JPMorgan Chase on May 20 unveiled its new healthcare company, dubbed Morgan Health, which its top executive told Becker’s Hospital Review can be viewed as a continuation of Haven, an ambitious healthcare venture that recently disbanded.
“We learned a lot from the Haven experience,” Dan Mendelson, CEO of Morgan Health, said. “The Haven experience focused us on primary care, digital medicine and specific populations. … You can see this as a continuation of the work that was started at Haven.”
However, Mr. Mendelson said there are several key differences between Morgan Health and Haven, the healthcare venture launched by Amazon, Berkshire Hathaway and JPMorgan Chase in 2018. For one, it has a much more simplified business structure, as it is a unit of JPMorgan Chase. Second, it has a philosophy of striking partnerships to meet its goals rather than working from the ground up.
“We don’t want to create things from scratch,” Mr. Mendelson said. “We are going to be collaborating with outstanding healthcare organizations nationally to accomplish our objectives. That’s another piece that differentiates this effort from the prior one.”
Morgan Health said its new business is focused on improving employer-sponsored healthcare in the U.S. and bringing meaningful innovation into the industry by targeting insurance and keeping populations healthy. Success for the company will be measured by whether it improves the Triple Aim: quality of care, access to care and cost to deliver care, Mr. Mendelson said. Morgan Health initially will focus its efforts on improving care for JPMorgan Chase employees, but its long-term goals are to become a leader at improving healthcare in the U.S. and to create a successful model other employers can adopt.
“We come at this with the benefit of having 285,000 employees and dependents,” Mr. Mendelson said. “We have a very strong interest in driving quality improvements for them and also creating models that are reproducible across organizations. We are looking to take a leadership role to improve care in the United States.”
Morgan Health said it has three core focus areas at its launch: improving healthcare by investing $250 million into organizations that are improving employer-sponsored healthcare; piloting new benefits for employees; and promoting healthcare equity for its employees and the broader community.
One employee benefit Morgan Health will be piloting is advanced primary care, Mr. Mendelson said. Morgan Health said it is working to create improved primary care capacity to enable employees to better navigate the healthcare system. One example of this is instead of having employees see just a primary care physician, they would be directed to a clinic that leverages more healthcare talent, such as pharmacists and nurses, to improve health outcomes.
Morgan Health said it will work with a range of partners, including provider groups, health plans and other employers. One such organization is CVS Health/Aetna, which is one of JPMorgan Chase’s insurance carriers, Mr. Mendelson said.
“CVS Health has a lot of innovation within the organization that we are not currently tapping into,” Mr. Mendelson said. “It’s a great example of a great American company that is ripe for further partnership and innovation in this effort.”
Morgan Health initially will have 20 dedicated employees, but Mr. Mendelson said the healthcare unit is tapping talent from other existing departments at JPMorgan Chase, including its legal, communications and benefits departments.
“This is a company that is very passionate about leading; there’s a very deep reservoir of support from the organization to accomplish the objectives,” Mr. Mendelson said. “These are objectives that are hard — it will take us time to accomplish and to show meaningful improvement. But there’s a sense that this is so important that there’s going to be a sustained effort in this regard and that we will achieve our objectives together.”
Prior to joining Morgan Health, Mr. Mendelson served as an operating partner at private equity firm Welsh, Carson, Anderson & Stowe. He also is the founder and former CEO of healthcare advisory firm Avalere Health and worked in the White House Office of Management and Budget during the Clinton administration.
Mr. Mendelson said his passion for establishing collaborative partnerships in healthcare will help him succeed in his new role.
Late last week, retail giant Walmart announced its plan to acquire national telemedicine provider MeMD, for an undisclosed sum. According to Dr. Cheryl Pegus, Walmart’s executive vice president for health, the acquisition “complements our brick-and-mortar Walmart Health locations”, allowing the company to “expand access and reach consumers where they are”.
MeMD, founded in 2010, provides primary care and mental health services to five million patients nationally. The acquisition extends Walmart’s health delivery capabilities beyond the handful of in-store and store-adjacent clinics it runs, and follows the launch of its own Medicare Advantage-focused broker business, and partnership with Medicare Advantage start-up Clover Health to offer a co-branded insurance product.
Walmart has been climbing the healthcare learning curve for several years, building on its sizeable retail pharmacy business, and seems to have hit on a successful formula in its latest in-person clinic model, which includes primary care, behavioral health, vision, and dental services. The retailer plans to add 22 new clinic locations by the end of this year, and its new telemedicine offering will allow it to expand its virtual reach even further.
The MeMD acquisition also represents a new front in Walmart’s head-to-head competition with Amazon, which launched its own national telemedicine service earlier this year. That service, Amazon Care, is targeted at the employer market, and right on cue, Amazon announced its first customer sale last week—to Precor, a fitness equipment company.
Both retail giants are slowly circling the $3.6T healthcare industry, targeting inefficiencies by deploying their expertise in convenience and consumer engagement. Incumbents beware.
Federally-subsidized childcare centers took care of an estimated 550,000 to 600,000 children while their mothers worked wartime jobs.
