Doctors and health systems with a significant portion of risk-based contracts weathered the pandemic better than their peers still fully tethered to fee-for-service payment. Lower healthcare utilization translated into record profits, just as it did for insurers.
We’re now seeing an increasing number of health systems asking again whether they should enter the health plan business—levels of interest we haven’t seen since the “rush to risk” in the immediate aftermath of the passage of the Affordable Care Act a decade ago.
The discussions feel appreciably different this time around (which is a good thing, since many systems who launched plans in the prior wave had trouble growing and sustaining them). First, systems are approaching the market this time with a focus on Medicare Advantage, having seen that growing a base of covered lives with their networks is much easier than starting with the commercial market, where large insurers, particularly incumbent Blues plans, dominate the market, and many employers are still reticent to limit choice.
But foremost, there is new appreciation for the scale needed for a health plan to compete. In 2010, many executives set a goal of 100K covered lives as a target for sustainability; today, a plan with three times that number is considered small. Now many leaders posit that regional insurers need a plan to get to half a million lives, or more. (Somehow this doesn’t seem to hold for insurance startups: see the recent public offerings of Clover Health and Alignment Health, who have just 57K and 82K lives, respectively, nationwide.)
We’re watching for a coming wave of health system consolidation to gain the financial footing and geographic footprint needed to compete in the Medicare Advantage market, and would expect traditional payers to respond with regional consolidation of their own.
In their recent Health Affairs paper, Sungchul Park and coauthors examine rates of switching from Medicare Advantage (MA) to traditional Medicare by patient characteristics. MA plans are the private insurance alternative to traditional fee-for-service Medicare overseen by the Centers for Medicare and Medicaid Services. While enrollment in MA has doubled over the past decade, Park and coauthors find that the needs of certain enrollees are not being met by MA plans.
Park and coauthors report that rural enrollees switch from MA to traditional Medicare at an adjusted annual rate of 10.5 percent, significantly higher than metropolitan residents, who switch at a rate of 5.0 percent.
This phenomenon was more pronounced among those who required the use of costly services such as facility stays or hospitalizations, those who had poor self-reported health, and individuals who reported lower satisfaction with their access to care.
This week Brookdale Senior Living, the nation’s largest operator of senior housing, with 726 communities across 43 states and annual revenues of about $3B, announced the sale of 80 percent of its hospice and home-based care division to hospital operator HCA Healthcare for $400M. The transaction gives HCA control of Brookdale’s 57 home health agencies, 22 hospice agencies, and 84 outpatient therapy locations across a 26-state footprint, marking its entry into new lines of business, and allowing it to expand revenue streams by continuing to treat patients post-discharge, in home-based settings.
Like other senior living providers, Brookdale has struggled economically during the COVID pandemic; its home and hospice care division, which serves 17,000 patients, saw revenue drop more than 16 percent last year. HCA, meanwhile, has recovered quickly from the COVID downturn, and has signaled its intention to focus on continued growth by acquisition across 2021.
In separate news, Optum, the services division of insurance giant UnitedHealth Group, was reported to have struck a deal to acquire Landmark Health, a fast-growing home care company whose services are aimed at Medicare Advantage-enrolled, frail elderly patients. Landmark, founded in 2014, also participates in Medicare’s Direct Contracting program.
The transaction is reportedly valued at $3.5B, although neither party would confirm or comment on the deal. The acquisition would greatlyexpand Optum’s home-based care delivery services, which today include physician home visits through its HouseCalls program, and remote monitoring through its Vivify Health unit.
The Brookdale and Landmark deals, along with earlier acquisitions by Humana and others, indicate that the home-based care space is heating up significantly,reflecting a broader shift in the nexus of care to patients’ homes—a growing preference among consumers spooked by the COVID pandemic.
Along with telemedicine, home-based care may represent a new front in the tug-of-war between providers and payers for the loyalty of increasingly empowered healthcare consumers.
