription drugs (4.6%).

My take:

Side-by-side, these reports present a curious projection for the U.S. economy through 2031: the overall economy will return to a slightly lower-level pre-pandemic normalcy and the healthcare industry will play a bigger role despite pushback from budget hawks preferring lower government spending and employers and consumers frustrated by high health prices today.

They also point to two obvious near-term problems:

1-The Federal Reserve pays inadequate attention to the healthcare economy. In Chairman Powell’s press conference following release of the FOMC report, there was no comment relating healthcare demand or spending to the broader economy nor a question from any of the 20 press corps relating healthcare to the overall economy. In his opening statement (below), Chairman Powell reiterated the Fed’s focus on prices and called out food, housing and transportation specifically but no mention of healthcare prices and costs which are equivalent or more stressful to household financial security:

“Good afternoon. My colleagues and I remain squarely focused on our dual mandate to promote maximum employment and stable prices for the American people…My colleagues and I are acutely aware that high inflation imposes hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation. We are highly attentive to the risks that high inflation poses to both sides of our mandate, and we are strongly committed to returning inflation to our 2% objective.”

2-Congress is reticent to make substantive changes in Medicare and other healthcare programs despite its significance in the U.S. economy. It’s politically risky. In the June 2 Congressional standoff to lift the $31.4 debt ceiling, cuts to Medicare and Social Security were specifically EXCLUDED. Medicare is 12% of mandated spending in the 2022 federal budget and is expected to grow from a rate of 4.8% in 2022 to 8% in 2023—good news for investors in Medicare Advantage but concerning to consumers and employers facing higher prices as a result.

Even simplifying the Medicare program to replace its complicated Parts A, B, C, and D programs or addressing over-payments to Medicare Advantage plans (in 2022, $25 billion per MedPAC and $75 billion per USC) is politically tricky. It’s safer for elected officials to support price transparency (hospitals, drugs & insurers) and espouse replacing fee for service payments with “value” than step back and address the bigger issue: how should the health system be structured and financed to achieve lower costs and better health…not just for seniors or other groups but everyone.

These two realities contribute to the disconnect between the Fed and CMS. Looking back 20 years across 4 Presidencies, two economic downturns and the pandemic, it’s also clear the health economy’s emergence did not occur overnight as the Fed navigated its monetary policy. Consider:

  • National health expenditures were $1.366 trillion (13.3% of GDP) in 2000 and $4.255 billion in 2021 (18.3% of the GDP). This represents 210% increase in nominal spending and a 37.5% increase in the relative percentage of the nation’s GDP devoted to healthcare. No other sector in the economy has increased as much.
  • In the same period, the population increased 17% from 282 million to 334 million while per capita healthcare spending increased 166% from $4,845 to $12,914. This disproportionate disconnect between population and health spending growth is attributed by economists to escalating unit costs increases for the pills, facilities, technologies and specialty-provider services we use—their underlying cost escalation notably higher than other industries.
  • There were notable changes in where dollars were spent: hospitals were unchanged (from $415 billion/30.4% of total spending to $1.323 trillion/31.4% of total spending), physician services shrank (from $288.2 billion/21.1% of total spending to 664.6 billion/15.6% pf total spending), prescription drugs were unchanged (from $122.3 billion/8.95% to $378 billion/8.88% of total spending) and public health increased slightly (from $43 billion/$3.2% of total spending to $187.6 billion/4.4% of total spending).
  • And striking differences in sources of funding: out of pocket spending shrank from $193.6/14.2% of payments to $433 billion/10.2% % of payments; private insurance shrank from $441 billion/32.3% of payments to $1.21 trillion/28.4% of total payments; Medicare grew from $224.8 billion/16.5% of payments to $900.8 billion/21.2% of payments; Medicaid + CHIP grew from $203.4 billion/14.9% to $756.2 billion/17.8% of payments; and Veterans Health grew from $19.1 billion/1.4% of payments to $106.0 billion/2.5% of payments.

Thus, if these trends continue…

  • Aggregate payments to providers from government programs will play a bigger role and payments from privately insured individuals and companies will play a lesser role.
  • Hospital price increases will exceed price increases for physician services and prescription drugs.
  • Spending for healthcare will (continue to) exceed overall economic growth requiring additional funding from taxpayers, employers and consumers AND/OR increased dependence on private investments that require shareholder return AND/OR a massive restructure of the entire system to address its structure and financing.

