Debating the best way to Chase Commercial Market Share

https://mailchi.mp/e60a8f8b8fee/the-weekly-gist-september-23-2022?e=d1e747d2d8

Cross-subsidy economics are increasingly challenged for America’s hospitals. Aging Baby Boomers are moving from commercial insurance to Medicare, decreasing the share of patients with lucrative private coverage, and insurers are increasingly reticent to provide the rate increases providers need to make up for the worsening mix.

At a recent executive retreat, one health system debated the best strategies to increase their capture of commercial volume. Most of the conversation focused on traditional market-based tactics to increase access and awareness in fast-growing, higher income areas of their service region.

For instance, the system’s chief marketing officer was pushing to increase advertising in the rapidly expanding suburbs, and advocated building ambulatory surgery centers in a wealthy area of town with a boom of new home construction. 
 
The chief strategy officer shared a different perspective, supporting an employer-focused strategy. His logic: “In most businesses, the CEO and the janitor have the same benefit plans. If we only focus on the wealthy parts of town, we’re missing a big portion of the workers with good insurance.” He advocated for a new round of direct-to-employer contracting outreach, hoping to steer workers to high-value primary and specialty care solutions.

In reality, any system looking to move commercial share will need to do both—but even the best playbook for building commercial volume is unlikely to close the growing cross-subsidy gap. To maintain profitability in the long term, health systems must reduce costs for managing Medicare patients by delivering lower-cost care in lower-cost settings, with lower-cost staff.    

CVS Health considering acquisition of Signify Health

https://mailchi.mp/11f2d4aad100/the-weekly-gist-august-12-2022?e=d1e747d2d8

According to a Wall Street Journal report, CVS is expected to submit a bid to purchase Dallas-based Signify Health, which supports physicians, payers, and health systems with tools and technology to provide in-home care. Signify acquired accountable care organization manager Caravan Health earlier this year. Last week, the Journal reported that Signify, valued at more than $4B, was looking for buyers. While CVS is said to be interested, so are private equity firms and other managed care companies. 

The Gist: CVS CEO Karen Lynch told investors during last week’s earnings call that the company plans to grow its primary care and home health offerings through mergers and acquisitions. The Signify bid, along with reports that CVS considered acquiring concierge primary care company One Medical, suggests that the retail pharmacy and insurance giant is charging ahead with its strategy of creating a vertically-integrated healthcare company.

As several newly public digital health and value-based care companies have seen share prices plummet and capital dry up in a cooling economy, they are becoming targets for large insurers and tech companies who have seen their own fortunes grow during the pandemic. Watch for more announcements from these “platform assemblers” in the months to come.

Value-based care isn’t yielding much “value.”

https://mailchi.mp/ff342c47fa9e/the-weekly-gist-july-22-13699925?e=d1e747d2d8

Despite the hype, accountable care organizations (ACOs) and other Medicare-driven payment reform programs intended to improve quality and lower healthcare spending haven’t bent the cost curve to the extent many had hoped.

A recent and provocative opinion piece in STAT News, from health policy researcher Kip Sullivan and two single-payer healthcare advocates, calls for pressing pause on value-based payment experimentation. The authors argue that current attempts to pay for value have ill-defined goals and hard-to-measure quality metrics that incentivize reducing care and upcoding, rather than improving outcomes. 

The Gist: We agree with the authors that current value-based care experiments have been disappointing.

The intention is good, but the execution has been bogged down by entrenched industry dynamics and slow-to-move incumbents. One fair criticism: ACOs and other “total cost management” reforms largely focus on the wrong problem. They address utilization, rather than excessive price. 

But we’re having a price problem in the US, not a utilization problem. Europeans, for example, have more physician visits each year than Americans, yet spend less per-person on healthcare. It’s our high prices—for everything from physician visits to hospital stays to prescription drugs—that drive high healthcare spending. 

The root cause: our third-party payer structure actively discourages real efforts to lower price—every player in the value chain, including providers, brokers, and insurers, does better economically as prices increase. That’s why price control measures like reference pricing or price caps have been nonstarters among industry participants. 

Recent reforms that increase price transparency, while not the entire solution, at least shine a light on the real challenges our healthcare system faces.