The complexity of Medicare Advantage (MA) physician networks has been well-documented, but the payment regulations that underlie these plans remain opaque, even to experts. If an MA plan enrollee sees an out-of-network doctor, how much should she expect to pay?
The answer, like much of the American healthcare system, is complicated. We’ve consulted experts and scoured nearly inscrutable government documents to try to find it. In this post we try to explain what we’ve learned in a much more accessible way.
Medicare Advantage Basics
Medicare Advantage is the private insurance alternative to traditional Medicare (TM), comprised largely of HMO and PPO options. One-third of the 60+ million Americans covered by Medicare are enrolled in MA plans. These plans, subsidized by the government, are governed by Medicare rules, but, within certain limits, are able to set their own premiums, deductibles, and service payment schedules each year.
Critically, they also determine their own network extent, choosing which physicians are in- or out-of-network. Apart from cost sharing or deductibles, the cost of care from providers that are in-network is covered by the plan. However, if an enrollee seeks care from a provider who is outside of their plan’s network, what the cost is and who bears it is much more complex.
To understand the MA (and enrollee) payment-to-provider pipeline, we first need to understand the types of providers that exist within the Medicare system.
Participating providers, which constitute about 97% of all physicians in the U.S., accept Medicare Fee-For-Service (FFS) rates for full payment of their services. These are the rates paid by TM. These doctors are subject to the fee schedules and regulations established by Medicare and MA plans.
Non-participating providers(about 2% of practicing physicians) can accept FFS Medicare rates for full payment if they wish (a.k.a., “take assignment”), but they generally don’t do so. When they don’t take assignment on a particular case, these providers are not limited to charging FFS rates.
Opt-out providersdon’t accept Medicare FFS payment under any circumstances. These providers, constituting only 1% of practicing physicians, can set their own charges for services and require payment directly from the patient. (Many psychiatrists fall into this category: they make up 42% of all opt-out providers. This is particularly concerning in light of studies suggesting increased rates of anxiety and depression among adults as a result of the COVID-19 pandemic).
How Out-of-Network Doctors are Paid
So, if an MA beneficiary goes to see an out-of-network doctor, by whom does the doctor get paid and how much? At the most basic level, when a Medicare Advantage HMO member willingly seeks care from an out-of-network provider, the member assumes full liability for payment.That is, neither the HMO plan nor TM will pay for services when an MA member goes out-of-network.
The price that the provider can charge for these services, though, varies, and must be disclosed to the patient before any services are administered. If the provider is participating with Medicare (in the sense defined above), they charge the patient no more than the standard Medicare FFS rate for their services. Non-participating providers that do not take assignment on the claim are limited to charging the beneficiary 115% of the Medicare FFS amount, the “limiting charge.” (Some states further restrict this. In New York State, for instance, the maximum is 105% of Medicare FFS payment.) In these cases, the provider charges the patient directly, and they are responsible for the entire amount (See Figure 1.)
Alternatively, if the provider has opted-out of Medicare, there are no limits to what they can charge for their services.The provider and patient enter into a private contract; the patient agrees to pay the full amount, out of pocket, for all services.
MA PPO plans operate slightly differently. By nature of the PPO plan, there are built-in benefits covering visits to out-of-network physicians (usually at the expense of higher annual deductibles and co-insurance compared to HMO plans). Like with HMO enrollees, an out-of-network Medicare-participating physician will charge the PPO enrollee no more than the standard FFS rate for their services. The PPO plan will then reimburse the enrollee 100% of this rate, less coinsurance. (SeeFigure 2.)
In contrast, a non-participating physician that does not take assignment is limited to charging a PPO enrollee 115% of the Medicare FFS amount, which can be further limited by state regulations. In this case, the PPO enrollee is also reimbursed by their plan up to 100% (less coinsurance) of the FFS amount for their visit. Again, opt-out physicians are exempt from these regulations and must enter private contracts with patients.