What’s clear from these reports is the enormity of the health economy today and tomorrow, the lack of adequate attention and Congressional Action to address its sustainability and the range of unintended, negative consequences on households and every other industry if left unattended. It’s illustrative of the disconnect between the Fed and CMS: one assumes it controls the money supply while delegating to the other spending and policies independent of broader societal issues and concerns.

The health economy needs fresh attention from inside and outside the industry. Its impact includes not only the wellbeing of its workforce and services provided its users. It includes its direct impact on household financial security, community health and the economic potential of other industries who get less because healthcare gets more.

Securing the long-term sustainability of the U.S. economy and its role in world affairs cannot be appropriately addressed unless its health economy is more directly integrated and scrutinized. That might be uncomfortable for insiders but necessary for the greater good. Recognition of the disconnect between the Fed and CMS is a start!

Charlie Munger Said Healthcare Providers Artificially Prolong Death To Make More Money

Posted on by • Posted in Cost Management, Cost Reduction, Cost Structure, Fee for Service Reimbursement, Health Insurance Coverage Adequacy, Health Policy, Healthcare Reform, High Deductible Health Plans, Immoral, Inefficiency, Medical Debt, Out of Pocket Expenses, Underinsured, Uninsured • Leave a comment

https://finance.yahoo.com/news/charlie-munger-said-healthcare-providers-190014911.html

Billionaire investor Charlie Munger has been vocal in expressing his concerns about U.S. healthcare, stating that it is “shot through with rampant waste” and has become “immoral.”

Munger says there are substantial problems that need to be addressed, including the presence of unnecessary costs and inefficiencies that plague the medical field.

Drawing a vivid analogy at a Daily Journal Annual Meeting, Munger compared the experience of a dying old person in many American hospitals to that of a carcass on the plains of Africa. He painted a bleak picture, describing how vultures, jackals, hyenas and other scavengers swarm around the helpless creature.

In an attempt to address these issues, Berkshire Hathaway, Amazon.com Inc., and JPMorgan Chase joined forces to establish Haven Healthcare a venture that despite their combined efforts failed to achieve its objectives.

Some startups have seen success where they failed. iRemedy, for example, is a startup using artificial intelligence (AI) technology, that offers a solution to the healthcare system’s challenges through its large procurement marketplace. Its platform streamlines the supply chain, enabling faster and more affordable access to lifesaving supplies for doctors, hospitals and healthcare providers.

Munger, vice chairman of Berkshire Hathaway Inc., criticized the high costs and inefficiencies in medical care as both expensive and wrong. In a CNBC interview, he went on to claim that some medical providers artificially prolong death to increase their profits.

With over 35 years of experience as board chairman of Good Samaritan Hospital in Los Angeles, Munger expressed his belief that certain healthcare practices are absurd.

“A lot of the medical care we do deliver is wrong — so expensive and wrong. It’s ridiculous,” he said in a “Squawk Box” interview.

In 2018, Munger predicted that when Democrats gain control of all three branches of government, there will be a push for a single-payer healthcare system. He highlighted the need for a complete change forced by the government because of the severity of the issues in the current system. He suggested that a universal healthcare system with an opt-out option would be a reasonable solution.

Warren Buffett, Munger’s longtime investing partner, shares similar concerns regarding healthcare spending, referring to it as a “tapeworm on the economic system.” Buffett believes the private sector can make substantial contributions to cost-reduction efforts.

A recent investigation conducted by Kaiser Health News-NPR shed light on the alarming reality of medical debt in the United States. The study reveals that over 100 million Americans are burdened with medical debt, placing a significant financial strain on their lives. Further analysis of the data reveals that approximately one-fourth of American adults carrying this debt owe more than $5,000.

What makes this issue even more concerning is the fact that it is not primarily driven by a lack of insurance coverage. Contrary to popular belief, the majority of people grappling with medical debt are not uninsured. Instead, it is the problem of being underinsured that is prevalent.

Many people have health insurance plans that do not offer sufficient coverage, leaving them vulnerable to high out-of-pocket expenses and accumulating medical debt.