When the United States started recruiting women for World War II factory jobs, there was a reluctance to call stay-at-home mothers with young children into the workforce. That changed when the government realized it needed more wartime laborers in its factories. To allow more women to work, the government began subsidizing childcare for the first (and only) time in the nation’s history.
An estimated 550,000 to 600,000 children received care through these facilities, which cost parents around 50 to 75 cents per child, per day (in 2021, that’s less than $12). But like women’s employment in factories, the day care centers were always meant to be a temporary wartime measure. When the war ended, the government encouraged women to leave the factories and care for their children at home. Despite receiving letters and petitions urging the continuation of the childcare programs, the U.S. government stopped funding them in 1946.
Before World War II, organized “day care” didn’t really exist in the United States. The children of middle- and upper-class families might go to private nursery schools for a few hours a day, says Sonya Michel, a professor emerita of history, women’s studies and American studies at the University of Maryland-College Park and author of Children’s Interests/Mothers’ Rights: The Shaping of America’s Child Care Policy. (In German communities, five- and six-year-olds went to half-day Kindergartens.)
For children from poor families whose father had died or couldn’t work, there were day nurseries funded by charitable donations, Michel says. But there were no affordable all-day childcare centers for families in which both parents worked—a situation that was common for low-income families, particularly Black families, and less common for middle- and upper-class families.
The war temporarily changed that. In 1940, the United States passed the Defense Housing and Community Facilities and Services Act, known as the Lanham Act, which gave the Federal Works Agency the authority to fund the construction of houses, schools and other infrastructure for laborers in the growing defense industry. It was not specifically meant to fund childcare, but in late 1942, the government used it to fund temporary day care centers for the children of mothers working wartime jobs.
Communities had to apply for funding to set up day care centers; once they did, there was very little federal involvement. Local organizers structured childcare centers around a community’s needs. Many offered care at odd hours to accommodate the schedules of women who had to work early in the morning or late at night. They also provided up to three meals a day for children, with some offering prepared meals for mothers to take with them when they picked up their kids.
“The ones that we often hear about were the ‘model’ day nurseries that were set up at airplane factories [on the West coast],” says Michel. “Those were ones where the federal funding came very quickly, and some of the leading voices in the early childhood education movement…became quickly involved in setting [them] up,” she says.
For these centers, organizers enlisted architects to build attractive buildings that would cater to the needs of childcare, specifically. “There was a lot of publicity about those, but those were unusual. Most of the childcare centers were kind of makeshift. They were set up in church basements or garages.”
Though the quality of care varied by center, there hasn’t been much study of how this quality related to children’s race (in the Jim Crow South, where schools and recreational facilities were segregated, childcare centers were likely segregated too). At the same time, the United States was debuting subsidized childcare, it was also incarcerating Japanese American families in internment camps. So although these childcare facilities were groundbreaking, they didn’t serve all children.
Subsidized Childcare Ends When War Ends
When the World War II childcare centers first opened, many women were reluctant to hand their children over to them. According to Chris M. Herbst, a professor of public affairs at Arizona State University who has written about these programs in the Journal of Labor Economics, a lot of these women ended up having positive experiences.
“A couple of childcare programs in California surveyed the mothers of the kids in childcare as they were leaving childcare programs,” he says. “Although they were initially skeptical of this government-run childcare program and were worried about the developmental effects on their kids, the exit interviews revealed very, very high levels of parental satisfaction with the childcare programs.”
As the war ended in August 1945, the Federal Works Agency announced it would stop funding childcare as soon as possible. Parents responded by sending the agency 1,155 letters, 318 wires, 794 postcards and petitions with 3,647 signatures urging the government to keep them open. In response, the U.S. government provided additional funding for childcare through February 1946. After that, it was over.
Lobbying for national childcare gained momentum in the 1960s and ‘70s, a period when many of its advocates may have themselves gone to World War II day care as kids. In 1971, Congress passed the Comprehensive Child Development Act, which would have established nationally-funded, locally-administered childcare centers.
This was during the Cold War, a time when anti-childcare activists pointed to the fact that the Soviet Union funded childcare as an argument for why the United States shouldn’t. President Richard Nixon vetoed the bill, arguing that it would “commit the vast moral authority of the National Government to the side of communal approaches to child rearing over against the family-centered approach.”
In this case, “family-centered” meant the mother should care for the children at home while the father worked outside of it—regardless of whether this was something the parents could afford or desired to do. World War II remains the only time in U.S. history that the country came close to instituting universal childcare.
She grew up in Hungary, daughter of a butcher. She decided she wanted to be a scientist, although she had never met one. She moved to the United States in her 20s, but for decades never found a permanent position, instead clinging to the fringes of academia.
Now Katalin Kariko, 66, known to colleagues as Kati, has emerged as one of the heroes of Covid-19 vaccine development. Her work, with her close collaborator, Dr. Drew Weissman of the University of Pennsylvania, laid the foundation for the stunningly successful vaccines made by Pfizer-BioNTech and Moderna.
For her entire career, Dr. Kariko has focused on messenger RNA, or mRNA — the genetic script that carries DNA instructions to each cell’s protein-making machinery. She was convinced mRNA could be used to instruct cells to make their own medicines, including vaccines.