There are two major caveats to these payment schemes (with many more nuanced and less-frequent exceptions detailed here). First, if a beneficiary seeks urgent or emergent care (as defined by Medicare) and the provider happens to be out-of-network for the MA plan (regardless of HMO/PPO status), the plan must cover the services at their established in-network emergency services rates.
The second caveat is in regard to the declared public health emergency due to COVID-19 (set to expire in April 2021, but likely to be extended). MA plans are currently required to cover all out-of-network services from providers that contract with Medicare (i.e., all but opt-out providers) and charge beneficiaries no more than the plan-established in-network rates for these services. This is being mandated by CMS to compensate for practice closures and other difficulties of finding in-network care as a result of the pandemic.
Outside of the pandemic and emergency situations, knowing how much you’ll need to pay for out-of-network services as a MA enrollee depends on a multitude of factors. Though the vast majority of American physicians contract with Medicare, the intersection of insurer-engineered physician networks and the complex MA payment system could lead to significant unexpected costs to the patient.
Humana, the nation’s second-largest Medicare Advantage (MA) insurer, is pushing further into home-based care, partnering with Denver-based startup DispatchHealthto offer its members—especially those with conditions like heart failure, chronic obstructive pulmonary disease, and chronic cellulitis—access tohospital-level care at home.
The service will initially be available in the Denver and Tacoma, WA markets, with plans to expand to Arizona, Nevada, and Texas across 2021. Humana members who meet hospital admission criteria will receive daily home visits from an on-call, dedicated DispatchHealth medical team, as well as 24/7 physician coverage enabled by remote monitoring and an emergency call button.
DispatchHealth will also coordinate other patient care and wraparound services in the home as needed, including pharmacy, imaging, physical therapy, durable medical equipment, and meal delivery. Dispatch’s earlier offerings centered around home-based, on-demand urgent and emergency care services, now available in at least 29 cities nationwide.
Humana’s partnership with DispatchHealth could deliver a full care continuum of home-based services to its Medicare Advantage enrollees and has the potential to displace hospitals from at least a portion of acute care services.
Post-COVID, it’s becoming increasingly clear that the nexus of care delivery has shifted even more rapidly to consumers’ homes—and traditional providers will need to rethink service strategies accordingly.
As the oft-cited 10,000 Baby Boomers continue to age into Medicare each day, Medicare Advantage (MA) enrollment keeps accelerating. The graphic above highlights growth in the MA ranks across the last decade, showing that enrollment has more than doubled since 2010. By the end of this year, an estimated 42 percent of Medicare beneficiaries will get their benefits through a private health insurer.
While seniors like MA plans for the growing number of supplemental benefits they can offer—which now include adult day care services, home-based palliative care, and in-home support services—health insurers are gravitating to these plans due to their attractive economics.
Health insurers’ average gross margin per member, per month (PMPM) for MA plans is significantly higher than in individual or group market plans, a spread that increased in 2020 due to reduced utilization. PMPM margins for MA plans were up an average of 35 percent through September 2020 compared to 2019.
Payers have been blanketing the market with plan options in recent years;the number of MA plans offered has increased 49 percent since 2017, although the MA market is increasingly concentrated. In spite of numerous headlines about venture-backed startups like Oscar, Bright Health Plan, and Devoted Health posting double- or triple-digit growth numbers, the MA market is still dominated by UnitedHealthcare and Humana, which together account for 44 percent of all MA enrollees nationwide.
When COVID-19 first swarmed the United States, one health insurer called some customers with a question: Do you have enough to eat?
Oscar Health wanted to know if people had adequate food for the next couple weeks and how they planned to stay stocked up while hunkering down at home.
“We’ve seen time and again, the lack of good and nutritional food causes members to get readmitted” to hospitals, Oscar executive Ananth Lalithakumar said.
Food has become a bigger focus for health insurers as they look to expand their coverage beyond just the care that happens in a doctor’s office. More plans are paying for temporary meal deliveries and some are teaching people how to cook and eat healthier foods.
Benefits experts say insurers and policymakers are growing used to treating food as a form of medicine that can help patients reduce blood sugar or blood pressure levels and stay out of expensive hospitals.