The false promise of “no regrets” investments

Posted on by • Posted in Consumer Focus, Consumer-Centric, Consumerism, False Hope, False Promise, Fee for Service Reimbursement, Hospital, Hospital Industry, Innovation, Investment, No Regrets, Strategy, Value-Based Healthcare • Leave a comment

https://mailchi.mp/a93cd0b56a21/the-weekly-gist-june-9-2023?e=d1e747d2d8

At the end of a meeting last week with a health system executive team, the system’s COO asked us a question: “Your concept of a consumer-focused health system centered around treating patients as members describes exactly how we want to relate to our patients, but we’re not sure about the timing. Could you give us a list of the ‘no regrets’ investments you’d recommend for health systems looking to do this?”
 
We frequently get asked about “no regrets” strategies:

decisions or investments that will be accretive in both the current fee-for-service system as well as a future payment and operational model oriented around consumer value. The idea is understandably appealing for systems concerned about changing their delivery model too quickly in advance of payment change. And there is a long list of strategies that would make a system stronger in both fee-for-service and value: cost reduction, value-driven referral management, and online scheduling, just to name a few.

But as we pointed out, the decision to pursue only the no-regrets moves is a clear signal that the organization’s strategy is still tied to the current payment model. 

If the system is truly ready to change, strategy development should start with identifying the most important investments for delivering consumer value. It’s fine to acknowledge that a health system is not yet ready, but we cautioned the team that they should not rely on the external market to provide signals for when they should undertake real change in strategy. 

External signals—from payers, competitors, or disruptors—will come too slowly, or perhaps never. At some point, the health system should be prepared to lead innovation, introduce a new model of value to the market, and define and promote the incentives to support it.

Real change will require disruption of parts of the current business and cannot be accomplished with “no-regrets investments” alone.

What Kaiser’s Acquisition Of Geisinger Means For Us All

Posted on by • Posted in Affordability, Branding, Capitation, Consumerism, Fee for Service Reimbursement, Health System, Hospital, Hospital Industry, Kaiser Permanente, Market Consolidation, Market Share, Market Trends, Mergers & Acquisitions, Quality of Care, Strategy, Value Proposition, Value-Based Contracting, Value-Based Healthcare • Leave a comment
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Healthcare’s most recent billion-dollar deal took the industry by surprise, leaving medical experts and hospital leaders grappling to comprehend its implications.

In case you missed it, California-based Kaiser Foundation Health Plan and Hospitals, which make up the insurance and facilities half of Kaiser Permanente, announced the acquisition of Geisinger, a Pennsylvania-based health system once acknowledged by President Obama for delivering “high-quality care.”

Upon regulatory approval, Geisinger will become the first organization to join Risant Health, Kaiser Foundation’s newly created $5 billion subsidiary. According to Kaiser, the aim is to build “a portfolio of likeminded, nonprofit, value-oriented, community-based health systems anchored in their respective communities.” 

Having spent 18 years as CEO of The Permanente Medical Group, the half of Kaiser Permanente responsible for the delivery of medical care, I took great interest in the announcement. And I wasn’t alone. My phone rang off the hook for weeks with calls from reporters, policy experts and healthcare executives.

After hundreds of conversations, here are the three most common questions I received about the acquisition—and the implications for doctors, insurers, health-system competitors and patients all over the country.

Question 1: Why did Kaiser acquire Geisinger?

Most callers wanted to know about Kaiser’s motivation, figuring there must’ve been more to the acquisition than the press release indicated. Although I don’t have inside information, I believe they were right. Here’s why:

Kaiser Permanente has a long and ongoing reputation for delivering nation-leading care. The organization has consistently earned the highest quality and patient-satisfaction rankings from the National Committee for Quality Assurance (NCQA), Leapfrog Group, JD Power and Medicare.

And yet, despite a 78-year history, dozens of hospitals and 13 million members across eight states, Kaiser Permanente is still considered a coastal—not national—health system. It maintains a huge market share in California and a strong presence in the Mid-Atlantic states, yet the organization has failed repeatedly to replicate that success in other geographies.