How other industry players are expanding their healthcare platforms  

https://mailchi.mp/31b9e4f5100d/the-weekly-gist-june-03-2022?e=d1e747d2d8


Last week, we introduced our framework for value delivery as a “healthcare platform”, in which an organization’s proximity to both the consumer and to the premium dollar determines how it competes as a “care supplier,” a “care ecosystem,” a “premium owner,” or a “population manager.” Traditionally, different healthcare companies have operated primarily in one of these four domains. However, as shown in the graphic below, we’ve recently seen many shift their business into one or more additional quadrants, as they seek to expand their value propositions. UnitedHealth Group is an obvious example: it has moved well beyond the traditional insurance business, via numerous provider and care delivery acquisitions across the continuum.

Other players have shifted from their own “pure play” positions toward more comprehensive “platform” strategies as well: One Medical adding Iora Health to enhance population health capabilities; Walmart moving beyond retail and pharmacy services, partnering with Oak Street Health to expand its ability to manage Medicare patients; Amazon getting into the employer health business. 

There’s a clear pattern emerging—value propositions are converging on a “strategic high ground” that encompasses all four dimensions of platform value, creating a comprehensive set of solutions to deliver accessible care, promote health, and grow consumer loyalty, with an aligned financial model centered on managing the total cost of care. Health systems looking to build platform strategies will find many of these competitors also vying for pride of place as the “platform of choice” for healthcare consumers and purchasers.

Steward Health Care sells its Medicare value-based care business to CareMax

https://mailchi.mp/31b9e4f5100d/the-weekly-gist-june-03-2022?e=d1e747d2d8

The for-profit, 39-hospital Steward system manages 171K lives across the Medicare Advantage, Medicare shared savings, and Medicare direct contracting programs. This deal will allow Miami-based CareMax, a publicly-traded, value-based care company with 42 senior centers (mostly in Florida) and 34K lives under management, to expand across Steward’s footprint, which includes Texas and Arizona, states with rapidly growing Medicare populations.

The Gist: This deal is an example of the rise of venture-funded MSO (medical services organization) services that aim to subsume and scale value-based care functions from hospitals and medical groups. Steward wagers it can find greater success in managing risk in partnership with CareMax, moving a greater share of its Medicare population into risk, and outsourcing care management and patient engagement functions.

Many health systems have spent substantial resources building out accountable care organizations and risk-based Medicare businesses over the last decade. While selling these assets to a company like CareMax may be one way to generate a return, particularly for those frustrated by lower-than-anticipated gains from moving to value-based care, it also requires relinquishing control of functions likely central to the future health system business model.

The Trend of Health System Mergers Continues

While healthcare is delivered locally, the business of healthcare
is regional, and the regions are only getting bigger.
Hospital
and health system mergers alike have continued to shift from
local to regional, and the recently announced merger between Advocate Aurora
Health and Atrium Health clearly highlights that the regions are only getting
bigger.


Advocate Aurora, with a presence in Illinois and Wisconsin, and Atrium Health,
with a presence in North Carolina, South Carolina, Georgia, and Alabama, will
combine to create a $27 billion health system that will span six states and make it
one of the leading healthcare delivery systems in the country. The combined
organization, which will transition to a new brand, Advocate Health, will operate
67 hospitals and over 1,000 sites of care, employ nearly 150,000 teammates, and
serve 5.5 million patients. Together, Advocate Health will become the 6th largest
system in the country behind Kaiser Permanente, HCA Healthcare, CommonSpirit
Health, Ascension, and Providence.


We have seen a number of large health systems come together recently,
including Intermountain Healthcare + SCL Health to create a $15 billion revenue
system, Spectrum Health + Beaumont ($14 billion), NorthShore University Health
System + Edward-Elmhurst Healthcare
($5 billion), LifePoint Health + Kindred
Healthcare
($14 billion), and Jefferson Health + Einstein Healthcare Network ($8
billion).


The exact reasoning for each merger differs slightly, but one of the common
threads across all is scale.
But not scale in the traditional M&A sense. Rather,
scale in covered lives; scale in physician infrastructure and alignment; scale in
clinical and operational capabilities; scale in technology, innovation, and
partnerships with non-traditional players; scale for capital access; and scale for
insurance risk to compete in a value-based world. It is no longer the strong
acquiring the weak. Rather, strong players are coming together to gain scale to
face the headwinds in a unified manner.

