A new report from consulting firm Avalere Health and the nonprofit Physicians Advocacy Institute finds that the pandemic accelerated the rise in physician employment, with nearly 70 percent of doctors now employed by a hospital, insurer or investor-owned entity.
Researchers evaluated shifts to employment in the two-year period between January 2019 and January 2021, finding that 48,400 additional doctors left independent practice to join a health system or other company, with the majority of the change occurring during the pandemic. While 38 percent chose employment by a hospital or health system,the majority of newly employed doctors are now employed by a “corporate entity”, including insurers, disruptors and investor-owned companies.
(Researchers said they were unable to accurately break down corporate employers by entity, and that the study likely undercounts the number of physician practices owned by private equity firms, given the lack of transparency in that segment.) Growth rates in the corporate sector dwarfed health system employment, increasing a whopping 38 percent over the past two years, in comparison to a 5 percent increase for hospitals.
We expect this pace will continue throughout this year and beyond, as practices seek ongoing stability and look to manage the exit of retiring partners, enticed by the outsized offers put on the table by investors and payers.
In theory, the idea of salaried compensation for employed physicians makes a lot of sense. For one thing, it’s blessedly simple, with the potential to remove the tensions that arise in shifting to value-based payment or implementing lower-cost (but lower-reimbursement) care models like telemedicine.
However, medical group leaders have long feared that productivity would tank if doctors were put on salary. (As a consulting colleague said recently, the switch to salary would cause a 20+ percent drop in productivity in the medical group, creating a challenge akin to keeping an airline profitable after removing a quarter of the seats on its planes). We’ve been expecting that more doctors might seek stable compensation models in the wake of the pandemic, and so weren’t entirely surprised when the question of moving to straight salary came up in three conversations over the past two weeks.
In all three cases, leaders are hoping to create more predictability, and to decrease the resources and effort needed to execute against a menu of complex plans. They believe that a move to salary is inevitable, and their questions have more to do with timing.
Gauging when to make the move should be determined not by external market shifts, but by internal cultural and operational readiness. Are the systems in place to enable doctors to work at a high level of efficiency? And do we have the group collaboration needed to maintain high performance without paying doctors as if they are salesmen on commission?
Another wrinkle has popped up for groups who might be ready now: the past year has upended the benchmarks that groups might otherwise use to inform decisions on where to set salaries. Nevertheless, over time we expect more groups to move in this direction, with the hope of getting off the “hamster wheel” of compensation committee meetings and ever more exotic permutations of bonus plans, in search of a more stable model.
As we reported recently, healthcare M&A hit record highs in the first quarter of 2021—with deal activity in the physician practice space surging 87 percent. The graphic above highlights private equity firms’ increasing investment in the sector over the last five years. Both the number and size of PE-backed healthcare deals have increased substantially from 2015 to 2020, up 39 and 45 percent respectively.
In 2020, physician practices and services comprised nearly a fifth of all transactions, with PE firms driving the majority. One in five physician transactions involvedprimary care practices—a signal that investors are banking on profits to be made in the shift to value-based care models.
Meanwhile, PE firms are still rolling up high-margin specialty practices, with ophthalmology, orthopedics, dermatology, and anesthesiology groups all receiving significant funding in 2020. PE investment in physician practices will likely continue to accelerate, as investors view healthcare as a promising place to deploy readily available capital.
But we remain convinced that private equity investors have little interest in being long-term owners of practices,and will ultimately look for an exit by selling “rolled-up” physician entities to health systems or insurers.
Google-backed One Medical is acquiring Medicare-focused primary healthcare chain Iora Health for $2.1 billion in an all-stock trade deal, the companies announced Monday.
The buy will give One Medical presence in 28 markets, covering about 40% of the U.S. population and is expected to generateannual revenue at $350 million by 2025. The deal will add about $700 billion in total addressable market, according to an investor presentation.
Under the terms of the deal, which is expected to close in the late third quarter or fourth quarter of this year, Iora stockholders will own about 27% of the combined company. One person from Iora will join One Medical’s board and Iora co-founder and CEO Rushika Fernandopulle will become One Medical’s chief innovation officer.
The acquisition aligns two key players in part of the value-based care movement that eschews traditional payer-provider arrangements in favor of a concierge membership model. Iora’s concentration in the Medicare population and related participation in CMS’ direct contracting model could be key reasons for coming under One Medical’s sights.
