Category Archives: Physician Practice Valuation

Searching for new hope in primary care

Posted on by • Posted in Consumer Centered Medical Home, Consumer Experience, Consumer Loyalty, Consumer-Centric, Consumerism, Physician, Physician Acquisition, Physician Burnout, Physician Coverage, Physician Leadership, Physician Network, Physician Practice Valuation, Physician Shortage, Physician Specialist, Physician Staffing, Primary Care, Primary Care Loyalty, Primary Care Strategy • Leave a comment

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A physician who has led the primary care enterprise for a large health system for over twenty years told us he’s never seen physician morale as low as it is now:

“Burnout is bad across the board for all specialties, but I’m having a really hard time finding the bright spots for primary care”.

We recalled a recent survey of primary care physicians that confirmed his observations, with 61 percent of doctors stating that primary care is “crumbling”. But it struck us that we’ve been seeing these kinds of dire surveys about the state of primary care for the entire quarter-century we’ve been doing this work.

What’s different now?


He posited one critical change. Ten years ago, during the heyday of accountable care, primary care was central to health system strategy. Systems were devoting resources to converting practices to patient-centered medical homes. “We felt like primary care was at the heart of transforming health systems, and that we were finally getting resources to help patients,” he shared.

“Now it feels like the health system has moved away from ‘value’, the focus is all on specialists and growing procedure volume again, and we’re being treated as a cost center and told to cut staff and up our referral targets.”

We agree. Although large independent primary care groups continue to command record valuations, overall, the transition to value has slowed, and work burden has increased given staffing shortages.

Where could optimism come from now?

We both agreed that workflow innovations to ease documentation burden and help the transition to virtual care appear closer to reality than ever before.

And the increased focus on “consumerism” has many systems recognizing that primary care is the first—and principal—touchpoint for most patients and will be key to winning consumer loyalty.

What’s driving the bidding war for primary care practices?

Posted on by • Posted in Center for Medicare and Medicaid Services (CMS), Health Policy, Market Consolidation, Market Power, Medicare Advantage, Mergers & Acquisitions, Outcomes, Physician Practice Acquisition, Physician Practice Valuation, Primary Care, Quality of Care, Value-Based Contracting, Value-Based Healthcare • Leave a comment

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Published in the April edition of Health Affairs Forefront, this piece unpacks why payers and other corporations have replaced health systems as the top bidders for primary care practices, driving up practice purchase prices from hundreds of dollars to tens of thousands of dollars per patient. While corporate players like UnitedHealth Group, Amazon, and Walgreens have spent an estimated $50B on primary care, it pales in comparison to the potential “$1T opportunity” in value-based care projected by McKinsey and Company.

The authors argue that this tantalizing opportunity exists because the Centers for Medicare and Medicaid Services (CMS) invited corporations to “re-insure” Medicare through capitated arrangements in Medicare Advantage (MA) and its Direct Contracting program.

While CMS intended to promote risk and value-based incentives to improve care quality and costs, the incentive structures baked into these programs have afforded payers record profits, despite neither improving patient outcomes nor reducing government healthcare spending.

The Gist: While the critiques of MA reimbursement structures in this piece are familiar, they are woven together into a convincing rebuke of the “unintended consequences” of CMS’s value-based care policy. 

Through poorly designing incentives, CMS paved a runway for corporate America to capture the lion’s share of the financial returns of value-based care, paying prices for primary care that health systems can’t match.

Meanwhile, despite skyrocketing valuations for primary care practices, primary care services remain underfunded and inadequately reimbursed, pushing primary care groups closer to payers with excess profits to invest.

Which physician specialties are most targeted for corporate roll-ups?  

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In the last edition of the Weekly Gist, we illustrated how non-hospital physician employment spiked during the pandemic. Diving deeper into the same report from consulting firm Avalere Health and the nonprofit Physicians Advocacy Institute, the graphic above looks at the specialties that currently have the greatest number of physicians employed by hospitals and corporate entities (which include insurers, private equity, and non-provider umbrella organizations), and those that remain the most independent.


