Category Archives: Innovation

Has U.S. Healthcare reached its Tipping Point?

Posted on by • Posted in Affordability, Cost Management, Dept of Justice (DOJ), Disruption, Disruptive Technology, Federal Trade Commission, Federal Trade Commission (FTC), Health Insurance Industry, Health Policy, Health System, Healthcare Industry, Healthcare Reform, High Drug Prices, Inflation, Innovation, Innovative Care Models, Integrated Delivery System, Meaningful, Price Transparency, Private Equity, Tipping Point, Transformation, Transformational Change • Leave a comment
Has U.S. Healthcare reached its Tipping Point?

Last week was significant for healthcare:

  • Tuesday, the, FTC, and DOJ announced creation of a task force focused on tackling “unfair and illegal pricing” in healthcare. The same day, HHS joined FTC and DOJ regulators in launching an investigation with the DOJ and FTC probing private equity’ investments in healthcare expressing concern these deals may generate profits for corporate investors at the expense of patients’ health, workers’ safety and affordable care.
  • Thursday’s State of the Union address by President Biden (SOTU) and the Republican response by Alabama Senator Katey Britt put the spotlight on women’s reproductive health, drug prices and healthcare affordability.
  • Friday, the Senate passed a $468 billion spending bill (75-22) that had passed in the House Wednesday (339-85) averting a government shutdown. The bill postpones an $8 billion reduction in Medicaid disproportionate share hospital payments for a year, allocates $4.27 billion to federally qualified health centers through the end of the year and rolls back a significant portion of a Medicare physician pay cut that kicked in on Jan. 1. Next, Congress must pass appropriations for HHS and other agencies before the March 22 shutdown.
  • And all week, the cyberattack on Optum’s Change Healthcare discovered February 21 hovered as hospitals, clinics, pharmacies and others scrambled to manage gaps in transaction processing. Notably, the American Hospital Association and others have amplified criticism of UnitedHealth Group’s handling of the disruption, having, bought Change for $13 billion in October, 2022 after a lengthy Department of Justice anti-trust review. This week, UHG indicates partial service of CH support will be restored. Stay tuned.

Just another week for healthcare: Congressional infighting about healthcare spending. Regulator announcements of new rules to stimulate competition and protect consumers in the healthcare market.  Lobbying by leading trade groups to protect funding and disable threats from rivals. And so on.

At the macro level, it’s understandable: healthcare is an attractive market, especially in its services sectors. Since the pandemic, prices for services (i.e. physicians, hospitals et al) have steadily increased and remain elevated despite the pressures of transparency mandates and insurer pushback. By contrast, prices for most products (drugs, disposables, technologies et al) have followed the broader market pricing trends where prices for some escalated fast and then dipped.

While some branded prescription medicines are exceptions, it is health services that have driven the majority of health cost inflation since the pandemic.

UnitedHealth Group’s financial success is illustrative: 

it’s big, high profile and vertically integrated across all major services sectors. In its year end 2023 financial report (January 12, 2024) it reported revenues of $371.6 Billion (up 15% Year-Over-Year), earnings from operations up 14%, cash flows from operations of $29.1 Billion (1.3x Net Income), medical care ratio at 83.2% up from 82% last year, net earnings of $23.86/share and adjusted net earnings of $25.12/share and guidance its 2024 revenues of $400-403 billion. They buy products using their scale and scope leverage to  pay less for services they don’t own less and products needed to support them. It’s a big business in a buyer’s market and that’s unsettling to many.

Big business is not new to healthcare:

it’s been dominant in every sector but of late more a focus of unflattering regulator and media attention. Coupled with growing public discontent about the system’s effectiveness and affordability, it seems it’s near a tipping point.

David Johnson, one of the most thoughtful analysts of the health industry, reminded his readers last week that the current state of affairs in U.S. healthcare is not new citing the January 1970 Fortune cover story “Our Ailing Medical System”

 “American medicine, the pride of the nation for many years, stands now on the brink of chaos. To be sure, our medical practitioners have their great moments of drama and triumph. But much of U.S. medical care, particularly the everyday business of preventing and treating routine illnesses, is inferior in quality, wastefully dispensed, and inequitably financed…

Whether poor or not, most Americans are badly served by the obsolete, overstrained medical system that has grown up around them helter-skelter. … The time has come for radical change.”

Johnson added: “The healthcare industry, however, cannot fight gravity forever. Consumerism, technological advances and pro-market regulatory reforms are so powerful and coming so fast that status-quo healthcare cannot forestall their ascendance. Properly harnessed, these disruptive forces have the collective power necessary for U.S. healthcare to finally achieve the 1970 Fortune magazine goal of delivering “good care to every American with little increase in cost.”

He’s right.

I believe the U.S. health system as we know it has reached its tipping point. The big-name organizations in every sector see it and have nominal contingency plans in place; the smaller players are buying time until the shoe drops. But I am worried.

I am worried the system’s future is in the hands of hyper-partisanship by both parties seeking political advantage in election cycles over meaningful creation of a health system that functions for the greater good.

I am worried that the industry’s aversion to price transparency, meaningful discussion about affordability and consistency in defining quality, safety and value will precipitate short-term gamesmanship for reputational advantage and nullify systemness and interoperability requisite to its transformation.

