On Tuesday, Amazon unveiled its latest healthcare offering, RxPass, which will deliver generic prescription drugs to Prime members who pay an additional flat $5 monthly surcharge. The service, which currently covers 53 medications for common conditions, requires consumers to pay out-of-pocket rather than through insurance, but does not limit the number of drugs a subscriber can receive for the flat monthly fee.
RxPass is not yet able to ship medications to eight states, including (notably) California, Texas, and Pennsylvania.
The Gist:Paying $60 a year to avoid the hassle of going to a pharmacy or dealing with another mail-order delivery program will be a very attractive offer for many of the 168M US-based Amazon Prime subscribers, as much for the convenience as for the potential cost savings.
But the concept isn’t novel. Case in point: Walmart continues to offer its $4 generic drug program, launched in 2006. Given that the average Prime member is 37 years old, Amazon’s flat-fee service offering will target a younger demographic with fewer medication needs—and complement the service offered by PillPack, acquired in 2018, which is built for older customers on multiple medications. An evolutionary, not revolutionary, step in Amazon’s ongoing moves into healthcare.
Budget retailer Dollar General announced this week that it’s partnering with mobile medical service provider DocGo to deliver routine primary care in mobile clinics outside three stores near its Goodlettsville, TN headquarters.
The mobile clinics will accept public and select commercial insurance plans, as well as offer services for a flat fee. It’s the latest step in Dollar General’s tentative exploration of healthcare, which includes a partnership with Babylon Health to offer telehealth visits in several Missouri stores, and the DG Wellbeing initiative, which has placed basic health and wellness products in roughly 3,200 of its 19,000 stores nationwide.
The Gist: With an unmatched footprint in rural areas (an estimated 75 percent of the US population lives within five miles of one of its stores) Dollar General has the capacity to transform rural healthcare access.
Rather going head-to-head with other national retailers who are quickly expanding into healthcare delivery, Dollar General has so far taken a measured approach, aiming to develop workable services that improve rural healthcare access at the margins.
Since it hired a chief medical officer in 2021, it has dabbled in small care delivery pilots like this one, but one of these pilots will need to succeed at scale for Dollar General to enter the ranks of serious retail disruptors.
On Monday, Indiana-based Elevance Health, formerly known as Anthem, announced it has signed a deal to add Blue Cross Blue Shield of Louisiana (BCBSLA) to its network of Blues plans for an undisclosed sum. BCBSLA covers two-thirds of the state’s commercial insurance market, and has partnered with Elevance for five years to serve Louisiana’s dual-eligible population.
Elevance will operate BCBS plans in 15 states and cover 49M beneficiaries should the acquisition go through, though the move faces regulatory obstacles around folding nonprofit BCBSLA into its for-profit business.
The Gist:This deal is a harbinger for similar combinations to come. We’ve long been expecting more roll-ups of state- and regional-level plans as they struggle to compete with the for-profit national giants.
Standalone regional plans often lack the scale to diversify their businesses and emulate the successful strategic playbooks of national insurers like UnitedHealth Group and Humana, which have rapidly expanded into the more profitable areas of care provision, provider support services, and pharmacy benefit management.
State-level Blues plans have long been dominant in the PPO-driven commercial market, but have experienced mixed success in expanding into Medicare Advantage and other segments. If these mid-sized insurance players find they can’t compete alone, it won’t bode well for the cohort of much smaller “insurtech” startups.
As hospitals and health system leaders continue to grapple with persistently high nursing vacancy rates and severe staffing challenges, and face growing pressure to cut costs, we’re beginning to hear serious—if paradoxical—consideration being given to sharpening the axe, with an eye on a long-standing sacred cow: “Magnet” status.
For years, leading systems have invested significant time and resources to earn Magnet status, a designation of nursing quality granted by the American Nursing Association through its American Nurses’ Credentialing Center. Applying for—and then renewing—the designation can cost millions of dollars and involve significant process changes and staff time. In return, participants can market themselves as “Magnet hospitals”, presumably garnering additional patient business and giving them a leg up in recruiting high-quality nurses. At a time of severe nursing shortage, you might expect interest in earning or maintaining Magnet status to be spiking.
But that’s not what we’re hearing. “It’s just too expensive,” shared one system CEO recently. “We haven’t really seen it move the needle on volume, and our Magnet-designated facilities are just as stretched as the non-Magnet ones, with equally low morale.” Plus, at a time when the ability to pursue flexible staffing models is at a premium, keeping up with Magnet standards is increasingly handcuffing some hospitals looking to evaluate alternative staffing solutions.
“We can achieve all of the benefits of Magnet without having to jump through their hoops on process and data collection,” a system chief nursing officer told us. “We’re working on our own, internally-branded alternative to Magnet—something our own staff comes up with, rather than something artificially imposed from an outside organization.”
Ironically, this may be another area—like the battle against contract labor—in which systems now find themselves aligned with nursing unions, which have long opposed the Magnet program as just a marketing gimmick. There’s no question that programs like Magnet have helped increase the visibility of nursing as a driver of quality care. But given the current economic environment, it’ll be interesting to see how much hospitals are willing to continue to invest to maintain the designation.
After the number of health system mergers and acquisitions (M&A) reached a recent low in 2021, last year saw a slight rebound in deal volume, while continuing the trend toward mergers between larger systems.
Using data from Kaufman Hall’s 2022 M&A report, the graphic below shows that the number of announced health system M&A transactions dropped by over 50 percent from 2017 to 2022, while the average revenue of the smaller system in each deal increased by over 125 percent. The steadily rising average size of the smaller party is a product of both larger transactions occurring more frequently and smaller deals happening less often.
Since 2019, when the average seller posted $272M in annual revenue, the number of billion-dollar revenue systems merging together has more than doubled, while pickups of hospitals with less than $100M in annual revenue declined by over 65 percent.
