Value-based Care

Posted on by • Posted in Accountable Care Organization (ACO), Artificial Intelligence, Board, Electronic Health Record (EHR), Health System, Hospital, Hospital Industry, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Stakeholder Communication, Strategic Imperative, Strategy, Strategy Development, Value Based Care Model • Leave a comment
Frontline Voices: What Artificial Intelligence and Value-based Models mean for Not-for-Profit Hospitals and Health Systems

Context: 

Value-based care is widely accepted as key to the health system’s transformation. Changing provider incentives from volume to value and engaging provider organizations in risk-sharing models with payers (including Medicare) are means to that end. But implementation vis a vis value-based models has produced mixed results thus far and current financial pressures facing providers (esp. hospitals) have stymied momentum in pursuit of value in healthcare. Last week, CMS indicated it intends to continue its value-based insurance design (VBID) model which targets insurers, and last month announced continued commitment to its bundled payment and ACO models. But they’re considered ‘works in process’ that, to date, have attracted early adopters with mixed results.

Questions:

What’s ahead for the value agenda in healthcare? Is it here to stay or will something replace it? How is your organization adapting?

Key takeaways from Discussion:

  • ‘Not-for-profit hospitals and health systems are fighting to survive: near-term investments in value-based models are unlikely unless they’re associated with meaningful near-term savings that hospitals and physicians realize. Unlike investor-owned systems and private-equity backed providers, NFP systems face unique regulatory constraints, increasingly limited access to capital hostile treatment in media coverage and heavy-handed treatment by health insurers.’
  • ‘Demonstrating value in healthcare remains its most important issue but implementing policies that advance a system-wide definition of value and business models that create a fair return on investment for risk-taking organizations are lacking. The value agenda must be adopted by commercial payers, employers and Medicaid and not limited to/driven by Medicare-alone.’
  • ‘The ACO REACH model is promising but hospitals are hesitant to invest in its implementation unless compelled by direct competitive threats and/or market share leakage. It involves a high level of financial risk and relationship stress with physicians if not implemented effectively.’
  • ‘Health insurers are advantaged over provider organizations in implementing value-strategies: they have data, control of provider networks and premium dollars.’
  • ‘Any and all value models must directly benefit physicians: burnout and frustration are palpable, and concern about income erosion is widespread.’
  • ‘Value in healthcare is a long-term aspirational goal: getting there will be tough.’

My take:

Hospitals, health systems, medical groups and other traditional providers are limited in their abilities to respond to opportunities in AI and value-based models by near-term operating margin pressures and uncertainty about their finances longer-term. Risk avoidance is reality in most settings, so investments in AI-solutions and value-based models must produce near-term ROI: that’s reality. Outsiders that operate in less-regulated environments with unlimited access to capital are advantaged in accessing and deploying AI and value-based model pursuits. Thus, partnerships with these may be necessary for most traditional providers.

AI is tricky for providers:

Integration of AI capabilities in hospitals and medical practices will produce added regulator and media scrutiny about data security and added concern for operational transparency. It will also prompt added tension in the workforce as new operational protocols are implemented and budgets adapted.  And cooperation with EHR platforms—EPIC, Meditech, Cerner et al—will be essential to implementation. But many think that unlikely without ‘forced’ compliance.

Value-based models:

Participation in value-based models is a strategic imperative: in the near term, it adds competencies necessary to network design and performance monitoring, care coordination, risk and data management. Longer-term, it enables contracting directly with commercial payers and employers—Medicare alone will not drive the value-imperative in US healthcare successfully. Self-insured employers, private health insurers, and consumers will intensify pressure on providers for appropriate utilization, lower costs, transparent pricing, guaranteed outcome and satisfying user experiences. They’ll force consumerism and value into the system and reward those that respond effectively.

The immediate implications for all traditional provider organizations, especially not-for-profit health systems like the 11 who participated in Chicago last week, are 4:

  • Education: Boards, managers and affiliated clinicians need ongoing insight about generative AI and value-based models as they gain traction in the industry.
  • Strategy Development: Strategic planning models must assess the impacts of AI and value-based models in future-state scenario plans.
  • Capital: Whether through strategic partnerships with solution providers or capital reserves, investing in both of these is necessary in the near-term. A wait-and-see strategy is a recipe for long-term irrelevance.
  • Stakeholder Communication: Community leaders, regulators, trading partners, health system employees and media will require better messaging that’s supported by verifiable facts (data). Playing victim is not a sustainable communications strategy.