I am worried that understandably frustrated employers will drop employee health benefits to force the system to needed accountability.

I am worried that the growing armies of under-served and dissatisfied populations will revolt.

I am worried that its workforce is ill-prepared for a future that’s technology-enabled and consumer centric.

I am worried that the industry’s most prominent trade groups are concentrating more on “warfare” against their rivals and less about the long-term future of the system.

I am worried that transformational change is all talk.

It’s time to start an adult conversation about the future of the system. The starting point: acknowledging that it’s not about bad people; it’s about systemic flaws in its design and functioning. Fixing it requires balancing lag indicators about its use, costs and demand with assumptions about innovations that hold promise to shift its trajectory long-term. It requires employers to actively participate: in 2009-2010, Big Business mistakenly chose to sit out deliberations about the Affordable Care Act. And it requires independent, visionary facilitation free from bias and input beyond the DC talking heads that have dominated reform thought leadership for 6 decades.

Or, collectively, we can watch events like last week’s roll by and witness the emergence of a large public utility serving most and a smaller private option for those that afford it. Or something worse.

P.S. Today, thousands will make the pilgrimage to Orlando for HIMSS24 kicking off with a keynote by Robert Garrett, CEO of Hackensack Meridian Health tomorrow about ‘transformational change’ and closing Friday with a keynote by Nick Saban, legendary Alabama football coach on leadership. In between, the meeting’s 24 premier supporters and hundreds of exhibitors will push their latest solutions to prospects and customers keenly aware healthcare’s future is not a repeat of its past primarily due to technology. Information-driven healthcare is dependent on technologies that enable cost-effective, customized evidence-based care that’s readily accessible to individuals where and when they want it and with whom.

And many will be anticipating HCA Mission Health’s (Asheville NC) Plan of Action response due to CMS this Wednesday addressing deficiencies in 6 areas including CMS Deficiency 482.12 “which ensures that hospitals have a responsible governing body overseeing critical aspects of patient care and medical staff appointments.” Interest is high outside the region as the nation’s largest investor-owned system was put in “immediate jeopardy” of losing its Medicare participation status last year at Mission. FYI: HCA reported operating income of $7.7 billion (11.8% operating margin) on revenues of $65 billion in 2023.

Walgreens’ VillageMD exits the Florida market

Posted on by • Posted in Cost Reduction, Disruption, Innovation, Investor Expectations, Operating Margin, Operating Metrics, Operating Performance, Patience, Primary Care, Private Equity, Walgreens, Walk-in Clinics • Leave a comment

https://mailchi.mp/f9bf1e547241/gist-weekly-february-23-2024?e=d1e747d2d8

Walgreens announced this week that it will be shutting down all of its Florida-based VillageMD primary care clinics. Fourteen clinics in the Sunshine State have already closed, with the remaining 38 expected to follow by March 15.

This move comes in the wake of a $1B cost-cutting initiative announced by Walgreens executives last fall, which included plans to shutter at least 60 VillageMD clinics across five markets in 2024.

Last month VillageMD exited the Indiana market, where it was operating a dozen clinics.

Despite downsizing its primary-care footprint, Walgreens says it remains committed to its expansion into the healthcare delivery sector, having invested $5.2B in VillageMD in 2021 and purchased Summit Health-CityMD for $9B through VillageMD in 2023. 

The Gist: Having made significant investments in provider assets, Walgreens now faces the difficult task of creating an integrated and sustainable healthcare delivery model, which takes time. 

Unlike long-established healthcare providers who feel more loyal to serving their local communities, nontraditional healthcare providers like Walgreens can more easily pick and choose markets based on profitability.

While this move is disruptive to VillageMD patients in Florida and the other markets it’s exiting, Walgreens seems to be answering to its investors, who have been dissatisfied with its recent earnings.

Cano Health files for bankruptcy

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https://mailchi.mp/1e28b32fc32e/gist-weekly-february-9-2024?e=d1e747d2d8

On Sunday, Miami, FL-based Cano Health, a Medicare Advantage (MA)-focused primary care clinic operator, filed for bankruptcy protection to reorganize and convert around $1B of secured debt into new debt.

The company, which went public in 2020 via a SPAC deal worth over $4B, has now been delisted from the New York Stock Exchange. After posting a $270M loss in Q2 of 2023, Cano began laying off employees, divesting assets, and seeking a buyer. As of Q3 2023, it managed the care of over 300K members, including nearly 200K in Medicare capitation arrangements, at its 126 medical centers. 

The Gist: 

Like Babylon Health before it, another “tech-enabled” member of the early-COVID healthcare SPAC wave is facing hard times. While the low interest rate-fueled trend of splashy public offerings was not limited to healthcare, several prominent primary care innovators and “insurtechs” from this wave have struggled, adding further evidence to the adages that healthcare is both hard and difficult to disrupt.

Given that Cano sold its senior-focused clinics in Texas and Nevada to Humana’s CenterWell last fall, Cano may draw interest from other organizations looking to expand their MA footprints.

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

Click to access 0f8248d1-e2b5-4b59-b9dc-6af2e3e969f4.pdf

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.