Jefferies analysts said they viewed the transaction as positive, particularly considering both companies’ tech and data capabilities. “Given tech orientation and emphasis on outcomes, we expect substantial derivative value from combining data and developing better treatment programs with superior outcomes across [longitudinal] care. We see this as a clear clinical and applied advantage,” they wrote.
Both companies base their business on value-based models, which some in the industry worry have suffered during the COVID-19 pandemic as cash-strapped providers avoid the risk of models not based on fee-for-service. The Biden administration’s director at the Center for Medicare and Medicaid Innovation said recently the movement is at “a critical juncture” and that more mandatory models are likely forthcoming.
And on the Q1 call with investors, executives highlighted a membership increase of 31% year over year.
One Medical, founded in 2007, lead the pack of recent healthcare IPOs, going public in January 2020.
The company touts its direct-to-consumer model buts also contracts directly with employers and partners with several health systems. CFO Bjorn Thaler told Healthcare Dive at the time of the IPO its pitch to investors focused on highlighting a differentiated model.
“[W]e provide the member with a very, very valuable service. They don’t have to wait 29 days to get care. They can get care oftentimes in an instant, digitally,” he said.
Boston-based Iora, which was founded in 2011, has raised nearly $350 million over seven funding rounds, according to Crunchbase. It has contracts with major payers including UnitedHealthcare, Cigna and Humana.
The deal extends One Medical into full-risk Medicare reimbursement. Iora began the direct contracting model in April across all its markets. The program ties reimbursement to spending and quality for all Medicare fee-for-service beneficiaries across a geographic region.
About 60% of Iora’s members are in the fast-growing Medicare Advantage program, which has now reached about 40% of the Medicare population.
Iora had expected revenue this year to reach nearly $300 million and as of the first quarter had 38,000 members, compared to nearly 600,000 members at One Medical, according to the investor presentation.
One Medical stock was trending slightly down in early morning trading Monday.
We are better served by a system that seeks to keep people healthy, not wait until they get sick.
If the pandemic has taught us anything, it’s that there’s a much better way to keep people healthy while reducing stress on our health care system at the same time. This will not only help mitigate risks from any future public health crisis, but also improve the well being and health of people in our community.
Utah’s Intermountain Healthcare, along with our community and health care colleagues, are leading a movement to do just that.
We greatly value and appreciate all our government, community and health care partners that coordinate closely with us to address the pandemic and provide care for our communities. It’s been a statewide team effort and will continue to be a team effort.
The roots of a deeply flawed national health care model that had taken hold long ago proved to create both systemic and personal health risks. According to a recent study, the U.S. had far more people hospitalized, more people with chronic conditions, double the obesity rates and the highest rate of preventable deaths among comparable nations. This was before the pandemic ever started. Our national health system was perfectly designed to be overwhelmed under the COVID-19 stress.
Moreover, many people who have died from COVID-19 were in poor health to begin with or were managing preventable chronic conditions.The flawed national health care system was never designed to support their goal to stay healthy. Instead, it was designed to wait until they got sick and then treat them.
Utah has one of the lowest death rates from COVID-19 in the nation. It’s at least partly true that this can be attributed to the superb care by medical providers in the state. But the data show a more interesting story. People in our state are in better health compared to those in other states.
We play outside more, drink less and smoke less than people in other states. Our rate of obesity is far lower than most other states. It’s no surprise that our recorded COVID-19 death rate is among the lowest in the nation. In fact, three of the top five healthiest states also have the three of the top six lowest recordable death rates from COVID-19. We don’t believe that’s a coincidence.
Over the last several years, Intermountain has focused more resources on keeping people healthy and out of hospitals. Vaccines have long been a critical part of this strategy. And while that garners most of the immediate headlines, we’ve geared our entire system’s strategy to focus on keeping people and communities well.
For example, Intermountain is a world leader in precision genomics medicine that aims to better treat and prevent genetic diseases. The opportunity to participate in the biggest, voluntary research of its kind is available for anyone in our community at no cost. With our community’s help, we can eventually share what we learn with others across the country and the world to help keep everyone healthier.