“People are finally getting comfortable with the idea that everybody saves money when you prevent certain things from happening or somebody’s condition from worsening,” said Andrew Shea, a senior vice president with the online insurance broker eHealth.
This push is still relatively small and happening mostly with government-funded programs like Medicaid or Medicare Advantage, the privately run versions of the government’s health program for people who are 65 or older or have disabilities. But some employers that offer coverage to their workers also are growing interested.
Medicaid programs in several states are testing or developing food coverage. Next year, Medicare will start testing meal program vouchers for patients with malnutrition as part of a broader look at improving care and reducing costs.
Nearly 7 million people were enrolled last year in a Medicare Advantage plan that offered some sort of meal benefit, according to research from the consulting firm Avalere Health. That’s more than double the total from 2018.
Insurers commonly cover temporary meal deliveries so patients have something to eat when they return from the hospital. And for several years now, many also have paid for meals tailored to patients with conditions such as diabetes.
But now insurers and other bill payers are taking a more nuanced approach. This comes as the coronavirus pandemic sends millions of Americans to seek help from food banks or neighborhood food pantries.
Oscar Health, for instance, found that nearly 3 out of 10 of its Medicare Advantage customers had food supply problems at the start of the pandemic, so it arranged temporary grocery deliveries from a local store at no cost to the recipient.
The Medicare Advantage specialist Humana started giving some customers with low incomes debit cards with either a $25 or $50 on them to help buy healthy food. The insurer also is testing meal deliveries in the second half of the month.
That’s when money from government food programs can run low. Research shows that diabetes patients wind up making more emergency room visits then, said Humana executive Dr. Andrew Renda.
“It may be because they’re still taking their medications but they don’t have enough food. And so their blood sugar goes crazy and then they end up in the hospital,” he said.
The Blue Cross-Blue Shield insurer Anthem connected Medicare Advantage customer Kim Bischoff with a nutritionist after she asked for help losing weight.
The 43-year-old Napoleon, Ohio, resident had lost more than 100 pounds about 11 years ago, but she was gaining weight again and growing frustrated.
The nutritionist helped wean Bischoff from a so-called keto diet largely centered on meats and cheeses. The insurer also arranged for temporary food deliveries from a nearby Kroger so she could try healthy foods like rice noodles, almonds and dried fruits.
Bischoff said she only lost a few pounds. But she was able to stop taking blood pressure and thyroid medications because her health improved after she balanced her diet.
“I learned that a little bit of weight gain isn’t a huge deal, but the quality of my health is,” she said.
David Berwick of Somerville, Massachusetts, credits a meal delivery program with improving his blood sugar, and he wishes he could stay on it. The 64-year-old has diabetes and started the program last year at the suggestion of his doctor. The Medicaid program MassHealth covered it.
Berwick said the nonprofit Community Servings gave him weekly deliveries of dry cereal and premade meals for him to reheat. Those included soups and turkey meatloaf Berwick described as “absolutely delicious.”
“They’re not things I would make on my own for sure,” he said. “It was a gift, it was a real privilege.”
These programs typically last a few weeks or months and often focus on customers with a medical condition or low incomes who have a hard time getting nutritious food. But they aren’t limited to those groups.
Indianapolis-based Preventia Group is starting food deliveries for some employers that want to improve the eating habits of people covered under their health plans. People who sign up start working with a health coach to learn about nutrition.
Then they can either begin short-term deliveries of meals or bulk boxes of food and recipes to try. The employer picks up the cost.
It’s not just about hunger or a lack of good food, said Chief Operating Officer Susan Rider. They’re also educating people about what healthy, nutritious food is and how to prepare it.
Researchers expect coverage of food as a form of medicine to grow as insurers and employers learn more about which programs work best. Patients with low incomes may need help first with getting access to nutritional food. People with employer-sponsored coverage might need to focus more on how to use their diet to manage diabetes or improve their overall health.