One System; Two Divergent Views

Posted on by • Posted in Cost Management, Cost Reduction, Cost Structure, Divergence, Health Policy, Health System, Hospital, Hospital Industry, Innovation, Innovative Care Models, Investing, Investment, Investments, Leadership Vision, Lobbyist, Pharmaceutical Industry, Pharmacy Benefits Management, Political Inaction, Politics, Private Equity, Regulation • Leave a comment
One System; Two Divergent Views

Healthcare is big business. That’s why JP Morgan Chase is hosting its 42nd Healthcare Conference in San Francisco starting today– the same week Congress reconvenes in DC with the business of healthcare on its agenda as well. The predispositions of the two toward the health industry could not be more different.

Context: the U.S. Health System in the Global Economy


Though the U.S. population is only 4% of the world total, our spending for healthcare products and services represents 45% of global healthcare market. Healthcare is 17.4% of U.S. GDP vs. an average of 9.6% for the economies in the 37 other high-income economies of the world. It is the U.S.’ biggest private employer (17.2 million) accounting for 24% of total U.S. job growth last year (BLS). And it’s a growth industry: annual health spending growth is forecast to exceed 4%/year for the foreseeable future and almost 5% globally—well above inflation and GDP growth. That’s why private investments in healthcare have averaged at least 15% of total private investing for 20+ years. That’s why the industry’s stability is central to the economy of the world.

The developed health systems of the world have much in common: each has three major sets of players:

  • Service Providers: organizations/entities that provide hands-on services to individuals in need (hospitals, physicians, long-term care facilities, public health programs/facilities, alternative health providers, clinics, et al). In developed systems of the world, 50-60% of spending is in these sectors.
  • Innovators: organizations/entities that develop products and services used by service providers to prevent/treat health problems: drug and device manufacturers, HIT, retail health, self-diagnostics, OTC products et al. In developed systems of the world, 20-30% is spend in these.
  • Administrators, Watchdogs & Regulators: Organizations that influence and establish regulations, oversee funding and adjudicate relationships between service providers and innovators that operate in their systems: elected officials including Congress, regulators, government agencies, trade groups, think tanks et al. In the developed systems of the world, administration, which includes insurance, involves 5-10% of its spending (though it is close to 20% in the U.S. system due to the fragmentation of our insurance programs).

In the developed systems of the world, including the U.S., the role individual consumers play is secondary to the roles health professionals play in diagnosing and treating health problems. Governments (provincial/federal) play bigger roles in budgeting and funding their systems and consumer out-of-pocket spending as a percentage of total health spending is higher than the U.S. All developed and developing health systems of the world include similar sectors and all vary in how their governments regulate interactions between them. All fund their systems through a combination of taxes and out-of-pocket payments by consumers. All depend on private capital to fund innovators and some service providers. And all are heavily regulated. 

In essence, that makes the U.S. system unique  are (1) the higher unit costs and prices for prescription drugs and specialty services, (2) higher administrative overhead costs, (3) higher prevalence of social health issues involving substance abuse, mental health, gun violence, obesity, et al (4) the lack of integration of our social services/public health and health delivery in communities and (5) lack of a central planning process linked to caps on spending, standardization of care based on evidence et al.

So, despite difference in structure and spending, developed systems of the world, like the U.S. look similar:

The Current Climate for the U.S. Health Industry


The global market for healthcare is attractive to investors and innovators; it is less attractive to most service providers since their business models are less scalable. Both innovator and service provider sectors require capital to expand and grow but their sources vary: innovators are primarily funded by private investors vs. service providers who depend more on public funding.  Both are impacted by the monetary policies, laws and political realities in the markets where they operate and both are pivoting to post-pandemic new normalcy. But the outlook of investors in the current climate is dramatically different than the predisposition of the U.S. Congress toward healthcare:

  • Healthcare innovators and their investors are cautiously optimistic about the future. The dramatic turnaround in the biotech market in 4Q last year coupled with investor enthusiasm for generative AI and weight loss drugs and lower interest rates for debt buoy optimism about prospects at home and abroad. The FDA approved 57 new drugs last year—the most since 2018. Big tech is partnering with established payers and providers to democratize science, enable self-care and increase therapeutic efficacy. That’s why innovators garner the lion’s share of attention at JPM. Their strategies are longer-term focused: affordability, generative AI, cost-reduction, alternative channels, self-care et al are central themes and the welcoming roles of disruptors hardwired in investment bets. That’s the JPM climate in San Franciso.
  • By contrast, service providers, especially the hospital and long-term care sectors, are worried. In DC, Congress is focused on low-hanging fruit where bipartisan support is strongest and political risks lowest i.e.: price transparency, funding cuts, waste reduction, consumer protections, heightened scrutiny of fraud and (thru the FTC and DOJ) constraints on horizontal consolidation to protect competition. And Congress’ efforts to rein in private equity investments to protect consumer choice wins votes and worries investors. Thus, strategies in most service provider sectors are defensive and transactional; longer-term bets are dependent on partnerships with private equity and corporate partners. That’s the crowd trying to change Congress’ mind about cuts and constraints.

The big question facing JPM attendees this week and in Congress over the next few months is the same: is the U.S. healthcare system status quo sustainable given the needs in other areas at home and abroad? 

Investors and organizations at JPM think the answer is no and are making bets with their money on “better, faster, cheaper” at home and abroad. Congress agrees, but the political risks associated with transformative changes at home are too many and too complex for their majority.

For healthcare investors and operators, the distance between San Fran and DC is further and more treacherous than the 2808 miles on the map. 