To date, there has been little overlap in the fields most heavily targeted for employment by hospitals and corporate entities. Hospitals have largely employed doctors critical for key service lines, like cancer and cardiology, as well as hospitalists and other doctors central to day-to-day hospital operations.

In contrast, corporate entities have made the greatest strides in specialties with lucrative outpatient procedural business, like nephrology (dialysis) and orthopedics (ambulatory surgery), as well as specialties like allergy-immunology, that can bring profitable pharmaceutical revenue.

Meanwhile, only a few specialties remain majority independent. Historically independent fields like psychiatry and oral surgery saw the number of independent practitioners fall over 25 percent during the pandemic.

While hospitals will remain the dominant physician employer in the near term, corporate employment is growing unabated, as payers and investors, unrestrained by fair market value requirements, can offer top dollar prices to practices. 

Private equity as an enabler of Boomer doctor retirements

Posted on by • Posted in Health System, Hospital, Hospital Industry, Physician, Physician Compensation, Physician Employment, Physician Exit Strategy, Physician Independence, Physician Practice Acquisition, Physician Practice Management, Physician Practice Valuation, Physician Retirement, Physician Staffing, Private Equity, Strategy, Talent Identification, Talent Imperative, Talent Management • Leave a comment

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How Much Money Does a Doctor Need to Retire? — Finity Group, LLC

There’s been a lot of hand wringing over the ongoing feeding frenzy among private equity (PE) firms for physician practice acquisition, which has caused health system executives everywhere to worry about the displacement effect on physician engagement strategies (not to mention the inflationary impact on practice valuations).

While we’ve long believed that PE firms are not long-term owners of practices, instead playing a roll-up function that will ultimately end in broader aggregation by vertically-integrated insurance companies, a recent conversation with one system CEO reframed the phenomenon in a way we hadn’t thought of before. It’s all about a demographic shift, she argued.

There’s a generation of Boomer-aged doctors who followed their entrepreneurial calling and started their own practices, and are now nearing retirement age without an obvious path to exit the business. Many didn’t plan for retirement—rather than a 401(k), what they have is equity in the practice they built.

What the PE industry is doing now is basically helping those docs transition out of practice by monetizing their next ten years of income in the form of a lump-sum cash payout. You could have predicted this phenomenon decades ago.

The real question is what happens to the younger generations of doctors left behind, who have another 20 or 30 years of practice ahead of them? Will they want to work in a PE-owned (or insurer-owned) setting, or would they prefer health system employment—or something else entirely?

The answer to that question will determine the shape of physician practice for decades to come…at least until the Millennials start pondering their own retirement.

Physician employment continues to gather pace

Posted on by • Posted in Health System, Hospital, Hospital Employed Physicians, Hospital Industry, Physician Employment, Physician Independence, Physician Practice Acquisition, Physician Practice Management, Physician Practice Valuation, Private Equity, Strategy • Leave a comment

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The number of independent physician practices continued to decline nationwide as health systems, payers, and investors accelerated their physician acquisition and employment strategies during the pandemic.

The graphic above highlights recent analysis from consulting firm Avalere Health and the nonprofit Physicians Advocacy Institute, finding that nearly half of physician practices are now owned by hospital or corporate entities, meaning insurers, disruptors, or other investor-owned companies.

This increase has been driven mainly by a surge in the number of corporate-owned practices, which has grown over 50 percent across the last two years. (Researchers said they were unable to accurately break down corporate employers more specifically, and that the study likely undercounts the number of practices owned by private equity firms, given the lack of transparency in that segment.) 

It’s no surprise that we’re seeing an uptick in physician employment, as about a quarter of physicians surveyed a year ago claimed COVID was making them more likely to sell or partner with other entities, and last year saw independent physicians’ average salary falling below that of hospital-employed physicians. 

We expect the move away from private practice will continue throughout this year and beyond, as physicians seek financial stability and access to capital for necessary investments to remain competitive. 