Generative AI and value-based models are the two most compelling changes in U.S. healthcare’s future. They’re not a matter of IF, but how and how soon.

Generative AI and its Future in Health Delivery

Posted on by • Posted in Artificial Intelligence, Caution, ChatGPT, ChatGPT-4, Generative AI, Health System, Hospital, Hospital Industry, Strategy • Leave a comment
Frontline Voices: What Artificial Intelligence and Value-based Models mean for Not-for-Profit Hospitals and Health Systems

Context: 

Although Artificial intelligence has been around for 50 years and has experienced several starts and stops, the last 5 to 10 years have seen a considerable uptick in adoption, especially in healthcare. It’s embedded now in machine learning that enables faster and more precise imaging studies, clinical decision support tools in electronic medical records systems and many more. In recent months, its potential to play a bigger role, possibly replacing physician judgement among others, has received added attention.

The November 2022, the announcement of OpenAI’s ChatGPT platform drew widespread attention with speculation it might displace clinicians in diagnosing and treatment planning for patients. On March 22, 2023, tech moguls Elon Musk, Steve Wozniak and Andrew Yang called for a 6-month moratorium on generative AI stating: “Should we develop nonhuman minds that might eventually outnumber, outsmart, obsolete and replace us? Should we risk loss of control of our civilization? We call on all AI labs to immediately pause for at least 6 months the training of AI systems more powerful than GPT-4.” (1)  To date, more than 13,000 have signed on to their appeal. Per Lumeris CTO Jean-Claude Saghbini “Putting aside our own opinions as to whether or not a moratorium should be implemented, our recent experience of the last three years in the inability to have effective cross-governmental alignment on policy to fight the COVID pandemic suggests that global alignment on AI policy will be impossible”.

There’s widespread belief generative AI and GPT-4 are game changers in healthcare.

How, what, when and how much ($$$) are the big questions. The near-term issues associated with implementation–data-security, workforce usefulness, regulation, investment costs—are expected to be resolved eventually. Thus, it is highly likely that health systems, medical groups, health insurers and retail and digital health solution providers will operate in a widely-expanded AI-enabled world in the next 3-5 years.  

Questions: 

What role will AI and ChatGPT play in hospitals/health systems and other provider settings? Will development of AI systems more powerful than GPT-4 be suspended in response to the appeal? How is your organization preparing for the next wave of AI?

Key Takeaways from Discussion:

  • ‘Generative AI will not take the place of clinician judgement anytime soon. The processes of diagnosing and treating patients, especially complex conditions, will not be displaced. However, in primary and preventive health where standardization is more attainable, it will have profound impact perhaps sooner than in other areas.’
  • ‘GPT-4 et al will have profound impact on the delivery of healthcare and hospital operations, but there are many unknowns and risks associated with its use beyond routine tasks that can be standardized based on pattern recognition. ‘
  • ‘Continued development of platform solutions using GPT-4 and others in healthcare and other industries will accelerate. The moratorium will not happen. There’s too much at stake for investors and users.’
  • ‘Non-profit hospitals and health systems are struggling financially as a result of the supply and labor cost increases, declining reimbursement from payers and negative returns on investing activities (non-operating income). Caution is key, so AI-related investing will be conservative in the near-term. An exception would be AI solutions that mitigate workforce shortages or reduce administrative costs for documentation.’

Healthcare Regulators’ Outdated Thinking Will Cost American Lives

Posted on by • Posted in Addiction, Artificial Intelligence, Buprenorphine, ChatGPT, Drug Enforcement Administration (DEA), Federal Trade Commission (FTC), Innovation, Med-PaLM 2, Medical Licensing, Mindset, Public Health Emergency (PHE), Thinking in the Past, Virtual Healthcare, Virtual Office, Virtual Visit • Leave a comment
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In a matter of months, ChatGPT has radically altered our nation’s views on artificial intelligence—uprooting old assumptions about AI’s limitations and kicking the door wide open for exciting new possibilities.

One aspect of our lives sure to be touched by this rapid acceleration in technology is U.S. healthcare. But the extent to which tech will improve our nation’s health depends on whether regulators embrace the future or cling stubbornly to the past.