But for many years her career at the University of Pennsylvania was fragile. She migrated from lab to lab, relying on one senior scientist after another to take her in. She never made more than $60,000 a year.
By all accounts intense and single-minded, Dr. Kariko lives for “the bench” — the spot in the lab where she works. She cares little for fame. “The bench is there, the science is good,” she shrugged in a recent interview. “Who cares?”
Dr. Anthony Fauci, director of the National Institutes of Allergy and infectious Diseases, knows Dr. Kariko’s work. “She was, in a positive sense, kind of obsessed with the concept of messenger RNA,” he said.
Dr. Kariko’s struggles to stay afloat in academia have a familiar ring to scientists. She needed grants to pursue ideas that seemed wild and fanciful. She did not get them, even as more mundane research was rewarded.
“When your idea is against the conventional wisdom that makes sense to the star chamber, it is very hard to break out,” said Dr. David Langer, a neurosurgeon who has worked with Dr. Kariko.
Dr. Kariko’s ideas about mRNA were definitely unorthodox. Increasingly, they also seem to have been prescient.
“It’s going to be transforming,” Dr. Fauci said of mRNA research. “It is already transforming for Covid-19, but also for other vaccines. H.I.V. — people in the field are already excited. Influenza, malaria.”
‘I Felt Like a God’
For Dr. Kariko, most every day was a day in the lab. “You are not going to work — you are going to have fun,” her husband, Bela Francia, manager of an apartment complex, used to tell her as she dashed back to the office on evenings and weekends. He once calculated that her endless workdays meant she was earning about a dollar an hour.
For many scientists, a new discovery is followed by a plan to make money, to form a company and get a patent. But not for Dr. Kariko. “That’s the furthest thing from Kate’s mind,” Dr. Langer said.
She grew up in the small Hungarian town of Kisujszallas. She earned a Ph.D. at the University of Szeged and worked as a postdoctoral fellow at its Biological Research Center.
In 1985, when the university’s research program ran out of money, Dr. Kariko, her husband, and 2-year-old daughter, Susan, moved to Philadelphia for a job as a postdoctoral student at Temple University. Because the Hungarian government only allowed them to take $100 out of the country, she and her husband sewed £900 (roughly $1,246 today) into Susan’s teddy bear. (Susan grew up to be a two-time Olympic gold medal winner in rowing.)
When Dr. Kariko started, it was early days in the mRNA field. Even the most basic tasks were difficult, if not impossible. How do you make RNA molecules in a lab? How do you get mRNA into cells of the body?
In 1989, she landed a job with Dr. Elliot Barnathan, then a cardiologist at the University of Pennsylvania. It was a low-level position, research assistant professor, and never meant to lead to a permanent tenured position. She was supposed to be supported by grant money, but none came in.
She and Dr. Barnathan planned to insert mRNA into cells, inducing them to make new proteins. In one of the first experiments, they hoped to use the strategy to instruct cells to make a protein called the urokinase receptor. If the experiment worked, they would detect the new protein with a radioactive molecule that would be drawn to the receptor.
“Most people laughed at us,” Dr. Barnathan said.
One fateful day, the two scientists hovered over a dot-matrix printer in a narrow room at the end of a long hall. A gamma counter, needed to track the radioactive molecule, was attached to a printer. It began to spew data.
Their detector had found new proteins produced by cells that were never supposed to make them — suggesting that mRNA could be used to direct any cell to make any protein, at will.
“I felt like a god,” Dr. Kariko recalled.
She and Dr. Barnathan were on fire with ideas. Maybe they could use mRNA to improve blood vessels for heart bypass surgery. Perhaps they could even use the procedure to extend the life span of human cells.
Dr. Barnathan, though, soon left the university, accepting a position at a biotech firm, and Dr. Kariko was left without a lab or financial support. She could stay at Penn only if she found another lab to take her on. “They expected I would quit,” she said.
Universities only support low-level Ph.D.s for a limited amount of time, Dr. Langer said: “If they don’t get a grant, they will let them go.” Dr. Kariko “was not a great grant writer,” and at that point “mRNA was more of an idea,” he said.
But Dr. Langer knew Dr. Kariko from his days as a medical resident, when he had worked in Dr. Barnathan’s lab. Dr. Langer urged the head of the neurosurgery department to give Dr. Kariko’s research a chance. “He saved me,” she said.
Dr. Langer thinks it was Dr. Kariko who saved him — from the kind of thinking that dooms so many scientists.
Working with her, he realized that one key to real scientific understanding is to design experiments that always tell you something, even if it is something you don’t want to hear. The crucial data often come from the control, he learned — the part of the experiment that involves a dummy substance for comparison.
“There’s a tendency when scientists are looking at data to try to validate their own idea,” Dr. Langer said. “The best scientists try to prove themselves wrong. Kate’s genius was a willingness to accept failure and keep trying, and her ability to answer questions people were not smart enough to ask.”