The JPM crowd sees a global healthcare future that welcomes change and needs capital; Congress sees a domestic money pit that’s too dicey to handle head-on–two views that are wildly divergent.

How Elevance Health plans to integrate ‘food as medicine’ across its lines of business

Posted on by • Posted in Elevance Health, Food as Form of Medicine, Food as Medicine Strategy, Health Insurance Industry, Innovation • Leave a comment
https://www.beckerspayer.com/leadership/how-elevance-health-plans-to-integrate-food-as-medicine-across-its-lines-of-business.html?origin=PayerE&utm_source=PayerE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

In June, Elevance Health named Kofi Essel, MD, as its first food as medicine program director, signaling a paradigm shift within one of the country’s largest healthcare organizations. 

Dr. Essel is a community pediatrician by training, having most recently worked at Children’s National Health System in Washington, D.C. Before that, he was the director of the culinary medicine program at George Washington University’s School of Medicine and Health Sciences. 

He sat down with Becker’s to discuss how Elevance is building a food as medicine strategy intended to eventually touch and improve the lives of its more than 47 million members nationwide.

Question: How do you define “food as medicine” as it relates to your role at Elevance Health?

Dr. Kofi Essel: The definition I’ve been leading around “food as medicine” are the strategies or interventions that work alongside healthcare and give access to high-quality foods, and a focus on prevention, management and treatment of disease. We also love to center this around health equity and thinking strongly about the importance of high-quality nutrition education as well.

Q: What’s your plan to integrate the “food as medicine” concept into Elevance Health’s insurance and other product offerings?

KE: We as a company strongly believe in the concept of whole health and really recognizing that the health of our members around the country is far more than what’s happening in the four walls of the clinical setting. We also believe that because we get great insight into the lives of our members in a variety of different settings, we are uniquely positioned to be able to respond to their whole health, including socioeconomic and behavioral health backgrounds. Food as medicine fits into this concept because we’re thinking about challenges around food and nutrition insecurity, and diet-related chronic diseases. This is a quite prevalent issue across the country, and we’re thinking about this through every line of business in Medicaid, commercial and Medicare. 

We’ve been doing a lot of work in this space as an organization, and our philanthropic arm has committed $30 million over a three-year period to authentic foods as medicine solutions. One of the grantees that we supported in their community based efforts has been Feeding America, the largest umbrella organization for the majority of food banks around the country. They’ve been doing some phenomenal work creating what we call food pharmacies, which team up with health clinics. We’ve seen them collect some unique data, so we’re really excited about what we expect to see from that partnership in particular. 

I will also say one of the big things that I’ve been working with our teams around is building our actual strategy. How are we going to incorporate this concept into every line of business? We are getting ready to roll out some pilots because the data is quite clear that these interventions are effective.

Q: Are there emerging trends or innovations in nutritional science that you think can enhance traditional health plans?

EF: The science around food as medicine is emerging and exciting and exists — and the data is quite clear that diet affects disease and health outcomes. There are a few different kinds of food as medicine interventions, such as medically tailored meals, medically tailored groceries and produce prescriptions.

There’s also strategies around using federal nutrition programs and other population or community-level policies and programs that we can lean into, including around quality nutrition education. I reviewed one recent study that looked at the power of produce prescription initiatives, which a lot of people have asked me, “What’s the point?” I point them to the data: One in 10 adults and children consume enough fruits and vegetables, meaning our consumption of fiber and other nutrients is quite low. 

When families are provided a produce prescription, we see significant changes in hemoglobin A1C, which is a marker for diabetes. We see significant changes in blood pressure and significant improvement in weight management and overall health outcomes. So the data that these interventions can work is a powerful reminder to keep this great work going.

Q: Why should every major healthcare organization employ someone in your role?

EF: When you look at professional guidelines for organizations addressing a variety of different diet-related chronic diseases, one of the first things you’re going to see as an intervention option for patients is using lifestyle components such as food as a priority.

Unfortunately, the reality is we as medical providers aren’t always given the training that’s necessary to be able to engage in these meaningful conversations with our patients and families. It’s important to have a paradigm shift in how we incorporate this priority topic into how we engage with members across the country. Having a food as medicine director, or prioritizing food as medicine within an organization, is a key element to improving the health of patients and members. 

Will health system M&A soar or dive?

Posted on by • Posted in Academic Medical Center, Acquisition, Collaboration, Critical Thinking, Divestitures, Health System, Hospital, Hospital Industry, Innovation, Joint Venture, Market Consolidation, Market Power, Market Share, Market Trends, Mergers & Acquisitions • Leave a comment
https://www.beckershospitalreview.com/finance/will-health-system-m-a-soar-or-dive.html?origin=CFOE&utm_source=CFOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

The health system deal market heated up in 2023.

Big, industry-shaking acquisitions including Oakland, Calif.-based Kaiser Permanente’s purchase of Danville, Pa.-based Geisinger, could redefine healthcare delivery with an eye toward value. Regional deals, such as Detroit-based Henry Ford Health’s planned joint venture with Ascension Michigan and St. Louis-based BJC HealthCare’s plan to acquire Saint Luke’s Health System to create a $10 billion organization, have also made waves.