Optum expects to acquire 10,000 more doctors in 2021

Posted on by • Posted in Antitrust, Consumer Loyalty, Consumer Trust, Consumerism, Disruption, Disruptive Technology, Health Insurance Industry, Market Consolidation, Market Outlook, Market Power, Market Share, Market Trends, Mergers & Acquisitions, Physician, Physician Practice Management, Physician Practice Valuation, Strategy • Leave a comment

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Physician practice consolidation: It's only just begun - STAT

UnitedHealth Group, both the nation’s largest health insurer and largest employer of physicians, just announced plans to continue to rapidly grow the number of physicians in its Optum division.

This week CEO Dave Wichmann told investors in the company’s fourth quarter earnings call that Optum entered 2021 with over 50,000 employed or affiliated physicians, and expects to add at least 10,000 more across the year. (For context, HCA Healthcare, the largest for-profit US health system, employs or affiliates with roughly 46,000 physicians, and Kaiser Permanente employs about 23,300.) Optum is already making progress toward its ambitious goal with the announcement last week that the company is in talks to acquire Atrius Health, a 715-physician practice in the Boston area.
 
As was the case with other health plans, United’s health insurance business took an expected hit last quarter due to increased costs from COVID testing and treatment, combined with rebounding healthcare utilization. Optum, however, saw revenue up over 20 percent, which drove much of the company’s overall fourth quarter growth. 

Expect United, and other large insurers, flush with record profits from last year, to continue to expand their portfolio of care, digital and analytics assets (see also Optum’s recently announced plan to acquire Change Healthcare for $13B) as they looks to grow integrated insurance and care delivery offerings.

It’s part of what we expect to be a 2021 “land grab” for strategic advantage in healthcare, as providers, health plans, and disruptors look to create comprehensive platforms to secure long-term consumer loyalty.

Mednax sells off its radiology division

Posted on by • Posted in Divestitures, Elective Procedures, Market Consolidation, Market Power, Market Trends, Market Uncertainty, Mergers & Acquisitions, Pandemic, Physician, Physician Practice Management, Physician Practice Valuation, Physician Staffing, Private Equity, Radiology Industry, Teleradiology • Leave a comment

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M&A Analysis: Mednax to Sell its Radiology and Teleradiology Business -

National physician staffing firm Mednax announced the sale of its radiology practice—which includes teleradiology company Virtual Radiologic, known as vRad—to venture-backed Radiology Partners for $885M.

Publicly-traded Mednax has been hit hard by both contracting disputes with UnitedHealthcare, as well as pandemic-related volume declines. Both its anesthesiology and radiology businesses suffered big losses with the halt of elective procedures in the spring, and saw volumes decline between 50-70 percent compared to the prior year.

The company began divesting in May with the sale of its anesthesiology division to investor-backed North American Partners in Anesthesia. Mednax leaders say these decisions to sell were made independent of the pandemic, and that they have been planning to return to the company’s roots of focusing exclusively on obstetrics and pediatric subspecialty care, including changing its name back to Pediatrix.

Acquiring firm Radiology Partners is the largest radiology practice in the country, working with 1,300 hospitals and healthcare facilities. With this acquisition, it will have 2,400 radiologists practicing in all 50 states and the District of Columbia.

Hospital-based physician staffing firms have been especially hard hit by COVID-induced volume declines. This has created a softening in valuations and opened the door for investment firms to accelerate practice purchases.

We expect the pace of deals to quicken as independent practices experience continued financial strain—with large national groups leading the way, taking advantage of lower practice prices to build large-scale specialty enterprises.

 

 

 

 