Dr. Langer hoped to use mRNA to treat patients who developed blood clots following brain surgery, often resulting in strokes. His idea was to get cells in blood vessels to make nitric oxide, a substance that dilates blood vessels, but has a half-life of milliseconds. Doctors can’t just inject patients with it.
He and Dr. Kariko tried their mRNA on isolated blood vessels used to study strokes. It failed. They trudged through snow in Buffalo, N.Y., to try it in a laboratory with rabbits prone to strokes. Failure again.
And then Dr. Langer left the university, and the department chairman said he was leaving as well. Dr. Kariko again was without a lab and without funds for research.
A meeting at a photocopying machine changed that. Dr. Weissman happened by, and she struck up a conversation. “I said, ‘I am an RNA scientist — I can make anything with mRNA,’” Dr. Kariko recalled.
Dr. Weissman told her he wanted to make a vaccine against H.I.V. “I said, ‘Yeah, yeah, I can do it,’” Dr. Kariko said.
Despite her bravado, her research on mRNA had stalled. She could make mRNA molecules that instructed cells in petri dishes to make the protein of her choice. But the mRNA did not work in living mice.
“Nobody knew why,” Dr. Weissman said. “All we knew was that the mice got sick. Their fur got ruffled, they hunched up, they stopped eating, they stopped running.”
It turned out that the immune system recognizes invading microbes by detecting their mRNA and responding with inflammation. The scientists’ mRNA injections looked to the immune system like an invasion of pathogens.
But with that answer came another puzzle. Every cell in every person’s body makes mRNA, and the immune system turns a blind eye. “Why is the mRNA I made different?” Dr. Kariko wondered.
A control in an experiment finally provided a clue. Dr. Kariko and Dr. Weissman noticed their mRNA caused an immune overreaction. But the control molecules, another form of RNA in the human body — so-called transfer RNA, or tRNA — did not.
A molecule called pseudouridine in tRNA allowed it to evade the immune response. As it turned out, naturally occurring human mRNA also contains the molecule.
Added to the mRNA made by Dr. Kariko and Dr. Weissman, the molecule did the same — and also made the mRNA much more powerful, directing the synthesis of 10 times as much protein in each cell.
The idea that adding pseudouridine to mRNA protected it from the body’s immune system was a basic scientific discovery with a wide range of thrilling applications. It meant that mRNA could be used to alter the functions of cells without prompting an immune system attack.
“We both started writing grants,” Dr. Weissman said. “We didn’t get most of them. People were not interested in mRNA. The people who reviewed the grants said mRNA will not be a good therapeutic, so don’t bother.’”
Leading scientific journals rejected their work. When the research finally was published, in Immunity, it got little attention.
Dr. Weissman and Dr. Kariko then showed they could induce an animal — a monkey — to make a protein they had selected. In this case, they injected monkeys with mRNA for erythropoietin, a protein that stimulates the body to make red blood cells. The animals’ red blood cell counts soared.
The scientists thought the same method could be used to prompt the body to make any protein drug, like insulin or other hormones or some of the new diabetes drugs. Crucially, mRNA also could be used to make vaccines unlike any seen before.
Instead of injecting a piece of a virus into the body, doctors could inject mRNA that would instruct cells to briefly make that part of the virus.
“We talked to pharmaceutical companies and venture capitalists. No one cared,” Dr. Weissman said. “We were screaming a lot, but no one would listen.”
Eventually, though, two biotech companies took notice of the work: Moderna, in the United States, and BioNTech, in Germany. Pfizer partnered with BioNTech, and the two now help fund Dr. Weissman’s lab.
‘Oh, It Works’
Soon clinical trials of an mRNA flu vaccine were underway, and there were efforts to build new vaccines against cytomegalovirus and the Zika virus, among others. Then came the coronavirus.
Researchers had known for 20 years that the crucial feature of any coronavirus is the spike protein sitting on its surface, which allows the virus to inject itself into human cells. It was a fat target for an mRNA vaccine.
Chinese scientists posted the genetic sequence of the virus ravaging Wuhan in January 2020, and researchers everywhere went to work. BioNTech designed its mRNA vaccine in hours; Moderna designed its in two days.
The idea for both vaccines was to introduce mRNA into the body that would briefly instruct human cells to produce the coronavirus’s spike protein. The immune system would see the protein, recognize it as alien, and learn to attack the coronavirus if it ever appeared in the body.
The vaccines, though, needed a lipid bubble to encase the mRNA and carry it to the cells that it would enter. The vehicle came quickly, based on 25 years of work by multiple scientists, including Pieter Cullis of the University of British Columbia.
Scientists also needed to isolate the virus’s spike protein from the bounty of genetic data provided by Chinese researchers. Dr. Barney Graham, of the National Institutes of Health, and Jason McClellan, of the University of Texas at Austin, solved that problem in short order.
Testing the quickly designed vaccines required a monumental effort by companies and the National Institutes of Health. But Dr. Kariko had no doubts.
On Nov. 8, the first results of the Pfizer-BioNTech study came in, showing that the mRNA vaccine offered powerful immunity to the new virus. Dr. Kariko turned to her husband. “Oh, it works,” she said. “I thought so.”