With that context, I see two compelling reasons why the Kaiser Foundation Health Plan and Hospitals wish to become a national brand:

  1. Influence. Elected officials and regulatory bodies often turn to healthcare’s biggest players to set legislative agendas and carve out national policy. At that table, there are a limited number of seats. By shedding its reputation as a “local” health system, Kaiser could earn one.
  2. Survival. In recent years, companies like Amazon, CVS and Walmart have been scooping up organizations that provide primary care, telehealth, home health and specialty care services. These “retail giants” are spending up to $13 billion per acquisition. And they’re consuming already-successful healthcare companies like One Medical, Oak Street Health, Signify, Pill Pack and many others. Like an army preparing for war, these corporate behemoths are amassing the components needed to battle the traditional healthcare incumbents and ultimately oust them entirely.

The Geisinger deal expands Kaiser’s footprint, adding 600,000 patients, 10 hospitals and 100 specialty and primary care clinics. These assets lend gravitas, even though Geisinger also comes with a 2022 operating loss of $239 million.

The lesson to draw from this first question is clear: size matters. The days of solo physicians and stand-alone hospitals are over. Nostalgia for medicine’s folksy, home-spun past is understandable but futile. To survive, healthcare players must get bigger quickly or team up with someone who can. That insight leads to the next question and lesson.

Question 2: How much value will Kaiser give Geisinger?

Almost everyone I’ve spoken with understands Kaiser’s desire for greater national influence, but they’re less sure how this deal will affect Geisinger Health.

Geisinger’s Pennsylvania-based hospitals and clinics have been locked in territorial battles for years with surrounding health systems. More recently, the pandemic, combined with staffing shortages and national inflation, have challenged Geisinger’s clinical performance and eroded its bottom line.

Assuming Kaiser plans to invest roughly $1 billion in each of the four to five health systems it’s planning to acquire, that surge in cash inflow will provide Geisinger with temporary financial safety. But the bigger question is how will Kaiser improve Geisinger’s value-proposition enough to grow its market share?

In public comments, Kaiser leaders spoke of the acquisition as an opportunity for Risant to “improve the health of millions of people by increasing access to value-based care and coverage, and raising the bar for value-based approaches that prioritize patient quality outcomes.”

Many of the experts I spoke with understand Kaiser’s value intent. But they question how Kaiser can could deliver on that promise since The Permanente Medical Group (TPMG) wasn’t involved in the deal.

If, hypothetically, Kaiser and Permanente leaders were to strike a deal to collaborate in the future, TPMG’s physician leaders could bring tremendous knowledge, experience and expertise to the table. Otherwise, I agree with those who’ve expressed doubt that Kaiser, alone, will be able to significantly improve Geisinger’s clinical performance.

Health plans and insurance companies play an important role in financing medical care. They possess rich data on performance and can offer incentives that boost access to higher-quality care. But insurers don’t work directly with individual doctors to coordinate medical care or advance clinical solutions on behalf of patients. And without strong physician leadership, the pace of positive change slows to a crawl. As a example, research conducted within The Permanente Medical Group found that it takes only three years to turn a proven clinical advance into standard practice—that’s nearly six times faster than the national average.

For decades, the secret sauce for Kaiser Permanente has been the cohesive success of its three parts: Kaiser Health Plan, Kaiser Foundation Hospitals and The Permanente Medical Group.

And KP’s results speak for themselves:

  • 90% control of hypertension for members (compared to 60% for the rest of the country)
  • 30% fewer deaths from heart attack and stroke (compared to the rest of the country)
  • 20% fewer deaths from colon cancer

The big lesson: insurance, by itself, doesn’t drive major improvements in medicine. It must be a combined effort between forward-looking insurers and innovative, high-performing clinicians.

But there’s another takeaway here for doctors everywhere: now is the time to join forces with other clinicians in your community. Together, you can collaborate to improve clinical quality. You can augment access and make care more affordable for patients. Simultaneously, this is the time for the insurers and the retail giants to figure out which medical groups can deliver the best care and make the best partners. Neither side will flourish alone. And this leads to a third question and lesson.

Question 3: Will the deal work?

Almost all of my conversations ended with this query. I say it’s too early to tell. But as I look years down the road, one part of the deal, in particular, gives me doubt.

Today, Geisinger uses a hybrid reimbursement model—blending both “value-based” care payments with traditional “fee-for-service” insurance plans. In addition to offering its own coverage, it contracts with a variety of other insurance companies. Rarely have I seen this scattered approach succeed.

Most healthcare observers understand the inherent flaw in the “fee for service” (FFS) model is also its greatest appeal to providers: the more you do the more you earn. FFS is how nearly all financial transactions take place in America (i.e., provide a service, earn a fee). In medicine, however, this financial model results in frequent over-testing and over-treatment with minimal if any improvement in clinical outcomes, according to researchers.