The Future of Hospitals in Post-COVID America (Part 1): The Market Response

Posted on by • Posted in Balance Sheet, Capitation, Cash, Cash Reserves, Change, Change Agent, Change Management, Chronic Care Management, Chronic Conditions, Chronic Diseases, Competition, Consumer Loyalty, Consumer Preferences, Consumer-Centered Care Pathway, Consumerism, Deferred Healthcare, Disruption, Economic Crisis, Economic Stimulus, Elective Procedures, Elective Surgery, Employee Furlough, Employee Hiring Freeze, Employee Layoffs, Employee Pay Cuts, Employer-Based Health Insurance, Fee for Service Reimbursement, Health Insurance Coverage Adequacy, Health System, High Deductible Health Plans, Hospital, Hospital Industry, Investment Banking, Job, Job Loss, Job Market, Job Search, Job Security, Liquidity, Marginal Effects, Market Consolidation, Medical Group, Mergers & Acquisitions, Net Income, Net Patient Service Revenue, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, Out of Pocket Expenses, Pandemic, Paycheck Protection Program, Physician, Physician Practice Management, Physician Practice Valuation, Population Health, Preexisting Conditions, Primary Care, Private Equity, Public Health, Status Quo, Strategic Leadership, Strategy, Telemedicine, The CARES Act, Transition to Value-Based Healthcare, Underinsured, Unemployment, Unemployment Insurance, Uninsured, Value-Based Healthcare, Vertical Integration, Virtual Care Strategy, Virtual Healthcare, Virtual Hospital, Virtual Visit • Leave a comment

Click to access CBC_72_08052020_Final.pdf

 

[Readers’ Note: This is the first of two articles on the Future of Hospitals in Post-COVID America. This article
examines how market forces are consolidating, rationalizing and redistributing acute care assets within the
broader industry movement to value-based care delivery. The second article, which will publish next month,
examines gaps in care delivery and the related public policy challenges of providing appropriate, accessible
and affordable healthcare services in medically-underserved communities.]

In her insightful 2016 book, The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore,
Michelle Wucker coins the term “Gray Rhinos” and contrasts them with “Black Swans.” That distinction is
highly relevant to the future of American hospitals.

Black Swans are high impact events that are highly improbable and difficult to predict. By contrast, Gray
Rhinos are foreseeable, high-impact events that we choose to ignore because they’re complex, inconvenient
and/or fortified by perverse incentives that encourage the status quo. Climate change is a powerful example
of a charging Gray Rhino.

In U.S. healthcare, we are now seeing what happens when a Gray Rhino and a Black Swan collide.
Arguably, the nation’s public health defenses should anticipate global pandemics and apply resources
systematically to limit disease spread. This did not happen with the coronavirus pandemic.

Instead, COVID-19 hit the public healthcare infrastructure suddenly and hard. This forced hospitals and health systems to dramatically reduce elective surgeries, lay off thousands and significantly change care delivery with the adoption of new practices and services like telemedicine.

In comparison, many see the current American hospital business model as a Gray Rhino that has been charging toward
unsustainability for years with ever-building momentum.

Even with massive and increasing revenue flows, hospitals have long struggled with razor-thin margins, stagnant payment rates and costly technology adoptions. Changing utilization patterns, new and disruptive competitors, pro-market regulatory rules and consumerism make their traditional business models increasingly vulnerable and, perhaps, unsustainable.

Despite this intensifying pressure, many hospitals and health systems maintain business-as-usual practices because transformation is so difficult and costly. COVID-19 has made the imperative of change harder to ignore or delay addressing.

For a decade, the transition to value-based care has dominated debate within U.S. healthcare and absorbed massive strategic,
operational and financial resources with little progress toward improved care outcomes, lower costs and better customer service. The hospital-based delivery system remains largely oriented around Fee-for-Service reimbursement.

Hospitals’ collective response to COVID-19, driven by practical necessity and financial survival, may accelerate the shift to value-based care delivery. Time will tell.

This series explores the repositioning of hospitals during the next five years as the industry rationalizes an excess supply of acute care capacity and adapts to greater societal demands for more appropriate, accessible and affordable healthcare services.

It starts by exploring the role of the marketplace in driving hospital consolidation and the compelling need to transition to value-based care delivery and payment models.

COVID’s DUAL SHOCKS TO PATIENT VOLUME

Many American hospitals faced severe financial and operational challenges before COVID-19. The sector has struggled to manage ballooning costs, declining margins and waves of policy changes. A record 18 rural hospitals closed in 2019. Overall, hospitals saw a 21% decline in operating margins in 2018-2019.

COVID intensified those challenges by administering two shocks to the system that decreased the volume of hospital-based activities and decimated operating margins.

The first shock was immediate. To prepare for potential surges in COVID care, hospitals emptied beds and cancelled most clinic visits, outpatient treatments and elective surgeries. Simultaneously, they incurred heavy costs for COVID-related equipment (e.g. ventilators,PPE) and staffing. Overall, the sector experienced over $200 billion in financial losses between March and June 20204.