To celebrate, she ate an entire box of Goobers chocolate-covered peanuts. By herself.
Dr. Weissman celebrated with his family, ordering takeout dinner from an Italian restaurant, “with wine,” he said. Deep down, he was awed.
“My dream was always that we develop something in the lab that helps people,” Dr. Weissman said. “I’ve satisfied my life’s dream.”
Dr. Kariko and Dr. Weissman were vaccinated on Dec. 18 at the University of Pennsylvania. Their inoculations turned into a press event, and as the cameras flashed, she began to feel uncharacteristically overwhelmed.
A senior administrator told the doctors and nurses rolling up their sleeves for shots that the scientists whose research made the vaccine possible were present, and they all clapped. Dr. Kariko wept.
Things could have gone so differently, for the scientists and for the world, Dr. Langer said. “There are probably many people like her who failed,” he said.
Even though signs point to a post-COVID spike in health system mergers, retailers, insurers, and other healthcare industry players already far exceed health system scale. Even the largest of the “mega health systems” pale in comparison to other healthcare companies up and down the value chain, as shown in the graphic above. And with the exception of pharma, these other industry players have seen revenues surge during the pandemic, while health system growth has stagnated.
According to a recent report from Kaufman Hall, hospitals saw a three percent reduction in annual total gross revenue in 2020. The majority of the decrease stemmed from a six percent decline in outpatient revenue, as volumes plummeted during the pandemic.
The largest companies listed here, including Walmart, Amazon, CVS, and UnitedHealth Group, continue to double down on vertical integration strategies, configuring an array of healthcare assets into platform businesses focused on delivering value to consumers.
To remain relevant, health systems will need to increase their focus on this strategy as well, assembling the right capabilities for a marketplace driven by value, at a scale that enables rapid innovation and sustainability.
- Members of an influential congressional advisory committee on Medicare are torn on how best to regulate telehealth after the COVID-19 public health emergency, hinting at the difficulty Washington faces as it looks to impose guardrails on virtual care without restricting its use after the pandemic ends.
- During a Thursday virtual meeting, the Medicare Payment Advisory Commission expressed its support of telehealth broadly, but many members noted snowballing use of the new modality could create more fraud and abuse in the system down the line.
- Key questions of how much Medicare reimburses for telehealth visits and what type of visits are paid for won’t be easily answered, MedPAC commissioners noted. “This is a really, really difficult nut to crack,” Michael Chernew, MedPAC chairman and a healthcare policy professor at Harvard Medical School, said.
Virtual care has kept much of the industry running during the coronavirus pandemic, allowing patients to receive needed care at home. Much of this was possible due to the declaration of a public health emergency early 2020, allowing Medicare to reimburse for a greater swath of telehealth services and nixing other restrictions on virtual care.
However, much of that freedom is only in place for the duration of the public health emergency, leaving regulators and legislators scrambling to figure which new flexibilities they should codify, and which perhaps are best left in the past along with COVID-19.
It’s a tricky debate as Washington looks to strike a balance between keeping access open and costs low.
In a Thursday meeting, MedPAC debated a handful of policy proposals to try and navigate this tightrope. Analysts floated ideas like making some expansions permanent for all fee-for-service clinicians; covering certain telehealth services for all beneficiaries that can be received in their homes; and covering telehealth services if they meet CMS’ criteria for an allowable service.
But many MedPAC members were wary of making any concrete near-term policy changes, suggesting instead the industry should be allowed to test drive new telehealth regulations after COVID-19 without baking them in permanently.
“I don’t think what we’ve done with the pandemic can be considered pilot testing. I think a lot of this is likely to go forward no matter what we do because the gate has been opened, and it’s going to be really hard to close it,” Marjorie Ginsburg, founder of the Center for Healthcare Decisions, said. But “I see this just exploding into more fraud and abuse than we can even begin imagining.”
Paul Ginsburg, health policy chair at the Brookings Institution, suggested a two-year pilot of any changes after the public health emergency ends.
However, it would be “regressive” to roll back all the gains virtual care has made over the past year, according to Jonathan Perlin, CMO of health system HCA.
“These technologies are such a part of the environment that at this point, I fear [it] would be anachronistic not to accept that reality,” Perlin said.
Among other questions, commissioners were split on how much Medicare should pay for telehealth after the pandemic ends.
That parity debate is perhaps the biggest question mark hanging over the future of the industry. Detractors argue virtual care services involve lower practice costs, as remote physicians not in an office don’t need to shell out for supplies and staff. Paying at parity could distort prices, and cause fee-for-service physicians to prioritize delivering telehealth services over in-person ones, some commissioners warned.
Other MedPAC members pointed out a lower payment rate could stifle technological innovation at a pivotal time for the healthcare industry.
MedPAC analysts suggested paying lower rates for virtual care services than in-person ones, and paying less for audio-only services than video.
Commissioners agreed audio-only services should be allowed, but that a lower rate was fair. Commissioner Dana Gelb Safran, SVP at Well Health, suggested CMS should consider outlining certain services where video must be used out of clinical necessity.