A 2019 study of Massachusetts residents with similar medical conditions found that those who received meals tailored to their condition had fewer hospital admissions and generated less health care spending than those who did not.
Study author Dr. Seth Berkowitz of the University of North Carolina noted that those meals are only one method for addressing food or nutrition problems. He said a lot more can be learned “about what interventions work, in what situations and for whom.”
A lack of healthy food “is very clearly associated with poor health, so we know we need to do something about it,” Berkowitz said.
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.
President-elect Joe Biden’s healthcare agenda: building on the ACA, value-based care, and bringing down drug prices.
In many ways, Joe Biden is promising a return to the Obama administration’s approach to healthcare:
Building on the Affordable Care Act (ACA) through incremental expansions in government-subsidized coverage
Continuing CMS’ progress toward value-based care
Bringing down drug prices
Supporting modernization of the FDA
Bolder ideas, such as developing a public option, resolving “surprise billing,” allowing for negotiation of drug prices by Medicare, handing power to a third party to help set prices for some life sciences products, and raising the corporate tax rate, could be more challenging to achieve without overwhelming majorities in both the House and the Senate.
Biden is likely to mount an intensified federal response to the COVID-19 pandemic, enlisting the Defense Production Act to compel companies to produce large quantities of tests and personal protective equipment as well as supporting ongoing deregulation around telehealth. The Biden administration also will likely return to global partnerships and groups such as the World Health Organization, especially in the area of vaccine development, production and distribution.
What can health industry executives expect from Biden’s healthcare proposals?
Broadly, healthcare executives can expect an administration with an expansionary agenda, looking to patch gaps in coverage for Americans, scrutinize proposed healthcare mergers and acquisitions more aggressively and use more of the government’s power to address the pandemic. Executives also can expect, in the event the ACA is struck down, moves by the Biden administration and Democratic lawmakers to develop a replacement. Healthcare executives should scenario plan for this unlikely yet potentially highly disruptive event, and plan for an administration marked by more certainty and continuity with the Obama years.
All healthcare organizations should prepare for the possibility that millions more Americans could gain insurance under Biden. His proposals, if enacted, would mean coverage for 97% of Americans, according to his campaign website. This could mean millions of new ACA customers for payers selling plans on the exchanges, millions of new Medicaid beneficiaries for managed care organizations, millions of newly insured patients for providers, and millions of covered customers for pharmaceutical and life sciences companies. The surge in insured consumers could mirror the swift uptake in the years following the passage of the ACA.
Biden’s plan to address the COVID-19 pandemic
Biden is expected to draw on his experience from H1N1 and the Ebola outbreaks to address the COVID-19 pandemic with a more active role for the federal government, which many Americans support. These actions could shore up the nation’s response in which the federal government largely served in a support role to local, state and private efforts.
Three notable exceptions have been the substantial federal funding for development of vaccines against the SARS-CoV-2 virus, Congress’ aid packages and the rapid deregulatory actions taken by the FDA and CMS to clear a path for medical products to be enlisted for the pandemic and for providers, in particular, to be able to respond to it.
Implications of Biden’s 2020 health agenda on healthcare payers, providers and pharmaceutical and life sciences companies
The US health system has been slowly transforming for years into a New Health Economy that is more consumer-oriented, digital, virtual, open to new players from outside the industry and focused on wellness and prevention. The COVID-19 pandemic has accelerated some of those trends. Once the dust from the election settles, companies that have invested in capabilities for growth and are moving forcefully toward the New Health Economy stand to gain disproportionately.
Shortages of clinicians and foreign medical students may continue to be an issue for a while
The Trump administration made limiting the flow of immigrants to the US a priority. The associated policy changes have the potential to exacerbate shortages of physicians, nurses and other healthcare workers, including medical students. These consequences have been aggravated by the pandemic, which dramatically curtailed travel into the US.
Healthcare organizations, especially rural ones heavily dependent on foreign-born employees, may find themselves competing fiercely for workers, paying higher salaries and having to rethink the structure of their workforces.