The “value-based” alternative to FFS involves prepaying for care—a model often referred to as “capitation.” In short, capitation involves a single fee, paid upfront for all the medical care provided to a defined population of patients for one year based on their age and health status. The better an organization at preventing disease and avoiding complications from chronic illness, the greater its success in both clinical quality and affordability.

Within the small world of capitated healthcare payments, there’s an important element that often gets overlooked. It makes a big difference who receives that lump-sum payment.

In the case of Kaiser Permanente, capitated payments are made directly to the medical group and the physicians who are responsible for providing care. In almost every other health system, an insurance company collects capitated payments but then pays the medical providers on a fee-for-service basis. Even though the arrangement is referred to as capitated, the incentives are overwhelmingly tied to the volume of care (not the value of that care).

In a mixed-payment model, doctors and hospitals invariably prioritize the higher paying FFS patients over the capitated ones. When I think about these conflicting incentives, I’m reminded of a prominent medical group in California. It had a main entrance for its fee-for-service patients and a second, smaller one off to the side for capitated patients.

I doubt the time spent with the patient—or the overall care provided—was equal for both groups. When income is based on quantity of care, not quality, clinicians focus more on treating the complications of chronic disease and medical errors rather than preventing them in the first place. Geisinger has walked this tightrope in the past, but as economic pressures mount, I fear doctors will find the two sets of incentives conflicting and difficult to navigate.

The big lesson: as financial pressures mount, the most effective approaches of the past will likely fail in the future. All healthcare organizations will need to make a decision: keep trying to drive volume and prices up through FFS or shift to capitation. Getting caught in the middle is a prescription for failure.

Examining the healthcare acquisitions made by Amazon and CVS, it’s clear these giants have decided to move aggressively toward a model more like Kaiser Permanente’s—one that brings insurance, pharmacy, physicians and sophisticated IT systems under one roof. These companies, along with Walmart, are aggressively marching down a path toward capitation, focusing on Medicare Advantage (the value-based option for Americans 65+) as an entry point.

So far, Geisinger has hedged its bets by maintaining a hybrid revenue stream. I doubt they can do so successfully in the future. That brings us to a final question.

The biggest question remaining  

Over the next decade, hospital systems, insurers and retailers will battle for healthcare supremacy. The most recent Kaiser-Geisinger deal reflects an industry that’s undergoing massive change as health systems face intensifying pressure to remain relevant.  

The most important issue to resolve is whether these shifts will ultimately help or harm patients. I’m optimistic for a positive outcome.

Whether or not the retail giants displace the incumbents, they will redefine what it takes to win. For all their faults, companies like Amazon and Walmart care a lot about meeting the needs of customers—a mindset rarely found in today’s healthcare world. As these companies grow ever larger, they’ll place consumer-oriented demands on doctors and hospitals. This will require care providers to deliver higher quality care at more affordable prices.

The retailers will only do deals with the best of the best. And they’ll kick the underachievers to the curb. They’ll use their sophisticated IT systems to better coordinate and innovate medical care. Insurers, hospitals and doctors who fail to keep up will be left behind.

Over time, patients will find themselves with far more choices and control than they have today. And I’m optimistic that will be good for the health of our nation.

Payer contracts, physician pay still anchored in fee-for-service

Posted on by • Posted in Fee for Service Reimbursement, Healthcare Reform, Payment Models, Payor Contracting, Performance Metrics, Performance-Based Incentives, Physician, Physician Compensation, Quality Incentives, Quality Measures, Quality Reporting, Risk-Based Compensation, Value Chain, Value Creation, Value-Based Contracting, Value-Based Healthcare • Leave a comment
https://us17.campaign-archive.com/?e=d1e747d2d8&u=526c5e99ee0439b6f83f7c051&id=5b1b015fbd

The healthcare industry has made some strides in the “journey to value” across the last decade, but in reality, most health systems and physician groups are still very much entrenched in fee-for-service incentives.

While many health plans report that significant portions of their contract dollars are tied to cost and quality performance, what plans refer to as “value” isn’t necessarily “risk-based.” 

The left-hand side of the graphic below shows that, although a majority of payer contracts now include some link to quality or cost, over two-thirds of those lack any real downside risk for providers. 