For Advocate Aurora and Atrium, coming together is about leveraging their combined clinical excellence,
advancing data analytics capabilities and digital consumer infrastructure, improving affordability, driving health equity, creating a next-generation workforce, research, and environmental sustainability. Together, they have pledged $2 billion to disrupt the root causes of health inequities across underserved communities and create more than 20,000 new jobs.


Both Advocate Aurora and Atrium are no strangers to mergers. Advocate and Aurora came together in 2018, and prior to that Advocate was intending to merge with NorthShore before being blocked due to anti-trust. Atrium has grown over the years, merging with systems such as Navicent Health in Georgia in 2018, Wake Forest Baptist Health in North Carolina 2020, and Floyd Health System in Georgia in 2021. In the newly proposed merger, Advocate Aurora and Atrium are coming together via a joint operating arrangement where each entity will be responsible for their own liabilities and maintain ownership of their respective assets but operate together under the new parent entity and board. This may allow the combined entity more flexibility in local decision-making. The current CEOs, Jim Skogsbergh and Eugene Woods will serve as co-CEOs for the first 18 months, at which point Skogsbergh will retire, and Woods will take over as the sole CEO.


Mergers can come in various shapes and structures, but the driving forces behind consolidation are not unique. With the need to compete in value-based care, adequately manage risk, gain scale across covered lives, physicians, and points of access, successfully deliver affordable high-quality care, and the need to deal with the vertical and horizontal consolidation of the large-scale payers, the markets that health systems operate in must be large enough to be effective and relevant. We fully expect to see more of these larger scale health system mergers in the near term.


The physical delivery of healthcare is local, but, again, the business of healthcare is not; it is regional, and the regions are only getting bigger.

Mass General Brigham to cut spending by $70M a year

Boston-based Mass General Brigham submitted a cost-reduction plan to Massachusetts regulators May 16, which includes a promise to cut healthcare spending by $70 million a year. 

The health system was ordered by the Massachusetts Health Policy Commission in January to develop a plan to reduce costs after the watchdog determined it had pushed healthcare spending above acceptable levels in the last few years. Specifically, the commission found that Mass General Brigham had substantially higher-than-average commercial spending from 2014 to 2019. The health system spent $293 million those years, more than any other provider in the state.

To achieve its spending reduction goal, Mass General Brigham said it would focus on four items: cutting prices, reducing utilization, shifting care to lower-cost sites and expanding value-based care. 

A key savings driver in Mass General Brigham’s plan is to lower outpatient and ConnectorCare rates to improve affordability. ConnectorCare is a program of subsidized private health insurance plans for patients whose family income doesn’t exceed 300 percent of the federal poverty level and who are not eligible for MassHealth, Medicare or other affordable health coverage. The health system expects to save about $53.8 million in spending a year through reducing these rates.

“Mass General Brigham is committed to expanding access to consumers, particularly in ambulatory care. To achieve improved access, we are focused on decreasing the price variation between Mass General Brigham pricing and the marketplace,” Mass General Brigham said in the performance improvement plan. 

The health system said it expects to save $10.8 million in spending a year by reducing unnecessary hospitalizations, emergency room visits and post-acute care and reducing use of high-cost outpatient imaging. 

The health system said it expects to save $5.3 million in spending a year by shifting care to lower-cost settings, such as moving to “hospital at home,” expanding telehealth or using other ambulatory sites. 

In addition to reducing utilization, shifting care to lower-cost sites and reducing price, Mass General Brigham said it is committed to expanding value-based care.

Payer contracts, physician pay still anchored in fee-for-service

The healthcare industry has made some strides in the “journey to value” across the last decade, but in reality, most health systems and physician groups are still very much entrenched in fee-for-service incentives.

While many health plans report that significant portions of their contract dollars are tied to cost and quality performance, what plans refer to as “value” isn’t necessarily “risk-based.” 

The left-hand side of the graphic below shows that, although a majority of payer contracts now include some link to quality or cost, over two-thirds of those lack any real downside risk for providers. 

Data on the right show a similar parallel in physician compensation. While the majority of physician groups have some quality incentives in their compensation models, less than a tenth of individual physician compensation is actually tied to quality performance. 

Though myriad stakeholders, from the federal government to individual health systems and physician groups, have collectively invested billions of dollars in migrating to value-based payment over the last decade, we are still far from seeing true, performance-based incentives translate into transformation up and down the healthcare value chain.