There were 18 hospital and health system transactions announced in the third quarter, up from 10 transactions over the same time period in 2022, according to Kaufman Hall’s third quarter M&A report. Financial pressures with inflation catapulting staffing and supply costs, and reimbursement rates growing much more slowly, have forced some systems to look for a buyer while others aim to increase market share.

Academic health systems are also seeking community partners at a higher rate than in the past, according to the Kaufman Hall report.

But not all announced deals have gone according to plan.

The Federal Trade Commission is scrutinizing deals more closely than ever before to ensure costs don’t increase after an acquisition in some cases. In other cases, the two partners aren’t able to agree upon the details after announcing their plans. The dissolved merger between Sioux Falls, S.D.-based Sanford Health and Minneapolis-based Fairview Health Services fell apart amid contention in Minnesota, and West Des Moines, Iowa-based UnityPoint Health’s plans to merge with Presbyterian Healthcare Services in Albuquerque, N.M., was halted without a publicly stated reason.

Will there be more or fewer health system deals in the next three years?

Seth Ciabotti, CEO of MSU Health Care at Michigan State University in East Lansing, thinks so, at least when it comes to academic medical centers.

“There will be more consolidation to mitigate risk,” he told Becker’s. “I believe we are heading down a path of having only a dozen or so non-academic medical centers/health systems being left in the near future in the U.S.”

Mark Behl, president and CEO of NorthBay Health in Fairfield, Calif., has a similar outlook for the next three years.

“I suspect we will see more mergers and acquisitions with a continued desire to grow larger and remain relevant,” he told Becker’s. “Independent regional health systems will fight for relevance, and sometimes survival.”

And health systems won’t be the only buyers. Private equity, health insurers and non-traditional owners are on the hunt for health systems. General Catalyst has strengthened its healthcare presence recently and announced it plans to acquire a system in the near future.

“I believe that over the next three years, the landscape of acquisitions, divestitures and joint ventures will continue to reshape the healthcare industry,” said Dennis Sunderman, system director of HR M&A, non-employee and provider services at CommonSpirit Health, told Becker’s. “Current and proposed legislation, the continued evolution of ownership groups, nonprofit, for profit, and private equity, and the drive to hire and retain exceptionally talented teams, will lead to new innovations and an enhanced focus on the associates affected by the transaction.”

Health systems will need to optimize their operations to expand their value-based care efforts and digital transformation, including telehealth and remote patient monitoring services. Not all systems have the expertise and resources to fully make this transition, but with the right partners and strategic alignments, they can accelerate care transformation.

“There will likely be more collaborations and partnerships to expand services and increase access versus brick and mortar acquisitions,” said Cliff Megerian, MD, CEO of University Hospitals in Cleveland. “Innovative thinking is critical for success and quite frankly survival in our industry, so health systems should already be investing in growing in-house expertise dedicated to ideating new models of care, but in three years, these efforts should be producing tangible results.”

Michelle Fortune, BSN, CEO of Atrium St. Luke’s Hospital in Columbus, N.C., pointed to recent collaborations between Mercy, Microsoft and Mayo Clinic as examples of how health systems can partner on important initiatives such as improved data sharing, generative AI, digital transformation and more.

“I expect to see an increase in collaborations and connections between health systems to a degree that has never existed before as part of the focus on bringing the right care to people across the full continuum, when and where they need it,” she said.

Kaufman Hall sees more minority ownership deals ahead, which allows the smaller system to maintain near-autonomy while benefiting from the resources of a larger system.

“Health systems are also engaging in creative transaction structures that allow partners to maintain their independence while building strategic alliances that enhance access to care,” the report notes. “Announced transactions in Q3 included [Charlottesville, Va.-based] UVA Health’s acquisition of 5% ownership interest in [Newport News, Va.-based] Riverside Health System as part of a strategic alliance design ‘to expand patient access to innovative care for complex medical conditions, transplantation, and the latest clinical trials.'”

The AI-empowered patient is coming. Are doctors ready?

Posted on by • Posted in Artificial Intelligence, Artificial Intelligence Generative, ChatGPT, ChatGPT-4, Disruption, Disruptive Technology, Google’s Med-PaLM 2, Innovation, Physician • Leave a comment

https://www.linkedin.com/pulse/ai-empowered-patient-coming-doctors-ready-robert-pearl-m-d-/

Artificial intelligence (AI) has long been heralded as an emerging force in medicine. Since the early 2000s, promises of a technological transformation in healthcare have echoed through the halls of hospitals and at medical meetings.

But despite 20-plus years of hype, AI’s impact on medical practice and America’s health remains negligible (with minor exceptions in areas like radiological imaging and predictive analytics).

As such, it’s understandable that physicians and healthcare administrators are skeptical about the benefits that generative AI tools like ChatGPT will provide.

They shouldn’t be. This next generation of AI is unlike any technology that has come before. 

The launch of ChatGPT in late 2022 marked the dawn of a new era. This “large language model” developed by OpenAI first gained notoriety by helping users write better emails and term papers. Within months, a host of generative AI products sprang up from Google, Microsoft and Amazon and others. These tools are quickly becoming more than mere writing assistants.

In time, they will radically change healthcare, empower patients and redefine the doctor-patient relationship. To make sense of this bold vision for the future, this two-part article explores:

  1. The massive differences between generative AI and prior artificial intelligences
  2. How, for the first time in history, a technological innovation will democratize not just knowledge, but also clinical expertise, making medical prowess no longer the sole domain of healthcare professionals.