We are investing in addressing social determinants of health to keep people out of emergency rooms or other clinical settings for unneeded visits. Social determinants of health are influences that affect people’s long-term health, such as stable housing, joblessness, hunger, unsafe neighborhoods and access to transportation.
We’ve been working with and providing funding to multiple local nonprofit agencies that address these issues, and have provided financial support for a three-year pilot in Utah to see how community partnerships can address those influences in low-income ZIP codes. Often, simple and affordable changes can help prevent unnecessary health issues.
We’ve integrated mental health care with primary care because we know that mental health is essential to a person’s overall health. Long before the pandemic hit our shores, we deployed telehealth services that helps care for people closer to their homes and families. It’s not simply a matter of convenience for those we serve, but can lead to better health outcomes for less money.
All of us can’t wait to get back to some sense of normal. But for the nation’s health system, going back to normal shouldn’t be an option. We must do better. And Intermountain is determined to partner with Utahns and do what we all do best – lead the nation and the world by setting a better example.
Many of the Center for Medicare and Medicaid Innovation’s value-based care payment models are undergoing a review, according to the Centers for Medicare & Medicaid Services (CMS).
The statement to Fierce Healthcare comes after CMS quietly updated and delayed several payment models, including pulling a controversial model that ties payments to geographic health outcomes.
“CMS remains steadfast in its commitment to transforming the healthcare system into one that rewards value and care coordination,” the agency said. “The CMS Innovation Center and its alternative payment models help execute that commitment.”
The agency added it hopes to design models that support the adoption of value-based care.
“Many of the CMS Innovation Center’s models are currently under review, and we look forward to providing updates when available,” CMS said.
CMS did not return a request for comment on how many models are under review or which ones are being scrutinized.
The statement comes after CMS has quietly updated the webpages for two payment models to note major changes. The agency made an update to the webpage for the Geographic Direct Contracting Model that said it was currently under review.
A request for applications for the model was posted Jan. 1, and the first performance period was expected to start in 2022 and run through 2024.
The model was intended to improve quality and lower costs for Medicare beneficiaries across a region, and providers in that region can enter into value-based payment arrangements.
Providers can build integrated relationships and invest in population health to better coordinate care, the agency said when the model was released last December.
But the model has gotten pushback from some provider groups. The National Association of Accountable Care Organizations has criticized the model, saying it could confuse patients who may not know whether they are participating in a direct contracting entity.
CMS also quietly pushed back the first performance period for the Kidney Care Choices model, which aims to improve the quality of dialysis care.
The model had an implementation period for 2020 that enabled participants to create the necessary infrastructure for the model, which aims to bundle care from treatment of chronic kidney disease all the way through kidney transplantation and post-transplant care.
Starting Jan. 1, 2021, providers were supposed to start taking on financial accountability including capitated payments.
But CMS posted an update on the webpage for the model, saying the start of the financial performance period will now be Jan. 1, 2022. The agency did not give a reason for the delay.
CMS’ review comes on the heels of a separate analysis conducted under the Trump administration on the value generated by the payment models. The analysis found bundled payment models that gave providers an amount of money for an entire episode of care had mixed results, while global budget models, which give providers a fixed amount for the total number of services given over a certain period of time, were given a more positive review.
It remains unclear whether that analysis is playing any role into the review undertaken by the Biden administration.
COVID-19 accelerated a number of trends already brewing in the healthcare industry, and that’s not likely to change this year, according to a new report from CVS Health.
The healthcare giant released its annual Health Trends Report on Tuesday, and the analysis projects several industry trends that are likely to define 2021 in healthcare, ranging from technology to behavioral health to affordability.
“We are facing a challenging time, but also one of great hope and promise,” CVS CEO Karen Lynch said in the report. “As the pandemic eventually passes, its lessons will serve to make our health system more agile and more responsive to the needs of consumers.”
Here’s a look at four of CVS’ predictions:
1. A looming mental health crisis
Behavioral health needs were a significant challenge in healthcare prior to COVID-19, but the number of people reporting declining mental health jumped under the pandemic.
Cara McNulty, president of Aetna Behavioral Health, said in a video attached to the report that it will be critical to “continue the conversation around mental health and well-being” as we emerge from the pandemic and to reduce stigma so people who need help seek it out.
“We’re normalizing that it’s important to take care of our mental well-being,” she said.