Why our minds live in the past

In the 1760s, Scottish inventor James Watt revolutionized the steam engine, marking an extraordinary leap in engineering. But Watt knew that if he wanted to sell his innovation, he needed to convince potential buyers of its unprecedented power. With a stroke of marketing genius, he began telling people that his steam engine could replace 10 cart-pulling horses. People at time immediately understood that a machine with 10 “horsepower” must be a worthy investment. Watt’s sales took off. And his long-since-antiquated meaurement of power remains with us today.

Even now, people struggle to grasp the breakthrough potential of revolutionary innovations. When faced with a new and powerful technology, people feel more comfortable with what they know. Rather than embracing an entirely different mindset, they remain stuck in the past, making it difficult to harness the full potential of future opportunities.

Too often, that’s exactly how U.S. government agencies go about regulating advances in healthcare. In medicine, the consequences of applying 20th-century assumptions to 21st-century innovations prove fatal.  

Here are three ways regulators do damage by failing to keep up with the times:

1. Devaluing ‘virtual visits’

Established in 1973 to combat drug abuse, the Drug Enforcement Administration (DEA) now faces an opioid epidemic that claims more than 100,000 lives a year.

One solution to this deadly problem, according to public health advocates,  combines modern information technology with an effective form of addiction treatment.

Thanks to the Covid-19 Public Health Emergency (PHE) declaration, telehealth use skyrocketed during the pandemic. Out of necessity, regulators relaxed previous telemedicine restrictions, allowing more patients to access medical services remotely while enabling doctors to prescribe controlled substances, including buprenorphine, via video visits.

For people battling drug addiction, buprenorphine is a “Goldilocks” medication with just enough efficacy to prevent withdrawal yet not enough to result in severe respiratory depression, overdose or death. Research from the National Institutes of Health (NIH) found that buprenorphine improves retention in drug-treatment programs. It has helped thousands of people reclaim their lives.

But because this opiate produces slight euphoria, drug officials worry it could be abused and that telemedicine prescribing will make it easier for bad actors to push buprenorphine onto the black market. Now with the PHE declaration set to expire, the DEA has laid out plans to limit telehealth prescribing of buprenorphine.

The proposed regulations would let doctors prescribe a 30-day course of the drug via telehealth, but would mandate an in-person visit with a doctor for any renewals. The agency believes this will “prevent the online overprescribing of controlled medications that can cause harm.”

The DEA’s assumption that an in-person visit is safer and less corruptible than a virtual visit is outdated and contradicted by clinical research. A recent NIH study, for example, found that overdose deaths involving buprenorphine did not proportionally increase during the pandemic. Likewise, a Harvard study found that telemedicine is as effective as in-person care for opioid use disorder.

Of course, regulators need to monitor the prescribing frequency of controlled substances and conduct audits to weed out fraud. Furthermore, they should demand that prescribing physicians receive proper training and document their patient-education efforts concerning medical risks.

But these requirements should apply to all clinicians, regardless of whether the patient is physically present. After all, abuses can happen as easily and readily in person as online.

The DEA needs to move its mindset into the 21st century because our nation’s outdated approach to addiction treatment isn’t working. More than 100,000 deaths a year prove it.

2. Restricting an unrestrainable new technology

Technologists predict that generative AI, like ChatGPT, will transform American life, drastically altering our economy and workforce. I’m confident it also will transform medicine, giving patients greater (a) access to medical information and (b) control over their own health.

So far, the rate of progress in generative AI has been staggering. Just months ago, the original version of ChatGPT passed the U.S. medical licensing exam, but barely. Weeks ago, Google’s Med-PaLM 2 achieved an impressive 85% on the same exam, placing it in the realm of expert doctors.

With great technological capability comes great fear, especially from U.S. regulators. At the Health Datapalooza conference in February, Food and Drug Administration (FDA) Commissioner Robert M. Califf emphasized his concern when he pointed out that ChatGPT and similar technologies can either aid or exacerbate the challenge of helping patients make informed health decisions.

Worried comments also came from Federal Trade Commission, thanks in part to a letter signed by billionaires like Elon Musk and Steve Wozniak. They posited that the new technology “poses profound risks to society and humanity.” In response, FTC chair Lina Khan pledged to pay close attention to the growing AI industry.

Attempts to regulate generative AI will almost certainly happen and likely soon. But agencies will struggle to accomplish it.