Data on the right show a similar parallel in physician compensation. While the majority of physician groups have some quality incentives in their compensation models, less than a tenth of individual physician compensation is actually tied to quality performance. 

Though myriad stakeholders, from the federal government to individual health systems and physician groups, have collectively invested billions of dollars in migrating to value-based payment over the last decade, we are still far from seeing true, performance-based incentives translate into transformation up and down the healthcare value chain.  

Primary Care Faces Existential Threat Over Healthcare Workforce Woes

Posted on by • Posted in Alternative Payment Model, Coronavirus, Coronavirus Delta Variant, Coronavirus Mutation, Employee Benefits, Employee Burnout, Employee Protections, Employee Sick Leave, Employee Staffing, Employee Vaccination, Fee for Service Reimbursement, Health Policy, Physician, Physician Burnout, Physician Compensation, Physician Employment, Physician Practice Management, Primary Care, Primary Care Delivery Model, Primary Care Strategy • Leave a comment
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40% of primary care clinicians worry that the field won’t exist in five years as many in the healthcare workforce experience burnout and plan to leave the field.

 Clinician burnout, lay-offs, and other healthcare workforce challenges coming out of the COVID-19 pandemic are creating issues for primary care, according to a new survey.

About 40 percent of over 700 primary care clinicians recently surveyed by the Larry A. Green Center, Primary Care Collaborative (PCC), and 3rd Conversation worry that primary care won’t exist in five years’ time. Meanwhile, about a fifth say they expect to leave primary care within the next three years.

“Primary care is the front door to the healthcare system for most Americans, and the door is coming off its hinges,” Christine Bechtel, co-founder of 3rd Conversation, a community of patients and clinicians, said in a press release. “The fact that 40 [percent] of clinicians are worried about the future of primary care is of deep concern, and it’s time for new public policies that value primary care for the common good that it is.”

The threat to primary care comes as practices ramp up vaccination efforts. The survey found that more than half of respondents (52 percent) report receiving enough or more than enough vaccines for their patients, and 31 percent are partnering with local organizations or government to prioritize people for vaccination.

Stress levels at primary care practices are also decreasing compared to the height of the pandemic, according to survey results. However, over one in three, or 36 percent, of respondents say they are experiencing hardships, such as feeling constantly lethargic, having trouble finding joy in anything, and/or struggling to maintain clear thinking.

Clinician fatigue could spell trouble for the primary care workforce and the field itself, researchers indicated.

“The administration has now recognized the key role primary care is able to play in reaching vaccination goals,” Rebecca Etz, PhD, co-director of The Larry A. Green Center, said in the release. “While the pressure is now on primary care to convert the most vaccine-hesitant, little has been done to support primary care to date. Policymakers need to bear witness to the quiet heroism of primary care – a workforce that suffered five times more COVID-related deaths than any other medical discipline.”

Many primary care clinicians are hoping the federal government steps in to change policy and bolster primary care and the healthcare workforce. The government can start with how primary care is paid, respondents agreed.

About 46 percent of clinicians responding to the survey said policy should change how primary care is financed so that the field is not in direct competition with specialty care. The same percentage of clinicians also said policy to change how primary care is paid by shifting reimbursement from fee-for-service.

Over half of clinicians (56 percent) also agreed that policy should protect primary care as a common good and make it available to all regardless of ability to pay.

Alternative payment models helped providers during the COVID-19 pandemic, research from healthcare improvement company Premier, Inc. showed. Their study found that organizations in alternative payment models were more likely to leverage care management, remote patient monitoring, and population health data during the pandemic compared to organizations that relied on fee-for-service revenue.

“Many of the practices, especially in primary care, have been extremely cash strapped and have been struggling for many years,” Sanjay Doddamani, MD, told RevCycleIntelligence last year.

“This has been a big moment for us to act in accelerating our performance-based incentive payments to our primary care doctors. We moved up our schedule of payments so that they could at least have some continued flow of funds,” added the chief physician executive and COO at Southwestern Health Resources, a clinically integrated network based in Texas.

Value-based contracting could be the key to primary care’s existence in the future, that is, if practices get on board with alternative payment models. A majority of respondents to the latest Value-Based Care Assessment from Insights said over 75 percent of their organization’s revenue is from fee-for-service contracts. This was especially true for respondents working in physician practices, of which 64 percent relied almost entirely on fee-for-service payments.