Providers should consider reengineering primary care teams to reflect the patients’ health status and preferences, along with the realities of the workforce on the ground and new opportunities in remote care.
Focus on modernizing the supply chain
Biden and lawmakers from both parties have been raising questions about life sciences’ supply chains. This focus has only intensified because of the pandemic and resulting shortages of personal protective equipment (PPE), pharmaceuticals, diagnostic tests and other medical products.
Investment in advanced analytics and cybersecurity could allow manufacturers to avoid disruptive stockouts and shortages, and deliver on the promise of the right treatment to the right patient at the right time in the right place.
Drug pricing needs a long-term strategy
Presidents and lawmakers have been talking about drug prices for decades; few truly meaningful actions have been implemented. Biden has made drug pricing reform a priority.
Drug manufacturers may need to start looking past the next quarter to create a new pricing strategy that maximizes access in local markets through the use of data and analytics to engage in more value-based pricing arrangements.
New financing models may help patients get access to drugs, such as subscription models that provide unlimited access to a therapy at a flat rate.
Companies that prepare now to establish performance metrics and data analytics tools to track patient outcomes will be well prepared to offer payers more sustainable payment models, such as mortgage or payment over time contracts, avoiding the sticker shock that comes with these treatments and improving uptake at launch.
Pharmaceutical and life sciences companies will likely have to continue to offer tools for consumers like co-pay calculators and use the contracting process where possible to minimize out-of-pocket costs, which can improve adherence rates and health outcomes.
View interoperability as an opportunity to embrace, not a threat to avoid or ignore
While the pandemic delayed many of the federal interoperability rule deadlines, payers and providers should use the extra time to plan strategically for an interoperable future.
Payers should review business partnerships in this new regulatory environment.
Digital health companies and new entrants may help organizations take advantage of the opportunities that achieving interoperability may present.
Companies should consider the legal risks and take steps to protect their reputations and relationships with customers by thinking through issues of consent and data privacy.
Health organizations should review their policies and consider whether they offer protections for customers under the new processes and what data security risks may emerge. They should also consider whether business associate agreements are due in more situations.
Plan for revitalized ACA exchanges and a booming Medicare Advantage market
The pandemic has thrown millions out of work, generating many new customers for ACA plans just as the incoming Biden administration plans to enrich subsidies, making more generous plans within reach of more Americans.
Payers in this market should consider how and where to expand their membership and appeal to those newly eligible for Medicare. Payers not in this market should consider partnerships or acquisitions as a quick way to enter the market, with the creation of a new Medicare Advantage plan as a slower but possibly less capital-intensive entry into this market.
Payers and health systems should use this opportunity to design more tailored plan options and consumer experiences to enhance margins and improve health outcomes.
Payers with cash from deferred care and low utilization due to the pandemic could turn to vertical integration with providers as a means of investing that cash in a manner that helps struggling providers in the short term while positioning payers to improve care and reduce its cost in the long term.
Under the Trump administration, the FDA has approved historic numbers of generic drugs, with the aim of making more affordable pharmaceuticals available to consumers. Despite increased FDA generics approvals, generics dispensed remain high but flat, according to HRI analysis of FDA data.
Pharmaceutical company stocks, on average, have climbed under the Trump administration, with a few notable dips due to presidential speeches criticizing the industry and the pandemic.
Providers have faced some revenue cuts, particularly in the 340B program, and many entered the pandemic in a relatively weak liquidity position. The pandemic has led to layoffs, pay cuts and even closures. HRI expects consolidation as the pandemic continues to curb the flow of patients seeking care in emergency departments, orthopedic surgeons’ offices, dermatology suites and more.
Lawmakers and politicians often use bold language, and propose bold solutions to problems, but the government and the industry itself resists sudden, dramatic change, even in the face of sudden, dramatic events such as a global pandemic. One notable exception to this would be a decision by the US Supreme Court to strike down the ACA, an event that would generate a great deal of uncertainty and disruption for Americans, the US health industry and employers.