The second, extended shock has been a decrease in needed but not necessary care. Initially, many patients delayed seeking necessary care because of perceived infection risk. For example, Emergency Department visits declined 42% during the early phase of the pandemic.

Increasingly, patients are also delaying care because of affordability concerns and/or the loss of health insurance. Already, 5.4 million people have lost their employer-sponsored health insurance. This will reduce incremental revenues associated with higher-paying commercial insurance claims across the industry. Additionally, avoided care reduces patient volumes and hospital revenues today even as it increases the risk and cost of future acute illness.

The infusion of emergency funding through the CARES Act helped offset some operating losses but it’s unclear when and even whether utilization patterns and revenues will return to normal pre-COVID levels. Shifts in consumer behavior, reductions in insurance coverage, and the emergence of new competitors ranging from Walmart to enhanced primary care providers will likely challenge the sector for years to come.

The disruption of COVID-19 will serve as a forcing function, driving meaningful changes to traditional hospital business models and the competitive landscape. Frankly, this is long past due. Since 1965, Fee-for-Service (FFS) payment has dominated U.S. healthcare and created pervasive economic incentives that can serve to discourage provider responsiveness in transitioning to value-based care delivery, even when aligned to market demand.

Telemedicine typifies this phenomenon. Before COVID, CMS and most health insurers paid very low rates for virtual care visits or did not cover them at all. This discouraged adoption of an efficient, high-value care modality until COVID.

Unable to conduct in-person clinical visits, providers embraced virtual care visits and accelerated its mass adoption. CMS and
commercial health insurers did their part by paying for virtual care visits at rates equivalent to in-person clinic visits. Accelerated innovation in care delivery resulted.

 

THE COMPLICATED TRANSITION TO VALUE

Broadly speaking, health systems and physician groups that rely almost exclusively on activity-based payment revenues have struggled the most during this pandemic. Vertically integrated providers that offer health insurance and those receiving capitated payments in risk-based contracts have better withstood volume losses.

Modern Healthcare notes that while provider data is not yet available, organizations such as Virginia Care Partners, an integrated network and commercial ACO; Optum Health (with two-thirds of its revenue risk-based); and MediSys Health Network, a New Yorkbased NFP system with 148,000 capitated and 15,000 shared risk patients, are among those navigating the turbulence successfully. As the article observes,

…providers paid for value have had an easier time weathering the storm…. helped by a steady source of
income amid the chaos. Investments they made previously in care management, technology and social
determinants programs equipped them to pivot to new ways of providing care.

They were able to flip the switch on telehealth, use data and analytics to pinpoint patients at risk for
COVID-19 infection, and deploy care managers to meet the medical and nonclinical needs of patients even
when access to an office visit was limited.

Supporting this post-COVID push for value-based care delivery, six former leaders from CMS wrote to Congress in
June 2020 calling for providers, commercial insurers and states to expand their use of value-based payment models to
encourage stability and flexibility in care delivery.

If value-based payment models are the answer, however, adoption to date has been slow, limited and difficult. Ten
years after the Affordable Care Act, Fee-for-Service payment still dominates the payer landscape. The percentage of
overall provider revenue in risk-based capitated contracts has not exceeded 20%

Despite improvements in care quality and reductions in utilization rates, cost savings have been modest or negligible.
Accountable Care Organizations have only managed at best to save a “few percent of Medicare spending, [but] the
amount varies by program design.”

While most health systems accept some forms of risk-based payments, only 5% of providers expect to have a majority
(over 80%) of their patients in risk-based arrangements within 5 years.

The shift to value is challenging for numerous reasons. Commercial payers often have limited appetite or capacity for
risk-based contracting with providers. Concurrently, providers often have difficulty accessing the claims data they need
from payers to manage the care for targeted populations.

The current allocation of cost-savings between buyers (including government, employers and consumers), payers
(health insurance companies) and providers discourages the shift to value-based care delivery. Providers would
advance value-based models if they could capture a larger percentage of the savings generated from more effective
care management and delivery. Those financial benefits today flow disproportionately to buyers and payers.