Previously, telehealth services needed a video component to be reimbursed. Proponents argue expanded access to audio-only services will improve care access, especially for low-income populations that might not have the broadband access or technology to facilitate a video visit.
Another major concern for commissioners is how permanently expanding telehealth access would affect direct-to-consumer telehealth giants like Teladoc and Amwell. If all telehealth services delivered at home are covered, that could allow the private companies to “really take over the industry,” Larry Casalino, health policy chief in the Weill Cornell Department of Healthcare Policy and Research, said.
Because of the lower back-end costs for virtual care than in-office services, paying vendors the same rate as in-office physicians could drive a lot of brick-and-mortar doctors out of business, commissioners warned.
Sitting in the dark before 6 am in my Los Angeles house with my face lit up by yet another Zoom screen, wearing a stylish combination of sweatpants, dress shirt and last year’s JPM conference badge dangling around my neck for old times’ sake, I wonder at the fact that it’s J.P. Morgan Annual Healthcare Conference week again and we are where we are. Quite a year for all of us – the pandemic, the healthcare system’s response to the public health emergency, the ongoing fight for racial justice, the elections, the storming of the Capital – and the subject of healthcare winds its way through all of it – public health, our healthcare system’s stability, strengths and weaknesses, the highly noticeable healthcare inequities, the Affordable Care Act, Medicaid and vaccines, healthcare politics and what the new administration will bring as healthcare initiatives.
I will miss seeing you all in person this year at the J.P. Morgan Annual Healthcare Conference and our annual Sheppard Mullin reception – previously referred to as “standing room only” events and now as “possible superspreader events.” What a difference a year makes. I admit that I will miss the feeling of excitement in the rooms and hallways of the Westin St. Francis and all of the many hotel lobbies and meeting rooms surrounding it. Somehow the virtual conference this year lacks that je ne sais quoi of being stampeded by rushing New York-style street traffic while in an antiquated San Francisco hotel hallway and watching the words spoken on stage transform immediately into sharp stock price increases and drops. There also is the excitement of sitting in the room listening to paradigm shifting ideas (teaser – read the last paragraph of this post for something truly fascinating). Perhaps next year, depending on the vaccine…
So, let’s start there. Today was vaccine day at the JPM Conference, with BioNTech, Moderna, Novovax and Johnson & Johnson all presenting. Lots of progress reported by all of the companies working on vaccines, but the best news of the day was the comment from BioNTech that the UK and South Africa coronavirus variants likely are still covered by the BioNTech/Pfizer vaccine. BioNTech’s CEO, Prof. Uğur Şahin, M.D., promised more data and analysis to be published shortly on that.
We also saw continued excitement for mRNA vaccines, not only for COVID-19 but also for other diseases. There is a growing focus (following COVID-19 of course) on vaccines for cancer through use of neoantigen targets, and for a long list of infectious disease targets. For cancer, though, there continues to be a growing debate over whether the best focus is on “personalized” vaccines or “off the shelf” vaccines – personalized vaccines can take longer to make and have much, much higher costs and infrastructure requirements. We expect, however, to see very exciting news on the use of mRNA and other novel technologies in the next year or two that, when approved and put into commercialization, could radically change the game, not only as to mortality, but also by eliminating or significantly reducing the cost of care with chronic conditions (which some cancers have become, thanks to technological advancement). We are fortunate to be in that gap now between “care” and “cure,” where we have been able with modern medical advances to convert many more disease states into manageable chronic care conditions. Together with today’s longer lifespans, that, however, carries a much higher price tag for our healthcare system. Now, with some of these recent announcements, we look forward to moving from “care” to “cure” and substantially dropping the cost of care to our healthcare system.
Continuing consolidation also was a steady drumbeat underlying the multiple presentations today on the healthcare services side of the conference – health plans, health systems, physician organizations, home health. The drive to scale continues, as we have seen from the accelerated pace of mergers and acquisitions in the second half of 2020, which continues unabated in January 2021. There was today’s announcement of the acquisition by Amerisource Bergen of Walgreens Boots Alliance’s Alliance Healthcare wholesale business (making Walgreens Boots Alliance the largest single shareholder of Amerisource Bergen at nearly 30% ownership), following the announcement last week of Centene’s acquisition of Magellan Health (coming fast on the heels of Molina Healthcare’s purchase of Magellan’s Complete Care line of business).
On the mental health side – a core focus area for Magellan Health – Centene’s Chief Executive Officer, Michael Neidorff, expressed the common theme that we have been seeing in the past year that mental health care should be integrated and coordinated with primary and specialty care. He also saw value in Magellan’s strong provider network, as access to mental health providers can be a challenge in some markets and populations. The behavioral/mental health sector likely will see increased attention and consolidation in the coming year, especially given its critical role during the COVID-19 crisis and also with the growing Medicaid and Medicare populations. There are not a lot of large assets left independent in the mental health sector (aside from inpatient providers, autism/developmental disorder treatment programs, and substance abuse residential and outpatient centers), so we may see more roll-up focus (such as we have seen recently with the autism/ABA therapy sector) and technology-focused solutions (text-based or virtual therapy).