Data released in December by GoodRx found that prescription fills for depression and anxiety medications hit an all-time high in 2020. GoodRx researchers polled 1,000 people with behavioral health conditions on how they were navigating the pandemic, and 63% said their depression and/or anxiety symptoms worsened.
McNulty said symptoms to look for when assessing whether someone is struggling with declining mental health include whether they’re withdrawn or agitated or if there’s a notable difference in their self-care routine.
2. Pharmacists take center stage
CVS dubbed 2021 “the year of the pharmacist” in its report.
The company expects pharmacists to be a key player in a number of areas, especially in vaccine distribution as that process inches toward broader access. They also offer a key touchpoint to counsel patients about their care and direct them to appropriate services, CVS said.
CVS executives said in the report that they see a significant opportunity for pharmacists to have a positive impact on the social determinants of health.
“We’ve found people are not only open and willing to share social needs with their pharmacists but in many cases, they listen to and act on the advice and recommendations of pharmacists,” Peter Simmons, vice president of transformation, pharmacy delivery and innovation at CVS Health, said in the report.
3. Finding ways to mitigate the cost of high-price therapies
Revolutionary drugs and therapies are coming to market with eye-popping price tags; it’s not uncommon to see new pharmaceuticals priced at $1 million or more. For pharmacy benefit managers, this poses a major cost challenge.
To address those prices, CVS expects value-based contracting to take off in a big way. And drugmakers are comfortable with the idea, according to the report. Novartis, for example, is offering insurers a five-year payment plan for its $2 million gene therapy Zolgensma, with refunds available if the drug doesn’t achieve desired results.
CVS said the potential for these therapies is clear, but many payers want to see some type of results before they fork over hundreds of thousands.
“Though the drug may promise to cure these patients for life, these are early days in their use,” said Joanne Armstrong, M.D., enterprise head of women’s health and genomics at CVS Health, in the report. “What we’re saying is, show us the clinical value proposition first.”
CVS said it’s also offering a stop-loss program for gene therapy to self-funded employers contracted with Aetna and/or Caremark to assist them in capping the expenses associated with these drugs.
4. Getting into the community to address diabetes
Diabetes risk is higher among vulnerable populations, such as Black patients, and addressing it will require local and community-based solutions, CVS executives said in the report. Groups at the highest risk for the disease are less likely to live in areas with easy access to a supermarket, for example, which boosts their risk of unhealthy eating, according to the report.
The two key hurdles to addressing this issue are access and affordability. The rise in retail clinics and ambulatory care centers can get at the access issue, as they can offer a way to better meet patients where they are.
At CVS’ MinuteClinics, patients can walk in and receive a number of services to assist them in managing diabetes, including screenings, consultations with providers and connections to diabetes educators who can assist with lifestyle changes.
Retail locations can also assist with medication costs, creating a one-stop-shop experience that’s easier for many diabetes patients to slot into their daily lives, CVS said.
“Diabetes is a case study in how a more connected experience can translate to simpler, affordable and more accessible care for underserved communities,” said Dan Finke, executive vice president of CVS Health and president of its healthcare benefits division.
The COVID-19 pandemic has accelerated the pace of artificial intelligence adoption, and healthcare leaders are confident AI can help solve some of today’s toughest challenges, including COVID-19 tracking and vaccines.
The majority of healthcare and life sciences executives (82%) want to see their organizations more aggressively adopt AI technology, according to a new survey from KPMG, an audit, tax and advisory services firm.
Healthcare and life sciences (56%) business leaders report that AI initiatives have delivered more value than expected for their organizations. However, life sciences companies seem to be struggling to select the best AI technologies, according to 73% of executives.
As the U.S. continues to navigate the pandemic, life sciences business leaders are overwhelmingly confident in AI’s ability to monitor the spread of COVID-19 cases (94%), help with vaccine development (90%) and aid vaccine distribution (90%).
KPMG’s AI survey is based on feedback from 950 business or IT decision-makers across seven industries, with 100 respondents each from healthcare and life sciences companies.
Despite the optimism about the potential for AI, executives across industries believe more controls are needed and overwhelmingly believe the government has a role to play in regulating AI technology. The majority of life sciences (86%) and healthcare (84%) executives say the government should be involved in regulating AI technology.