This disconnection of payment from value creation slows industry transformation. Ultimately, U.S. healthcare will not
change the way it delivers care until it changes the way it pays for care. Fortunately, payment models are evolving to
incentivize value-based care delivery.

As payment reform unfolds, however, operational challenges pose significant challenges to hospitals and health
systems. They must adopt value-oriented new business models even as they continue to receive FFS payments. New
and old models of care delivery clash.

COVID makes this transition even more formidable as many health systems now lack the operating stamina and
balance sheet strength to make the financial, operational and cultural investments necessary to deliver better
outcomes, lower costs and enhanced customer service.

 

MARKET-DRIVEN CONSOLIDATION AND TRANSFORMATION

Full-risk payment models, such as bundled payments for episodic care and capitation for population health, are the
catalyst to value-based care delivery. Transition to value-based care occurs more easily in competitive markets with
many attributable lives, numerous provider options and the right mix of willing payers.

As increasing numbers of hospitals struggle financially, the larger and more profitable health systems are expanding
their networks, capabilities and service lines through acquisitions. This will increase their leverage with commercial
payers and give them more time to adapt to risk-based contracting and value-based care delivery.

COVID also will accelerate acquisition of physician practices. According to an April 2020 MGMA report, 97% of
physician practices have experienced a 55% decrease in revenue, forcing furloughs and layoffs15. It’s estimated the
sector could collectively lose as much as $15.1 billion in income by the end of September 2020.

Struggling health systems and physician groups that read the writing on the wall will pro-actively seek capital or
strategic partners that offer greater scale and operating stability. Aggregators can be selective in their acquisitions,
seeking providers that fuel growth, expand contiguous market positions and don’t dilute balance sheets.

Adding to the sector’s operating pressure, private equity, venture investors and payers are pouring record levels of
funding into asset-light and virtual delivery companies that are eager to take on risk, lower prices by routing procedures
and capture volume from traditional providers. With the right incentives, market-driven reforms will reallocate resources
to efficient companies that generate compelling value.

As this disruption continues to unfold, rural and marginal urban communities that lack robust market forces will
experience more facility and practice closures. Without government support to mitigate this trend, access and care gaps
that already riddle American healthcare will unfortunately increase.

 

WINNING AT VALUE

The average hospital generates around $11,000 per patient discharge. With ancillary services that can often add up to
more than $15,000 per average discharge. Success in a value-based system is predicated on reducing those
discharges and associated costs by managing acute care utilization more effectively for distinct populations (i.e.
attributed lives).

This changes the orientation of healthcare delivery toward appropriate and lower cost settings. It also places greater
emphasis on preventive, chronic and outpatient care as well as better patient engagement and care coordination.
Such a realignment of care delivery requires the following:

 A tight primary care network (either owned or affiliated) to feed referrals and reduce overall costs through
better preventive care.

 A gatekeeper or navigator function (increasingly technology-based) to manage / direct patients to the most
appropriate care settings and improve coordination, adherence and engagement.

 A carefully designed post-acute care network (including nursing homes, rehab centers, home care
services and behavioral health services, either owned or sufficiently controlled) to manage the 70% of
total episode-of-care costs that can occur outside the hospital setting.

 An IT infrastructure that can facilitate care coordination across all providers and settings.

Quality data and digital tools that enhance care, performance, payment and engagement.

Experience with managing risk-based contracts.

 A flexible approach to care delivery that includes digital and telemedicine platforms as well as nontraditional sites of care.

Aligned or incentivized physicians.

Payer partners willing to share data and offload risk through upside and downside risk contracts.

Engaged consumers who act on their preferences and best interests.

 

While none of these strategies is new or controversial, assembling them into cohesive and scalable business models is
something few health systems have accomplished. It requires appropriate market conditions, deep financial resources,
sophisticated business acumen, operational agility, broad stakeholder alignment, compelling vision, and robust
branding.

Providers that fail to embrace value-based care for their “attributed lives” risk losing market relevance. In their relentless pursuit of increasing treatment volumes and associated revenues, they will lose market share to organizations that
deliver consistent and high-value care outcomes.