There was strong agreement among the presenting health plans and capitated providers (Humana, Centene, Oak Street and multiple health systems) today that we will continue to see movement toward value-based care (VBC) and risk-based reimbursement systems, such as Medicare Advantage, Medicare direct contracting and other CMS Innovation Center (CMMI) programs and managed Medicaid. Humana’s Chief Executive Officer, Bruce Broussard, said that the size of the MA program has grown so much since 2010 that it now represents an important voting bloc and one of the few ways in which the federal government currently is addressing healthcare inequities – e.g., through Over-the-Counter (OTC) pharmacy benefits, benefits focused on social determinants of health (SDOH), and healthcare quality improvements driven by the STARS rating program. Broussard also didn’t think Medicare Advantage would be a negative target for the Biden administration and expected more foreseeable and ordinary-course regulatory adjustments, rather than wholesale legislative change for Medicare Advantage.
There also was agreement on the exciting possibility of direct contracting for Medicare lives at risk under the CMMI direct contracting initiative. Humana expressed possible interest in both this year’s DCE program models and in the GEO regional risk-based Medicare program model that will be rolling out in the next year. Humana sees this as both a learning experience and as a way to apply their chronic care management skills and proprietary groups and systems to a broader range of applicable populations and markets. There is, however, a need for greater clarity and transparency from CMMI on program details which can substantially affect success and profitability of these initiatives.
Humana, Centene and Oak Street all sang the praises of capitated medical groups for Medicare Advantage and, per Michael Neidorff, the possibility of utilizing traditional capitated provider models for Medicaid membership as well. The problem, as noted by the speakers, is that there is a scarcity of independent capitated medical groups and a lack of physician familiarity and training. We may see a more committed effort by health plans to move their network provider groups more effectively into VBC and risk, much like we have seen Optum do with their acquired fee for service groups. Privia Health also presented today and noted that, while the market focus and high valuations today are accorded to Medicare lives, attention needs to be paid to the “age in” pipeline, as commercial patients who enroll in original Medicare and Medicare Advantage still would like to keep their doctors who saw them under commercial insurance. Privia’s thesis in part is to align with patients early on and retain them and their physicians, so as to create a “farm system” for accelerated Medicare population growth. Privia’s Chief Executive Officer, Shawn Morris, also touted Privia’s rapid growth, in part attributable to partnering with health systems.
As written in our notes from prior JPM healthcare conferences, health systems are continuing to look outside to third parties to gain knowledge base, infrastructure and management skills for physician VBC and risk arrangements. Privia cited their recent opening of their Central Florida market in partnership with Health First and rapid growth in providers by more than 25% in their first year of operations.
That being said, the real market sizzle remains with Medicare Advantage and capitation, percent of premium arrangements and global risk. The problem for many buyers, though, is that there are very few assets of size in this line of business. The HealthCare Partners/DaVita Medical Group acquisition by Optum removed that from the market, creating a high level of strategic and private equity demand and a low level of supply for physician organizations with that expertise. That created a focus on groups growing rapidly in this risk paradigm and afforded them strong valuation, like with Oak Street Health this past year as it completed its August 2020 initial public offering. Oak Street takes on both professional and institutional (hospital) risk and receives a percent of premium from its contracting health plans. As Oak Street’s CEO Mike Pykosz noted, only about 3% of Medicare dollars are spent on primary care, while approximately two-thirds are spent on hospital services. If more intensive management occurs at the primary care level and, as a result, hospitalizations can be prevented or reduced, that’s an easy win that’s good for the patient and the entire healthcare system (other than a fee for service based hospital). Pykosz touted his model of building out new centers from scratch as allowing greater conformity, control and efficacy than buying existing groups and trying to conform them both physically and through practice approaches to the Oak Street model. He doesn’t rule out some acquisitions, but he noted as an example that Oak Street was able to swiftly role out COVID-19 protocols rapidly and effectively throughout his centers because they all have the same physical configuration, the same staffing ratio and the same staffing profiles. Think of it as a “franchise” model where each Subway store, for example, will have generally the same look, feel, size and staffing. He also noted that while telehealth was very helpful during the COVID-19 crisis in 2020 and will continue as long as the doctors and patients wish, Oak Street believes that an in-person care management model is much more effective and telehealth is better for quick follow-ups or when in-person visits can’t occur.
Oak Street also spoke to the topic of Medicare Advantage member acquisition, which has been one of the more difficult areas to master for many health plans and groups, resulting in many cases with mergers and acquisitions becoming a favored growth vehicle due to the difficulties of organic membership growth. Interestingly, both Oak Street and Humana reported improvements in membership acquisition during the COVID-19 crisis. Oak Street credited digital marketing and direct response television, among other factors. Humana found that online direct-to-consumer brokers became an effective pathway during the COVID-19 crisis and focused its energy on enhancing those relationships and improving hand-offs during the membership enrollment process. Humana also noted the importance of brand in Medicare Advantage membership marketing.