To understand why this time is different, it’s helpful to compare the limited power of the two earliest generations of AI against the near-limitless potential of the latest version.

Generation 1: Rules-Based Systems And The Dawn Of AI In Healthcare

The latter half of the 20th century ushered in the first generation of artificial intelligence, known as rule-based AI.

Programmed by computer engineers, this type of AI relies on a series of human-generated instructions (rules), enabling the technology to solve basic problems.

In many ways, the rule-based approach resembles a traditional medical-school pedagogy where medical students are taught hundreds of “algorithms” that help them translate a patient’s symptoms into a diagnosis.

These decision-making algorithms resemble a tree, beginning with a trunk (the patient’s chief complaint) and branching out from there. For example, if a patient complains of a severe cough, the doctor first assesses whether fever is present. If yes, the doctor moves to one set of questions and, if not, to a different set. Assuming the patient has been febrile (with fever), the next question is whether the patient’s sputum is normal or discolored. And once again, this leads to the next subdivision. Ultimately each end branch contains only a single diagnosis, which can range from bacterial, fungal or viral pneumonia to cancer, heart failure or a dozen other pulmonary diseases.

This first generation of AI could rapidly process data, sorting quickly through the entire branching tree. And in circumstances where the algorithm could accurately account for all possible outcomes, rule-based AI proved more efficient than doctors.

But patient problems are rarely so easy to analyze and categorize. Often, it’s difficult to separate one set of diseases from another at each branch point. As a result, this earliest form of AI wasn’t as accurate as doctors who combined medical science with their own intuition and experience. And because of its limitations, rule-based AI was rarely used in clinical practice.

Generation 2: Narrow AI And The Rise Of Specialized Systems

As the 21st century dawned, the second era of AI began. The introduction of neural networks, mimicking the human brain’s structure, paved the way for deep learning.

Narrow AI functioned very differently than its predecessors. Rather than researchers providing pre-defined rules, the second-gen system feasted on massive data sets, using them to discern patterns that the human mind, alone, could not.

In one example, researchers gave a narrow AI system thousands of mammograms, half showing malignant cancer and half benign. The model was able to quickly identify dozens of differences in the shape, density and shade of the radiological images, assigning impact factors to each that reflected the probability of malignancy. Importantly, this kind of AI wasn’t relying on heuristics (a few rules of thumb) the way humans do, but instead subtle variations between the malignant and normal exams that neither the radiologists nor software designers knew existed.

In contrast to rule-based AI, these narrow AI tools proved superior to the doctor’s intuition in terms of diagnostic accuracy. Still, narrow AI showed serious limitations. For one, each application is task specific. Meaning, a system trained to read mammograms can’t interpret brain scans or chest X-rays.

But the biggest limitation of narrow AI is that the system is only as good as the data it’s trained on. A glaring example of that weakness emerged when United Healthcare relied on narrow AI to identify its sickest patients and give them additional healthcare services.

In filtering through the data, researchers later discovered the AI had made a fatal assumption. Patients who received less medical care were categorized as healthier than patients who received more. In doing so, the AI failed to recognize that less treatment is not always the result of better health. This can also be the result of implicit human bias.

Indeed, when researchers went back and reviewed the outcomes, they found Black patients were being significantly undertreated and were, therefore, underrepresented in the group selected for additional medical services.

Media headlines proclaimed, “Healthcare algorithm has racial bias,” but it wasn’t the algorithm that had discriminated against Black patients. It was the result of physicians providing Black patients with insufficient and inequitable treatment. In other words, the problem was the humans, not narrow AI.

Generation 3: The Future Is Generative

Throughout history, humankind has produced a few innovations (printing press, internet, iPhone) that transformed society by democratizing knowledge—making information easier to access for everyone, not just the wealthy elite.

Now, generative AI is poised to go one step further, giving every individual access to not only knowledge but, more importantly, expertise as well.

Already, the latest AI tools allow users to create a stunning work of art in the style of Rembrandt without ever having taken a painting class. With large language models, people can record a hit song, even if they’ve never played a musical instrument. Individuals can write computer code, producing sophisticated websites and apps, despite never having enrolled in an IT course.

Future generations of generative AI will do the same in medicine, allowing people who never attended medical school to diagnose diseases and create a treatment plan as well as any clinician.

Already, one generative AI tool (Google’s Med-PaLM 2) passed the physician licensing exam with an expert level score. Another generative AI toolset responded to patient questions with advice that bested doctors in both accuracy and empathy. These tools can now write medical notes that are indistinguishable from the entries that physicians create and match residents’ ability to make complex diagnoses on difficult cases.

Granted, current versions require physician oversight and are nowhere close to replacing doctors. But at their present rate of exponential growth, these applications are expected to become at least 30 times more powerful in the next five years. As a result, they will soon empower patients in ways that were unimaginable even a year ago.

Unlike their predecessors, these models are pre-trained on datasets that encompass the near-totality of publicly available information—pulling from medical textbooks, journal articles, open-source platforms and the internet. In the not-distant future, these tools will be securely connected to electronic health records in hospitals, as well as to patient monitoring devices in the home. As generative AI feeds on this wealth of data, its clinical acumen will skyrocket.

