Is M&A the Cure for a Failing Health Care System?

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The U.S. health care system is begging for disruption. It costs way too much ($3.3 trillion last year) and delivers too little value. Hundreds of millions of Germans, French, English, Scandinavians, Dutch, Danish, Swiss, Canadians, New Zealanders, and Australians get comparable or better health services for half of what we pay. For most Americans, care is not only expensive but is also fragmented, inconvenient, and physically inaccessible, especially to the sickest and frailest among us.

It should come as no surprise, then, that when titans of our private, for-profit health care sector — like Aetna, CVS, UnitedHealth Group (UHG), and DaVita — strike out in new directions, stakeholders react with fascination and excitement. Could this be it? Is free-market magic finally bringing Amazon-style convenience, quality, and efficiency to health care? Are old-guard institutions, like hospitals and nursing homes, on the verge of extinction?

The answer, frustratingly, is that it depends. It depends above all on the results. To be the change that many desire, these new mergers and acquisitions, and the others that will likely follow, must produce a higher-quality product for consumers (and satisfy physicians and other health professionals) at an affordable price. The details are crucial, and the details in health care — as our political leaders have recently learned — are complicated.

Even a high level look at two apparently similar deals suggests the importance of getting under the hoods of these arrangements. Both CVS’s planned $69 billion acquisition of Aetna and UnitedHealth’s $4.9 billion deal to buy DaVita Medical Group, bring together a very large national insurer and a large provider of health care services. Combining an insurance function with a delivery system has ample precedent in health care. Some of the nation’s most innovative, high-performing non-profit health care organizations use this formula.  These include the Kaiser Health Plans, Intermountain Healthcare in Utah and Idaho, the Geisinger System in Pennsylvania, the Henry Ford Health System in Detroit, and HealthPartners in Minnesota and Wisconsin, among others.

The reason this formula works is that when care-delivery systems also act as insurers, they assume financial responsibility for the care they provide. This tends to focus doctors, nurses, and other health professionals on the value of what they do — finding the most cost-effective approach to managing their patients’ problems. The result can be a culture of economy and quality that is very hard to replicate in the prevailing fee-for-service environment, where health professionals get rewarded for the volume rather than the value of services.

So the big question is whether these bold new combinations of insurer and provider can generate promising partnerships similar to a Kaiser or an Intermountain, or find some other equally powerful formula for disruption. The answer is far from certain, and the uncertainties differ for the two mergers.

In the CVS-Aetna case, the care provider, a pharmaceutical retailer and pharmaceutical benefit manager, provides a very limited set of health services: drugs, drug purchasing, and selected, basic, routinized primary care at more than 1,100 local Minute Clinics  located in communities around the United States. To become a Geisinger or an Intermountain equivalent, Aetna-CVS would have to acquire — or develop — seamless relationships with legions of primary care and specialty physicians and hospitals. It would have to turn its stores into medical clinics, with exam rooms, diagnostic laboratories, and x-ray suites. And it would have to install and link electronic health records with other providers in its communities. Having done all this, CVS would have to excel at the very challenging task of managing physicians and other health professionals — something that daily confounds even the most experienced, long-time, care-delivery systems. The challenge would be unprecedented, the expense considerable, and the outcome uncertain.

The CVS-Aetna partnership seems likely, instead, to set off in a very different, and intriguing, direction: offering an augmented suite of preventive and population health services for high-cost chronically-ill patients through its convenient, community-based outlets. CVS staff will serve as local case managers and coordinators for patients who might otherwise skip needed preventive services, have trouble getting to their primary care physicians’ offices, or just need help taking their medicines. The hope is that this will reduce patients’ use of more expensive emergency, hospital, and specialty services, thereby reducing Aetna’s bills and making its product more competitive. Aetna would incent its clients to use CVS services by exempting these from the normal deductibles and copays that most insurers charge, thus incidentally, increasing CVS’s business more generally. This strategy could attract customers to both CVS and Aetna, add health care value, and even drive up profits.

But uncertainties remain. In addition to those I’ve mentioned, one of the biggest challenges will be coordinating with traditional care providers, both primary care and specialists. Seamless teamwork is critical to effective care of complex, high-cost patients. And by adding another player to our already-fragmented health care system, the CVS-Aetna project could actually undermine coordination of services. And while better care for complex patients is clearly part of the solution to our cost and quality problems, it may not be the systemic disruption that some are hoping for.

The UnitedHealth-DaVita deal, in contrast, seems more likely at first glance to accomplish the insurer-provider partnership that has characterized Kaiser-style organizations in the past. The DaVita Medical group employs 2,000 primary care and specialist physicians in nearly 300 medical clinics, 35 urgent-care centers, and six outpatient surgery centers in six states. Among the group’s divisions is the formerly independent HealthCare Partners, which, as this Commonwealth Fund case study makes clear, has a long history of accepting and managing financial risk, using advanced information systems, and promoting quality-improvement programs.

That said, no one should underestimate the challenge of growing the UnitedHealth acquisition of dispersed physician groups into a national system capable of disrupting our floundering health system. Health care is a very local affair, and the organizations providing it tend to be creatures of their localities and histories. It can take generations for a provider-insurer partnership to develop a culture of trust, collaboration, and value orientation that has made existing examples of these combinations so uniquely effective. If the new entity seeks to grow, it will find that recruiting and training physicians who can leave the fee-for-service mentality behind is a challenge, as is finding leadership that can gain and keep health professionals’ trust. Kaiser has failed in several attempts to spread to new locations. And though UnitedHealth’s Optum division, which will run the partnership, has some limited experience managing selected specialty health services, making this new enterprise work could prove daunting.