Staying with Medicare Advantage, there is an expectation of a decrease in Medicare risk adjustment revenue in 2021, in large part due to the lower healthcare utilization during the COVID crisis and the lesser number of in-person visits during which HCC-RAF Medicare risk adjustment coding typically occurs. That revenue drop however likely will not significantly decrease Medicare Advantage profitability though, given the concomitant drop in healthcare expenses due to lower utilization, and per conference reports, is supposed to return to normal trend in 2022 (unless we see utilization numbers fall back below 90% again). Other interesting economic notes from several presentations, when taken together, suggest that while many health systems have lost out on elective surgery revenue in 2020, their case mix index (CMI) in many cases has been much higher due to the COVID patient cases. We also saw a number of health systems with much lower cash days on hand numbers than other larger health systems (both in gross and after adjusting for federal one-time stimulus cash payments), as a direct result of COVID. This supports the thesis we are hearing that, with the second wave of COVID being higher than expected, in the absence of further federal government financial support to hospitals, we likely will see an acceleration of partnering and acquisition transactions in the hospital sector.
Zoetis, one of the largest animal health companies, gave an interesting presentation today on its products and service lines. In addition to some exciting developments re: monoclonal antibody treatments coming on line for dogs with pain from arthritis, Zoetis also discussed its growing laboratory and diagnostics line of business. The animal health market, sometime overshadowed by the human healthcare market, is seeing some interesting developments as new revenue opportunities and chronic care management paradigms (such as for renal care) are shifting in the animal health sector. This is definitely a sector worth watching.
We also saw continuing interest, even in the face of Congressional focus this past year, on growing pharmacy benefit management (PBM) companies, which are designed to help manage the pharmacy spend. Humana listed growth of its PBM and specialty pharmacy lines of business as a focus for 2021, along with at-home care. In its presentation today, SSM Health, a health system in Wisconsin, Oklahoma, Illinois, and Missouri, spotlighted Navitus, its PBM, which services 7 million covered lives in 50 states.
One of the most different, interesting and unexpected presentations of the day came from Paul Markovich, Chief Executive Officer of Blue Shield of California. He put forth the thesis that we need to address the flat or negative productivity in healthcare today in order to both reduce total cost of care, improve outcomes and to help physicians, as well as to rescue the United States from the overbearing economic burden of the current healthcare spending. Likening the transformation in healthcare to that which occurred in the last two decades with financial services (remember before ATMs and banking apps, there were banker’s hours and travelers cheques – remember those?), he described exciting pilot projects that reimagine healthcare today. One project is a real-time claims adjudication and payment program that uses smart watches to record physician/patient interactions, natural language processing (NLP) to populate the electronic medical record, transform the information concurrently into a claim, adjudicate it and authorize payment. That would massively speed up cash flow to physician practices, reduce paperwork and many hours of physician EMR and billing time and reduce the billing and collection overhead and burden. It also could substantially reduce healthcare fraud.
Paul Markovich also spoke to the need for real-time quality information that can result in real-time feedback and incentivization to physicians and other providers, rather than the costly and slow HEDIS pursuits we see today. One health plan noted that it spends about $500 million a year going into physician offices looking at medical records for HEDIS pursuits, but the information is totally “in the rearview mirror” as it is too old when finally received and digested to allow for real-time treatment changes, improvement or planning. Markovich suggested four initiatives (including the above, pay for value and shared decision making through better, more open data access) that he thought could save $100 billion per year for the country. Markovich stressed that all of these four initiatives required a digital ecosystem and asked for help and partnership in creating one. He also noted that the State of California is close to creating a digital mandate and statewide health information exchange that could be the launching point for this exciting vision of data sharing and a digital ecosystem where the electronic health record is the beginning, but not the end of the healthcare data journey.
Like a lot of people, I have really gotten into listening to podcasts over the last year. They’re such an immersive way to learn about the world, and I like how the format lets you dive as deep on a topic as you want. So, I was inspired to start one of my own—but I knew I couldn’t do it on my own.
I couldn’t ask for a better partner on this project than Rashida Jones. A mutual friend suggested that the two of us might have a lot to talk about, and it turned out he was right. I already knew she was a talented actor, but I was impressed by her thoughtful perspective on the world. So, we decided to start a podcast that lets us think through some of today’s most pressing problems together. In our first episode, Rashida and I explore a big question that is top of mind for many people: what will the world look like after COVID-19?
I know it’s hard to imagine right now while new cases are surging around the world, but there will come a time when the COVID-19 pandemic is behind us. I think it’s safe to assume that society will be changed forever, given how disruptive the virus has been to virtually every part of our lives.
Unfortunately, we still have a long way to go before life truly gets back to “normal.” Rashida and I were joined by Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, to discuss what to expect in the months to come. I’ve had the opportunity to work with Dr. Fauci on a number of global health issues over the years, including the quest for an HIV vaccine and cure. He’s such a quiet and unassuming guy normally, so it’s been wild to watch him become a huge celebrity.
Dr. Fauci and I are both optimistic that a vaccine will bring an end to the pandemic at some point in the near future. But what the world looks like after that is a lot less clear. I suspect that some of the digitization trends we’ve seen—especially in the areas of online learning, telemedicine, and remote work—will become a regular part of our lives. I hope this episode leaves you hopeful about the future and curious about what comes next.