Within the next five to 10 years, medical expertise will no longer be the sole domain of trained clinicians. Future generations of ChatGPT and its peers will put medical expertise in the hands of all Americans, radically altering the relationship between doctors and patients.

Whether physicians embrace this development or resist is uncertain. What is clear is the opportunity for improvement in American medicine. Today, an estimated 400,000 people die annually from misdiagnoses, 250,000 from medical errors, and 1.7 million from mostly preventable chronic diseases and their complications.

In the next article, I’ll offer a blueprint for Americans as they grapple to redefine the doctor-patient relationship in the context of generative AI. To reverse the healthcare failures of today, the future of medicine will have to belong to the empowered patient and the tech-savvy physician. The combination will prove vastly superior to either alone.

Health “insurtechs” struggling to stay relevant

Posted on by • Posted in Accountable Care Organization (ACO), Disruption, Disruptive Technology, Financial Viability, Financially Distressed, Health Insurance Industry, Initial Public Offering (IPO), Innovation, Insurtechs, Medical Loss Ratio (MLR), Medicare Advantage, Operating Expenses, Operating Income, Operating Margin, Operating Performance • Leave a comment

https://mailchi.mp/9fd97f114e7a/the-weekly-gist-october-6-2023?e=d1e747d2d8

“Insurtechs” Clover Health, Oscar Health, and Bright Health all went public in the midst of the hot equity market of 2021. Investors were excited by the fast growth of these health insurer startups, and their potential to revolutionize an industry dominated by a few large players.

However, the hype has dissipated as financial performance has deteriorated. After growing at all costs during a period of low interest rates, changing market conditions directed investors to demand a pivot to profitability, which the companies have struggled to deliver—two years later, none of the three has turned a profit. 

Oscar and Bright have cut back their market presence significantly, while Clover has mostly carried on while sustaining high losses. In the last two years, only Oscar has posted a medical loss ratio in line with other major payers, who meanwhile are reporting expectation-beating profits. While Oscar has shown signs of righting the ship since the appointment of former Aetna CEO Mark Bertolini, 

the future of these small insurers remains uncertain. As their losses mount and they exit markets, they may become less desirable as acquisition targets for large payers.

Cain Bros House Calls Kickstarting Innovation (Part 2)

Posted on by • Posted in Differentiation, Disruption, Disruptive Technology, Health System, Hospital, Hospital Industry, Innovation, Innovative Care Models, Payvider, Private Equity, Restructure, Return on Investment, Strategic Advantage, Strategic Alignment, Strategic Change, Strategic Leadership, Strategic Resource Allocation, Strategy and Transformation, Strategy Sustainable Long Term • Leave a comment
Cain Bros House Calls Kickstarting Innovation (Part 2)

This is Part 2 of a series by Cain Brothers about the first-ever collaboration conference between health systems and private equity (PE) investment firms. Part 1 of this series addressed the conference’s who, what and where. This commentary will focus on the why. We will explore the underlying forces uniting health systems with private equity during this period of unprecedented industry disruption.

Why Health Systems and PE Need Each Other

On June 13 and 14, 2023, Cain Brothers hosted the first-ever collaboration conference between health systems and private equity (PE) investment firms. Timing, market dynamics and opportunity aligned. The conference was an over-the-moon success. Along with its sponsors, Cain Brothers will seek to expand the conference and align initiatives through the coming years.

Why Now? Healthcare is Stuck and Needs Solutions

As a society, the U.S. is spending ever-higher amounts of money while its population is getting sicker. A maldistribution of facilities and practitioners creates inequitable access to healthcare services in lower-income communities with the highest levels of chronic disease.

New competitors and business models along with unfavorable macro forces, including high inflation, aging demographics and deteriorating payer mixes, are fundamentally challenging health systems’ status quo business practices.

Over the last 50 years, healthcare funding has shifted dramatically away from individuals and toward commercial and governmental payers. In 1970, individual out-of-pocket spending represented 36.5% of total healthcare spending. Today, it is just over 10%.

Governments, particularly the federal government, have become healthcare’s largest payers, funding over 40% of healthcare’s projected $4.7 trillion expenditure in 2023. Individual patients often get lost in the massive payment shuffle between payers and providers.

Meanwhile, governments’ pockets are emptying. As a percentage of GDP, U.S. government debt obligations have grown from 55% in 2001 to 124% currently. With rising interest rates and the commensurate increase in debt service costs, as well as an aging population, there is little to suggest that new funding sources will emerge to fund expansive healthcare expenditures. Scarcity reigns where resources for healthcare providers were once plentiful.

As a consequence, the healthcare industry is entering a period of more fundamental economic limitations. Delaying transformation and expecting society to fund ongoing excess expenditure is not a sustainable long-term strategy. Current economic realities are forcing a dramatic reallocation of resources within the healthcare industry.

The healthcare industry will need to do more with less. Pleading poverty will fall on deaf ears. There will be winners and losers. The nation’s acute care footprint will shrink. For these reasons, health systems are experiencing unprecedented levels of financial distress. Indeed, parts of the system appear on the verge of collapse, particularly in medically underserved rural and urban communities.

More of the same approaches will yield more of the same dismal results. Waking up to this existential challenge, enlightened health systems have become more open to new business models and collaborative partnerships.