To date, U.S. regulators have evaluated hundreds of AI applications as medical devices or “digital therapeutics.” In 2022, for example, Apple received premarket clearance from the FDA for a new smartwatch feature that lets users know if their heart rhythm shows signs of atrial fibrillation (AFib). For each AI product that undergoes FDA scrutiny, the agency tests the embedded algorithms for effectiveness and safety, similar to a medication.

ChatGPT is different. It’s not a medical device or digital therapy programmed to address a specific or measurable medical problem. And it doesn’t contain a simple algorithm that regulators can evaluate for efficacy and safety. The reality is that any GPT-4 user today can type in a query and receive detailed medical advice in seconds. ChatGPT is a broad facilitator of information, not a narrowly focused, clinical tool. Therefore, it defies the types of analysis regulators traditionally apply.

In that way, ChatGPT is similar to the telephone. Regulators can evaluate the safety of smartphones, measuring how much electromagnetic radiation it gives off or whether the device, itself, poses a fire hazard. But they can’t regulate the safety of how people use it. Friends can and often do give each other terrible advice by phone.  

Therefore, aside from blocking ChatGPT outright, there’s no way to stop individuals from asking it for a diagnosis, medication recommendation or help with deciding on alternative medical treatments. And while the technology has been temporarily banned in Italy, that’s unlikely to happen in the United States.  

If we want to ensure the safety of ChatGPT, improve health and save lives, government agencies should focus on educating Americans on this technology rather than trying to restrict its usage.

3. Preventing doctors from helping more people

Doctors can apply for a medical license in any state, but the process is time-consuming and laborious. As a result, most physicians are licensed only where they live. That deprives patients in the other 49 states access to their medical expertise.

The reason for this approach dates back 240 years. When the Bill of Rights passed in 1791, the practice of medicine varied greatly by geography. So, states were granted the right to license physicians through their state boards.

In 1910, the Flexner report highlighted widespread failures of medical education and recommended a standard curriculum for all doctors. This process of standardization culminated in 1992 when all U.S. physicians were required to take and pass a set of national medical exams. And yet, 30 years later, fully trained and board-certified doctors still have to apply for a medical license in every state where they wish to practice medicine. Without a second license, a doctor in Chicago can’t provide care to a patient across a state border in Indiana, even if separated by mere miles.

The PHE declaration did allow doctors to provide virtual care to patients in other states. However, with that policy expiring in May, physicians will again face overly restrictive regulations held over from centuries past.

Given the advances in medicine, the availability of technology and growing shortage of skilled clinicians, these regulations are illogical and problematic. Heart attacks, strokes and cancer know no geographic boundaries. With air travel, people can contract medical illnesses far from home. Regulators could safely implement a common national licensing process—assuming states would recognize it and grant a medical license to any doctor without a history of professional impropriety.

But that’s unlikely to happen. The reason is financial. Licensing fees support state medical boards. And state-based restrictions limit competition from out of state, allowing local providers to drive up prices.

To address healthcare’s quality, access and affordability challenges, we need to achieve economies of scale. That would be best done by allowing all doctors in the U.S. to join one care-delivery pool, rather than retaining 50 separate ones.

Doing so would allow for a national mental-health service, giving people in underserved areas access to trained therapists and helping reduce the 46,000 suicides that take place in America each year.

Regulators need to catch up

Medicine is a complex profession in which errors kill people. That’s why we need healthcare regulations. Doctors and nurses need to be well trained, so that life-threatening medications can’t fall into the hands of people who will misuse them.

But when outdated thinking leads to deaths from drug overdoses, prevents patients from improving their own health and limits access to the nation’s best medical expertise, regulators need to recognize the harm they’re doing.  

Healthcare is changing as technology races ahead. Regulators need to catch up.

Contract labor costs may be easing but still top of mind

Posted on by • Posted in Health System, Hospital, Hospital Industry, Hospital Purchase Managers Index, Institute of Supply Management, Labor Spend Management, Nurse Agency Staffing, Nurse Travelers, Operating Expense Reduction, Operating Expenses, Pharmaceutical Costs, Supply Chain, Supply Costs • Leave a comment
https://www.beckershospitalreview.com/finance/contract-labor-costs-may-be-easing-but-still-top-of-mind-report.html?origin=CFOE&utm_source=CFOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

There may be signs of costs coming down when it comes to contract labor in the healthcare world, but such workforce costs, as well as inflationary and supply pressures, continue to cause anxiety for industry administrators, according to the Institute of Supply Management.