And executives across industries are optimistic about the new administration in Washington, D.C., with the majority believing the Biden administration will do more to help advance the adoption of AI in the enterprise.
“We are seeing very high levels of support this year across all industries for more AI regulation. One reason for this may be that, as the technology advances very quickly, insiders want to avoid AI becoming the ‘Wild Wild West.’ Additionally, a more robust regulatory environment may help facilitate commerce. It can help remove unintended barriers that may be the result of other laws or regulations, or due to lack of maturity of legal and technical standards,” said Rob Dwyer, principal, advisory at KPMG, specializing in technology in government.
Healthcare and pharma companies seem to be more bullish on AI than other industries are.
The survey found half of business leaders in industrial manufacturing, retail and tech say AI is moving faster than it should in their industry. Concerns about the speed of AI adoption are particularly pronounced among small companies (63%), business leaders with high AI knowledge (51%) and Gen Z and millennial business leaders (51%).
“Leaders are experiencing COVID-19 whiplash, with AI adoption skyrocketing as a result of the pandemic. But many say it’s moving too fast. That’s probably because of current debate surrounding the ethics, governance and regulation of AI. Many business leaders do not have a view into what their organizations are doing to control and govern AI and may fear risks are developing,” Traci Gusher, principal of artificial intelligence at KPMG, said in a statement.
Future AI investment
Healthcare organizations are ramping up their investments in AI in response to the COVID-19 pandemic. In a Deloitte survey, nearly 3 in 4 healthcare organizations said they expect to increase their AI funding, with executives citing making processes more efficient as the top outcome they are trying to achieve with AI.
Healthcare executives say current AI investments at their organizations have focused on electronic health record (EHR) management and diagnosis.
To date, the technology has proved its value in reducing errors and improving medical outcomes for patients, according to executives. Around 40% of healthcare executives said AI technology has helped with patient engagement and also to improve clinical quality. About a third of executives said AI has improved administrative efficiency. Only 18% said the technology helped uncover new revenue opportunities.
But AI investments will shift over the next two years to prioritize telemedicine (38%), robotic tasks such as process automation (37%) and delivery of patient care (36%), the survey found. Clinical trials and diagnosis rounded out the top five investment areas.
At life sciences companies, AI is primarily deployed during the drug development process to improve record-keeping and the application process, the survey found. Companies also have leveraged AI to help with clinical trial site selection.
Moving forward, pharmaceutical companies will likely focus their AI investments on discovering new revenue opportunities in the next two years, a pivot from their current strategy focusing on increasing profitability of existing products, according to the survey. About half of life sciences executives say their organizations plan to leverage AI to reduce administrative costs, analyze patient data and accelerate clinical trials.
Industry stakeholders are taking steps to advance the use of AI and machine learning in healthcare.
The Consumer Technology Association (CTA) created a working group two years ago to develop some standardization on definitions and characteristics of healthcare AI. Last year, the CTA working group developed a standard that creates a common language so industry stakeholders can better understand AI technologies. A group also recently developed a new standard to advance trust in AI solutions.
On the regulatory front, the U.S. Food and Drug Administration (FDA) last month released its first AI and machine learning action plan, a multistep approach designed to advance the agency’s management of advanced medical software. The action plan aims to force manufacturers to be more rigorous in their evaluations, according to the FDA.
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.
Even though signs point to a post-COVID spike in health system mergers, retailers, insurers, and other healthcare industry players already far exceed health system scale. Even the largest of the “mega health systems” pale in comparison to other healthcare companies up and down the value chain, as shown in the graphic above. And with the exception of pharma, these other industry players have seen revenues surge during the pandemic, while health system growth has stagnated.
According to a recent report from Kaufman Hall, hospitals saw a three percent reduction in annual total gross revenue in 2020.The majority of the decrease stemmed from a six percent decline in outpatient revenue, as volumes plummeted during the pandemic.
The largest companies listed here, including Walmart, Amazon, CVS, and UnitedHealth Group, continue to double down on vertical integration strategies, configuring an array of healthcare assets into platform businesses focused on delivering value to consumers.
To remain relevant, health systems will need to increase their focus on this strategy as well, assembling the right capabilities for a marketplace driven by value, at a scale that enables rapid innovation and sustainability.