Necessity Stimulates Innovation

Two disruptive and value-based business models are on the verge of achieving critical mass. They are risk-bearing “payvider” companies (e.g. Kaiser, Oak Street Health and others) and consumer-friendly, digital-savvy delivery platforms (e.g. OneMedical and innumerable point-solution companies).

Value-based care providers and their investors have the scars and bruises to show for challenging entrenched business practices reliant on fee-for-service (FFS) business models and administrative services only (ASO) contracting. Incumbents have protected their privileged market position well through market leverage and outsized political influence.

Despite market resistance, “payvider” and digital platform companies are emerging from the proverbial “innovators’ chasm.” More early adopters, including those health systems attending the Nashville conference, are embracing value-creating business models. The chart below illustrates the well-trodden path innovation takes to achieve market penetration.

Ironically, during this period of industry disruption, health systems understand they need to deliver greater value to customers to maintain market relevance. It will require great execution and overcoming legacy practices to develop business platforms that incorporate the following value-creating capabilities:

  • Decentralized care delivery (to make care more accessible and lower cost).
  • Root-cause treatment of chronic conditions.
  • Integrated physical and mental healthcare services.
  • Consistent, high-quality consumer experience.
  • Coordinated service delivery.
  • Standardized protocols that improve care quality and outcomes.
  • A truly patient/customer-centric operating orientation.

It’s not what to do, it’s how to get it done that creates the vexing conundrum. Solutions require collaboration. Platform business models replete with strategic partnerships are emerging. Paraphrasing an African proverb, it’s going to take a village to fix healthcare. That’s why the moment for health systems and PE firms to collaborate is now.

PE to the Rescue?

Private equity has become the dominant investment channel for business growth across industries and nations. According to a recent McKinsey report, PE has more than $11.7 trillion in assets under management globally. This is a massive number that has grown steadily. PE changes markets. It turbocharges productivity. It is a relentless force for value creation.

By investing in a wide spectrum of asset classes, private equity has become a vital source of investment returns for pensions, endowments, sovereign wealth funds and insurance companies. Healthcare, given its size and inefficiencies, is a target-rich environment for PE investment and returns. This explains the PE’s growing interest in working with health systems to develop mutually beneficial, value-creating healthcare enterprises.

Despite reports to the contrary, PE firms must invest for the long term. Unlike the stock market, where investors can buy and sell a stock within a matter of seconds, PE firms do not have that luxury. To generate a return, they must acquire and grow businesses over a period of years to create suitable exit strategies.

Money talks. By definition, all buyers of new companies value their purchase more than the capital required for the acquisition. In making purchase decisions, buyers evaluate businesses’ past performance. They also assess how the new business will perform under their stewardship. PE or PE-backed acquirers also consider which future buyers will be most likely acquire the company after a five-plus year development period.

PE’s investment approach can align well with health systems looking to create sustainable long-term businesses tied to their brands and market positioning. PE firms buy and build companies that attract customers, employees and capital over the long term, far beyond their typical five- to seven-year ownership period. Health systems that partner with PE firms to develop companies are the logical acquirers of those companies if they succeed in the marketplace. In this way, a rising valuation creates value for both health systems and their PE partners.

It is important to note that not all PE are created the same. Like health systems, PE firms differ in size, market orientation, investment theses, experience and partner expectations. Given this inherent diversity, it takes time, effort and a shared commitment to value creation for health systems and PE firms to determine whether to become strategic partners. Not all of these partnerships will succeed, but some will succeed spectacularly.

For health system-PE partnerships to work, the principals must align on strategic objectives, governance, performance targets and reporting guidelines. Trust, honest communication and clear expectations are the key ingredients that enable these partnerships to overcome short-term hurdles on the road to long-term success.

Conclusion: Time to Slay Healthcare’s Dragons

Market corrections are hard. As a nation, the U.S. has invested too heavily in hospital-centric, disease-centric, volume-centric healthcare delivery. The result is a fragmented, high-cost system that fails both consumers and caregivers. The marketplace is working to reallocate resources away from failing business practices and into value-creating enterprises that deliver better care outcomes at lower costs with much less friction.

Progressive health systems and PE firms share the goal of creating better healthcare for more Americans. Cain Brothers is committed to advancing collaboration between health systems and PE-backed companies. In addition to the Nashville conference, the firm has combined its historically separate corporate and non-profit coverage groups to foster idea exchange, expand sector understanding and deliver higher value to clients.

The ability to connect and collaborate effectively with private equity to advance business models will differentiate winning health systems. In a consolidating industry, this differentiation is a prerequisite for sustaining competitiveness. It’s adapt or die time. Health systems that proactively embrace transformation will control their future destiny. Those that fail to do so will lose market relevance.

The future of healthcare is not a zero-sum equation. Markets evolve by creating more complex win-win arrangements that create value for customers. No industry requires restructuring more than healthcare. As a nation and an industry, we have the capacity to fix America’s broken healthcare system. The real question is whether we have the collective will, creativity and resourcefulness to power the transformation. We believe the answer to that question is yes.

Paraphrasing Rev. Theodore Parker, the economic arc of the marketplace is long but it bends toward value. Together, health systems and PE firms can power value-creation and transformation more effectively than either sector can do independently. Each needs the other to succeed. Slaying healthcare’s dragons will not be easy but it is doable. It’s going to take a village to fix healthcare.