“Employment continued to improve, with comments suggesting hospitals have been able to shift from temporary, agency staffing to permanent employees,” said Nancy LeMaster, chair of the ISM.

However, “the pressure on hospital margins from inflationary conditions and labor and supply costs were top-of-mind concerns.”

The March 2023 Hospital ISM Report on Business, published April 7, registered a Hospital Purchase Managers Index of 53.4 percent in March, the 34th straight month of growth. An index reading above 50 percent indicates that the hospital subsector is generally expanding.

Some shortages persist in the supply chain, particularly with products made from resin, while there has been a shift away from personal protective equipment toward complex medical devices on the inventory side. Prices for supplies and pharmaceuticals generally remain elevated, the ISM said.

10 health systems and their debt levels

Posted on by • Posted in Credit Quality, Credit Ratings, Debt Levels, Financial Performance, Financial Stewardship, Financial Strength, Financial Viability, Health System, Hospital, Hospital Industry • Leave a comment
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A number of healthcare and hospital systems detailed their levels of debt when reporting recent financial results. Here is a summary of some of those systems’ reports, including debt totals calculated by ratings agencies:

  1. Augusta, Ga.-based AU Health, which comprises a 478-bed adult hospital and 154-bed children’s hospital and serves as the academic medical center for the Medical College of Georgia, had approximately $327 million of debt in fiscal 2022. The system, which  became affiliated with Atlanta-based Wellstar Health System on March 31, was  downgraded to “B2” from “Ba3” with a negative outlook, Moody’s said March 23.
  2. Salt Lake City-based Intermountain Health had long-term debt of $3.6 billion as of Dec. 31. Overall income for the 33-hospital system in 2022 totaled $2.6 billion, boosted by the affiliation effective April 1 of SCL Health, which contributed $4 billion.
  3. Credit rating agency Moody’s is revising Springfield Ill.-based Memorial Health System‘s outlook from stable to negative as the health system ended fiscal year 2022 with $343 million in outstanding debt. Moody’s expects Memorial to stabilize in 2023 but not reach historical levels until 2025, according to the March 24 report.
  4. New York City-based NYU Langone Hospitals, which has total debt outstanding of approximately $3.1 billion, had its outlook revised to positive from stable amid a “very good operating performance” that has helped lead to improved days of cash on hand, Moody’s said. NYU Langone consists of five inpatient locations in New York City and on Long Island as well as numerous ambulatory facilities in the five boroughs, Long Island, New Jersey and Florida.
  5. Bellevue, Wash.-based Overlake Hospital Medical Center was downgraded on a series of bonds as the 310-bed hospital faces ongoing labor and inflationary challenges and the possibility of not meeting its debt coverage requirements, Moody’s said March 9. The hospital, which also operates several outpatient clinics and physician offices in its service area, has $295 million of outstanding debt.
  6. Renton, Wash.-based Providence, has about $7.4 billion worth of debt. The 51-hospital system, which reported a fiscal 2022 operating loss of $1.7 billion, was downgraded as it continues to deal with ongoing operational challenges, Fitch Ratings said March 17, the first of three downgrades Providence suffered in the space of weeks. The Fitch downgrade to “A” from “A+” applies both to the system’s default rating and on the $7.4 billion in debt.
  7. Lansing, Mich.-based Sparrow Health had long-term debt of $353.5 million as of Dec. 31, S&P Global said. Sparrow Health has had a series of bonds it holds placed on credit watch amid concern over the eventual outcome of a planned merger with Ann Arbor-based University of Michigan Health, S&P Global said Feb. 16. The $7 billion merger was eventually approved April 3.
  8. St. Louis-based SSM Health, which had approximately $2.6 billion of total debt outstanding at the end of fiscal 2022, reported an operating loss of $248.9 million after its expenses increased 7.6 percent over the previous year. SSM Health had an “AA-” rating affirmed on a series of bonds it holds as the 23-hospital system dipped in operating income in fiscal 2022 after “several years of consistently solid performance,” according to a March 24 report from Fitch Ratings.
  9. Philadelphia-based Temple University Health had $395.6 million long-term debt as of Dec. 31. The system’s outlook was revised to stable from positive following recent results S&P Global described as “very challenged” and “deeply negative.” The referenced results are interim fiscal 2023 figures that contrast significantly with expectations, S&P said March 15. Temple Health is in danger of not meeting debt coverage requirements as a result.
  10. Dallas-based Tenet Healthcare reported $14.9 billion of long-term debt when it revealed net income of $410 million for the year Feb. 9. Tenet had its default rating affirmed at “B+” as the 61-hospital system’s operating income remains resilient in the face of industry pressures and debt levels stay manageable, Fitch Ratings said March 27.