CONCLUSION: THE CHARGING GRAY RHINO

America needs its hospitals to operate optimally in normal times, flex to manage surge capacity, sustain themselves
when demand falls, create adequate access and enhance overall quality while lowering total costs. That is a tall order
requiring realignment, evolution, and a balance between market and policy reform measures.

The status quo likely wasn’t sustainable before COVID. The nation has invested heavily for many decades in acute and
specialty care services while underinvesting, on a relative basis, in primary and chronic care services. It has excess
capacity in some markets, and insufficient access in others.

COVID has exposed deep flaws in the activity-based payment as well as the nation’s underinvestment in public health.
Disadvantaged communities have suffered disproportionately. Meanwhile, the costs for delivering healthcare services
consume an ever-larger share of national GDP.

Transformational change is hard for incumbent organizations. Every industry, from computer and auto manufacturing to
retailing and airline transportation, confronts gray rhino challenges. Many companies fail to adapt despite clear signals
that long-term viability is under threat. Often, new, nimble competitors emerge and thrive because they avoid the
inherent contradictions and service gaps embedded within legacy business models.

The healthcare industry has been actively engaged in value-driven care transformation for over ten years with little to
show for the reform effort. It is becoming clear that many hospitals and health systems lack the capacity to operate
profitably in competitive, risk-based market environments.

This dismal reality is driving hospital market valuations and closures. In contrast, customers and capital are flowing to
new, alternative care providers, such as OneMedical, Oak Street Health and Village MD. Each of these upstart
companies now have valuations in the $ billions. The market rewards innovation that delivers value.

Unfortunately, pure market-driven reforms often neglect a significant and growing portion of America’s people. This gap has been more apparent as COVID exacts a disproportionate toll on communities challenged by higher population
density, higher unemployment, and fewer medical care options (including inferior primary and preventive care infrastructure).

Absent fundamental change in our hospitals and health systems, and investment in more efficient care delivery and
payment models, the nation’s post-COVID healthcare infrastructure is likely to deteriorate in many American
communities, making them more vulnerable to chronic disease, pandemics and the vicissitudes of life.

Article 2 in our “Future of Hospitals” series will explore the public policy challenges of providing appropriate, affordable and accessible healthcare to all American communities.

 

 

 

Insurers continue to pay rebates while providers struggle

Posted on by • Posted in ACA, Health Insurance Industry, Market Consolidation, Medical Loss Ratio (MLR), Physician Practice Valuation, Strategy, Vertical Integration • Leave a comment

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Reform Brings More Health Insurance Rebates | Bankrate.com

Blue Cross Blue Shield of Michigan became the latest health insurer to announce plans to refund money to its enrollees, as reimbursement for healthcare services dropped in the wake of the coronavirus pandemic, with many hospitals and physicians curtailing operations. The company will return $100M to enrollees, in the form of premium discounts and refunds, and said it might increase that amount later in the year depending on how quickly health spending picks up again.

UnitedHealthcare (UHC), Cigna, and Humana are among the other insurers who have recently announced similar plans, with UHC alone slated to give back $1.5B to purchasers. Under the Affordable Care Act, plans must spend between 80 and 85 percent of the premiums they collect on medical care, depending on the segment of the market they cover, and must return excess profits to purchasers if they do not. Insurers are getting ahead of this requirement by returning money now to their employer and individual-market customers.

Meanwhile, some industry observers have begun to question why insurers, who have weathered the pandemic in good financial shape, are not spending more to stabilize the operations of struggling hospitals and physicians in their networks. For instance, Harvard researchers Leemore Dafny and Michael McWilliams proposed this week that insurers extend a “primary care boost” of 50 percent to their payments to doctors through the end of this year. Getting plans to act in concert to support providers will prove to be challenging, of course, and the temptation to free-ride on others’ generosity and instead “spend” excess premium dollars to return cash to customers may prove too strong for its public relations and loyalty benefits.

Or perhaps there are more Machiavellian motives at play: allowing physician practices to suffer financially could result in lower practice valuations, as insurers set their sights on further “vertical integration” plays in the months to come.