Pandemic propels health systems to mull insurer acquisitions, partnerships

Posted on by • Posted in Diversification, Fee for Service Reimbursement, Health Insurance Industry, Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Share, Mergers & Acquisitions, Operating Income, Operating Margin, Operating Performance, Pandemic, Partnership, Strategic Advantage, Strategic Alignment, Strategy, Value-Based Contracting, Value-Based Healthcare • Leave a comment
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4 Reasons Strategic Partnerships are Important for Business - Glympse

Nearly a year after the first confirmed case of COVID-19 in the U.S., some of the nation’s largest health systems made a case for the need to accelerate toward value-based arrangements and potentially acquiring or partnering with health plans to become an integrated system.

Amid new records for deaths and cases from the novel coronavirus, executives gathered virtually for J.P. Morgan’s 39th annual healthcare conference, which typically draws prominent healthcare leaders to San Francisco at the start of each year.

The pandemic has been a heavily discussed topic during the digital gathering. One theme has been health systems either acknowledging they are on the hunt for health insurer acquisitions and partnerships or advocating for such arrangements as result of the challenges.

Anu Singh, managing director and the leader of the mergers, acquisitions and partnerships practice at consultancy Kaufman Hall, said it’s a natural migration for health systems, though it does come with some risk.

“If you want to move into the realm of being a population health manager, and take greater responsibility for your patient bases, you’re going to have to be thinking about maintaining their health,” Singh said. “And that’s typically something that, at least traditionally and historically, has been driven a little bit more by the health plan.”

For Utah’s Intermountain Healthcare, the lessons of the pandemic are clear: The industry needs to move away from a system that rewards volume. Intermountain is a fully integrated system that manages both providers and an insurance unit.

“It is becoming increasingly apparent that systems that are well integrated, especially systems that understand how to take risks, have prospered in the face of the terrible burden, caring for people in the midst of the first pandemic in 100 years,” Intermountain CEO Marc Harrison said Monday.

From his vantage point, Harrison said it has been interesting to watch the consternation around telehealth visits.

“Lots of folks who are really still caught in the volume-based system are actively switching patients back from tele- or distance to in-person visits so they can maximize revenue,” he said. “I understand that. But that’s a really great example of poorly aligned incentives.”

Intermountain has managed to stay in the black as many other systems have struggled financially as a result of the pandemic driving down patient volumes. It reported net income of $167 million through the first nine months of 2020, compared with $919 million the year prior.

Another integrated system, Baylor Scott and White Health, the largest nonprofit system in Texas, said such diversification has helped buoy its finances as hospital and clinic operations bottomed out in the spring due to the virus.

Baylor Scott and White illustrated this point by showing how operating income for its clinical segment took a nosedive in the spring while operating income for its health plan remained relatively steady.

The theme of integrated health systems also seemed to be on the minds of investors. CommonSpirit Health executives were asked during their presentation if buying or creating a health plan was on their radar as the system has a sizable footprint of 140 hospitals across the country.

“I think this is a interesting question, one that of course we’ve discussed many times strategically,” CFO Daniel Morissette said, noting the system does have a number of regional plans. “At this time, we have no plan of having a national CommonSpirit branded plan.” However, Morissette said the system would consider a partnership opportunity.

On the other hand, Midwest-based Advocate Aurora Health said it is actively on the hunt for a potential insurer deal as part of its long-term strategy.

“We do believe that having health plan capability, not necessarily having our own, but partnering for health plan capability, is going to be critical to our success, and we are taking steps to do that,” CEO Jim Skogsbergh said during the virtual conference.

Kaufman Hall said in its latest report that it expects more payer-provider partnerships as a result of the pandemic. “Limitations on fee-for-service payment structures exposed by the pandemic may increase the number of payer-provider partnerships around new payment and care delivery models,” according to the report.

Singh of Kaufman Hall said it’s not surprising that some may lean more toward a partnership due to the risks of starting a new venture, especially an insurance unit that can have “catastrophic loss”. Systems with less experience of moving toward implementing value-based initiatives may be more vulnerable to such risk.

It’s why he thinks partnerships may be a good fit, at least at first. Payers and providers can work together to improve the health of certain populations and then share in the cost savings.