Mark Cuban’s drug company to sell name-brand diabetes drugs

Posted on by • Posted in Competition, Generic Drugs, Generic Insulin, High Drug Prices, Pharmaceutical Industry, Pharmacy Benefits Management • Leave a comment

https://mailchi.mp/c9e26ad7702a/the-weekly-gist-april-7-2023?e=d1e747d2d8

On Monday, the Mark Cuban Cost Plus Drugs Company (MCCPDC) announced via Twitter that it will begin to offer two branded diabetes drugs, Invokana and Invokamet, produced by Janssen, a Johnson & Johnson subsidiary. A month’s supply of these drugs, the first non-generics it has offered, will cost patients around $244, over 60 percent less than average retail prices. Prescriptions for these diabetes drugs fell from nearly 2M in 2020 to under 1M in 2022, and a key Invokama patent will expire next year, both factors that may have influenced Janssen’s decision to partner with MCCPDC.

The Gist: MCCPDC estimates that as many as 1M people who use these or similar drugs could benefit from the lower prices—not only the uninsured but also those considered “underinsured” due to high deductibles. 

Even though the deal is for two drugs with declining revenues, selling brand-name drugs from a pharmaceutical heavyweight is a notable step for the company.

As Congress continues to investigate PBMs for driving up drug spending through their pricing tactics, MCCPDC’s move offers a path to PBM disruption through direct competition. By cutting out the rebates retained by health plans and PBMs, MCCDPC can potentially offer better net payments to pharmaceutical companies, as well as reduced cost-sharing for patients—an arrangement that benefits both parties at the expense of traditional PBMs.

CMS softened proposed rate changes, but strengthened prior authorization rules for MA plans

Posted on by • Posted in Center for Medicare and Medicaid Services (CMS), Denial, Health Insurance Industry, Health Policy, Lobbyist, Marketing, Medicare Advantage, Medicare Advantage Overpayments, Medicare Advantage Risk-Adjustment, Prior Authorization • Leave a comment

https://mailchi.mp/c9e26ad7702a/the-weekly-gist-april-7-2023?e=d1e747d2d8

Last Friday, the Centers for Medicare and Medicaid Services (CMS) announced that it will begin phasing in major Medicare Advantage (MA) risk-adjustment changes over a three-year period, slower than previously anticipated. Thanks to this delay in full implementation, MA plans will see an average 3.3 percent payment increase in 2024, up from the one percent projected in the earlier draft notice.

CMS also finalized regulations this week that aim to limit MA prior authorizations and denials by requiring that coverage decisions align with traditional Medicare.

The Gist: After CMS began proposing changes to MA payment formulas last year, aimed at reining in pervasive abuses and fraud, 

the insurance industry responded with a $13M marketing blitz to oppose the changes. 

The ads, one of which aired during the Super Bowl, tied Medicare Advantage “cuts” to the time-tested “Hands Off My Medicare” messaging directed at seniors. 

With MA enrollment projected to overtake traditional Medicare this year, the federal government finds itself walking a tightrope in clamping down on overpayments to MA plans, given that any reductions will impact a growing number of seniors.

States begin Medicaid redeterminations

Posted on by • Posted in Health Insurance Coverage Adequacy, Health System, Hospital, Hospital Industry, Medicaid, Medicaid Expansion, Medicaid Redeterminations, Medicaid Unwinding, Underinsured, Uninsured • Leave a comment

https://mailchi.mp/c9e26ad7702a/the-weekly-gist-april-7-2023?e=d1e747d2d8

April 1st marked the start date of a one-year window for state Medicaid offices to reassess their beneficiary rolls, as Medicaid’s continuous enrollment policy sunsets. Since the early days of the pandemic, the federal government has boosted state Medicaid funding by 6.2 percent, in exchange for a requirement that current Medicaid beneficiaries maintain eligibility, regardless of changes to their income or other qualifiers. This policy helped grow national Medicaid enrollment to a record 90M, but a projected 15M may now lose coverage through the redetermination process. 