Between the industry’s march toward consolidation, which has left only 20 percent of hospitals independent, and the market pressures created by vertically-integrated payers, we expect “mega-mergers” to be the new normal, especially as health system leaders look to build cross-regional scale while regulators continue to heavily scrutinize in-market combinations.
A working paper published this week by the National Bureau of Economic Research found that prior authorization requirements reduced drug spending far more than they increased physicians’ administrative costs.
Using a random assignment of plans within Medicare Part D’s low-income subsidy program, the study determined that a prior authorization requirement decreased a drug’s utilization by just over 25 percent, with around half of denied beneficiaries opting for a comparable alternative and the other half receiving no drug at all. This generated $96 in per-beneficiary-per-year savings, which the authors estimate to be around 10 times greater than the administrative costs incurred.
The Gist: Physician groups have long despised prior authorization processes, listing it as their most burdensome regulatory issue. While studies like this are useful for demonstrating the returns from these processes and putting the tradeoffs in perspective, they fail to account for who is bearing the burden of the time spent, and who captures the cost savings: physicians bear the administrative costs, and payers capture the returns. Not to mention that worried patients, anxious to receive treatment, are often put in the position of “quarterbacking” a convoluted and bureaucratic appeals process.
Ongoing work should focus on streamlining authorizations, to lessen the impact on physicians’ time and satisfaction, and make navigating the process simpler for patients. An increasing array of technology options aims to solve this problem though automation, but the challenge remains for payers and providers to come together to deliver on that potential.
Understand the health care industry’s most urgent challenges—and greatest opportunities.
The health care industry is facing an increasingly tough business climate dominated by increasing costs and prices, tightening margins and capital, staffing upheaval, and state-level policymaking. These urgent, disruptive market forces mean that leaders must navigate an unusually high number of short-term crises.
But these near-term challenges also offer significant opportunities. The strategic choices health care leaders make now will have an outsized impact—positive or negative—on their organization’s long-term goals, as well as the equitability, sustainability, and affordability of the industry as a whole.
This briefing examines the biggest market forces to watch, the key strategic decisions that health care organizations must make to influence how the industry operates, and the emerging disruptions that will challenge the traditional structures of the entire industry.
Preview the insights below and download the full executive briefing (using the link above) now to learn the top 16 insights about the state of the health care industry today.
Preview the insights
Part 1 | Today’s market environment includes an overwhelming deluge of crises—and they all command strategic attention
Insight #1
The converging financial pressures of elevated input costs, a volatile macroeconomic climate, and the delayed impact of inflation on health care prices are exposing the entire industry to even greater scrutiny over affordability. Keep reading on pg. 6
Insight #2
The clinical workforce shortage is not temporary. It’s been building to a structural breaking point for years. Keep reading on pg. 8
Insight #3
Demand for health care services is growing more varied and complex—and pressuring the limited capacity of the health care industry when its bandwidth is most depleted. Keep reading on pg. 10
Insight #4
Insurance coverage shifted dramatically to publicly funded managed care. But Medicaid enrollment is poised to disperse unevenly after the public health emergency expires, while Medicare Advantage will grow (and consolidate). Keep reading on pg. 12
Part II | Competition for strategic assets continues at a rapid pace—influencing how and where patient care is delivered.
Insight #5
The current crisis conditions of hospital systems mask deeper vulnerabilities: rapidly eroding power to control procedural volumes and uncertainty around strategic acquisition and consolidation. Keep reading on pg. 15
Insight #6
Health care giants—especially national insurers, retailers, and big tech entrants—are building vertical ecosystems (and driving an asset-buying frenzy in the process). Keep reading on pg. 17
Insight #7
As employment options expand, physicians will determine which owners and partners benefit from their talent, clinical influence, and strategic capabilities—but only if these organizations can create an integrated physician enterprise. Keep reading on pg. 19
Insight #8
Broader, sustainable shifts to home-based care will require most care delivery organizations to focus on scaling select services. Keep reading on pg. 21
Insight #9
A flood of investment has expanded telehealth technology and changed what interactions with patients are possible. This has opened up new capabilities for coordinating care management or competing for consumer attention. Keep reading on pg. 23
Insight #10
Health care organizations are harnessing data and incentives to curate consumers choices—at both the service-specific and ecosystem-wide levels. Keep reading on pg. 25
Part III | Emerging structural disruptions require leaders to reckon with impacts to future business sustainability.
Insight #11
For value-based care to succeed outside of public programs, commercial plans and providers must coalesce around a sustainable risk-based payment approach that meets employers’ experience and cost needs. Keep reading on pg. 28
Insight #12
Industry pioneers are taking steps to integrate health equity into quality metrics. This could transform the health care business model, or it could relegate equity initiatives to just another target on a dashboard. Keep reading on pg. 30
Insight #13
Unprecedented behavioral health needs are hitting an already fragmented, marginalized care infrastructure. Leaders across all sectors will need to make difficult compromises to treat and pay for behavioral health like we do other complex, chronic conditions. Keep reading on pg. 32
Insight #14
As the population ages, the fragile patchwork of government payers, unpaid caregivers, and strained nursing homes is ill-equipped to provide sustainable, equitable senior care. This is putting pressure on Medicare Advantage plans to ultimately deliver results. Keep reading on pg. 34
Insight #15
The enormous pipeline of specialized high-cost therapies in development will see limited clinical use unless the entire industry prepares for paradigm shifts in evidence evaluation, utilization management, and financing. Keep reading on pg. 36
Insight #16
Self-funded employers, who are now liable for paying “reasonable” amounts, may contest the standard business practices of brokers and plans to avoid complex legal battles with poor optics. Keep reading on pg. 38
HENRY KOTULA 