The Gist: After the US uninsured rate recently hit a record low, millions of Americans will now lose insurance coverage, at least temporarily.Of those no longer eligible for Medicaid, an estimated 2.7M will qualify for subsidized exchange plans, while around 400K in non-expansion states will have incomes too high for Medicaid and too low for exchange subsidies. The impact will vary in each state, both in terms of how quickly and how many Medicaid beneficiaries are disenrolled.

But in over half of states, at least one-fifth of those who will lose Medicaid coverage are projected to remain uninsured—a significant step backward in the effort to ensure universal coverage. 

Communication from Medicaid offices and exchange plan navigators will be key to preventing as many people as possible from becoming uninsured.

UnitedHealth Group hits a milestone in vertical integration

Posted on by • Posted in ACA, Diversification, Health Insurance Industry, Intercompany Eliminations, Medical Loss Ratio (MLR), Medicare Advantage, Operating Income, Operating Margin, Operating Performance, Pharmacy Benefits Management, UnitedHealth Group, Vertical Integration • Leave a comment

https://mailchi.mp/c9e26ad7702a/the-weekly-gist-april-7-2023?e=d1e747d2d8

Constrained by the Affordable Care Act’s medical loss ratio (MLR) requirement that health insurers must spend 80-85 percent of their revenue on medical services, payers have been pivoting to providing care, managing pharmacy benefits, and supporting other healthcare services, in order to fuel earnings growth. The graphic above shows why UnitedHealth Group (UHG) is seen as the health insurance industry’s most noteworthy model of this vertical integration strategy, thanks to its flourishing Optum division. 

Optum is now as big a profit driver for UHG as its UnitedHealthcare insurance arm, with each bringing in $14B of net earnings in 2022. 

Optum’s 7.7 percent operating margin is almost two points higher than UnitedHealthcare’s, which owes much of its revenue and earnings growth to its expanding Medicare Advantage (MA) business. As both sides of UHG’s business have grown, so too have intercompany eliminations, which have increased by over 80 percent in five years, reaching $108 billion in 2022. These payments from one division of UHG to another—mostly from the insurance business to the provider arm—allow the company to shift profit-capped insurance revenues into other divisions, driving increased profitability for the overall enterprise. 

It will be worth watching the trend in intercompany eliminations at other vertically integrated insurance companies, with an eye for whether integration truly results in lower cost of care for patients or just higher margins for the insurers.

How can health systems compete in the ambulatory pricing arena?

Posted on by • Posted in Ambulatory Care Services, Ambulatory Surgery Centers (ASC), Board, Competition, Cost Management, Cost Reduction, Health System, Hospital, Hospital Industry, Outpatient Care, Outpatient Migration, Pricing, Strategy • Leave a comment

https://mailchi.mp/c9e26ad7702a/the-weekly-gist-april-7-2023?e=d1e747d2d8

As the locus of care continues to shift from inpatient hospitals to outpatient centers, health system executives face a growing conundrum over pricing. The combination of “consumerism” and tougher reimbursement policies raises a question about how aggressively systems should discount services to compete in the ambulatory arena.

Site-neutral payment remains a goal for Medicare, and consumers are increasingly voting with their pocketbooks when it comes to choosing where to have procedures and diagnostics performed. “We know we’re going to have to give on price,” one CEO recently shared with us. “The question is how much, and how soon.” 

Should hospitals proactively shift to match prices offered by freestanding centers, or should they try to defend their substantially higher “hospital outpatient department” (HOPD) pricing?

The former choice could help win—or at least keep—business in the system, but at the risk of turning that business into a money-losing proposition. 

To compete successfully, hospitals will not only need to lower price, but also lower cost-to-serve—rethinking how operations are run, how overhead is allocated, and how services are staffed and delivered in ambulatory settings. 

“We’ve got to get our costs down,” the CEO admitted. “Trying to run an ambulatory business with our traditional hospital cost structure is a recipe for losing money.” 

And as a system CFO recently told us, “We can’t just trade good price for bad, for doing the same work. We have to be smart about where to discount services.” The future sustainability of many health systems will hinge on how they navigate this transition to an ambulatory-centric model.