Even if the Aetna-CVS and UnitedHealth-DaVita ventures contain the seeds of transformative health system change, it will take time for those seeds to germinate. But Wall Street is not a patient audience. The involved companies will face short-term pressure to prove the profitability of the new arrangements. From this standpoint, it does not bode well that DaVita was anxious to sell its medical groups because they were not performing financially.

The excitement about these two bold new health care arrangements says as much about the desperation with our current health care systems as it does about the promise of the mergers themselves. They may have compelling short-term business value to shareholders — though that, too, remains to be proven. As fundamental health care disrupters, however, they face challenging and uncertain futures.


How One U.S. Clinic Disrupted Primary Care, Made Patients Healthier And Still Failed

Turntable Health launched in Las Vegas in 2013 and looked to turn the traditional primary care model on its head.

Zubin Damania has a face for television, a mind for medicine and the sort of fearless personality required to be one of the internet’s most famous MDs.

Damania’s celebrity began in earnest not long after someone posted a clip from his 1999 UCSF Medical School commencement address. In his opening, Damania jokes that he’s on a “time delay,” given his reputation as a “loose cannon.” The rest of the clip, which has been viewed over 130,000 times on YouTube, takes you briefly inside the mind of a versatile entertainer and healthcare visionary.

From UCSF, Damania completed his internal medicine residency at Stanford University. He spent the next 10 years as a practicing hospitalist by day and a healthcare satirist by night – writing, performing and filming musical parodies about the frustrations of being a doctor. He’s best known today by his online persona, ZDoggMD, and for his nightly Facebook show, covering the latest medical news with his trademark wit.

The rise and fall of Turntable Health

In 2013, CEO Tony Hsieh asked Damania to launch a next-generation medical clinic in Las Vegas as part of a $350 million downtown revitalization project. Founded as a primary care practice, Turntable Health looked to turn healthcare delivery on its head.

Inside a waiting room that resembled a sleek Silicon Valley startup, Turntable members passed the time by spinning records, playing Xbox and practicing yoga. As part of their membership, patients had access to an entire “wellness ecosystem,” complete with same-day visits, 24/7 doctor access (by email, phone or video), along with a dedicated health coach. Doctors at the clinic spent 45 minutes or more with their patients, quite unlike the 13 to 16-minute visits that have become standard in U.S. doctors’ offices.

Damania credits the vision for his clinic to a partnership he forged with Rushika Fernandopulle, CEO of another innovative primary-care organization called Iora Health. With Fernandopulle’s guidance, Damania focused on population health and disease prevention to improve patient wellness and, over time, lower costs. And rather than charging for each visit, test or procedure, Turntable patients who were not covered by traditional insurance paid a flat fee of $80 a month.

Unlike any other primary care clinic in Las Vegas, Turntable Health was a success, medically. By emphasizing prevention and doctor-patient relationships, Damania’s practice achieved superior quality outcomes, while providing rapid access to care and high patient satisfaction. But from an economic perspective, the clinic was a bust. Insurers shied away from member fees, insisting on more traditional reimbursements, which directly contradicted Damania’s long-term health strategy. Turntable Health was forced to close its doors in January 2017, just three years after opening.

In a public statement, Damania explained: “We flatly refused to compromise when pressured by payers to offer fee-for-service options, or to begin charging a co-pay. We firmly believe that healthcare is a relationship, not a transaction.”

Unfortunately for Damania, most health insurers are too impatient. Investing in primary care and chronic-disease management is proven to reduce and even avoid medical problems. But it can take five to 10 years for the improvements in the health of patients to offset the added upfront costs of providing the necessary care. Health plans worry patients will switch insurers before they can recoup such a long-term investment.

Primary care doctors can and do play a critical role in preventing disease, spurring lifestyle changes and warding off complications from chronic illness, when they have the time to do so. Today’s fee-for-service payment system doesn’t adequately reward these efforts.

Today’s insurers are systematically reducing primary care reimbursements, forcing doctors to see 20 to 30 patients a day while spending the bulk of their time in front of a computer, entering patient data for billing purposes. This backward approach to care delivery is wreaking havoc on the nation’s health and economy. As the incidence of chronic disease grows, the cost of American healthcare continues to rise more rapidly than the nation’s ability to pay.

The closure of Turntable Health was a major loss for Las Vegas, where residents joke that the best place to go for healthcare is the airport. Compared to people with access to integrated and coordinated medical care programs, Las Vegans are less likely to be insured, get the recommended cancer screenings and receive other necessary preventive care interventions.

Pushing primary care: Iora Health and One Medical

Damania’s partner in primary care, Iora Health, is experiencing relative success nationally, with 30+ clinics in 11 metropolitan areas. Using the same model of patient engagement and prevention that Turntable adopted, Iora has shown 35% to 40% drops in hospitalizations compared to their community peers, with 12% to 15% lower total healthcare costs. They’ve also established contracts with insurance companies who are willing to invest in primary care, thus solving one of ZDogg’s biggest challenges.

And they’re not alone. One of Iora’s leading competitors, One Medical, operates out of San Francisco under the leadership of Dr. Tom Lee. Labeled by some as a “concierge” medical practice, the company’s network includes 250+ doctors in 40 cities coast to coast. One Medical offers patients the ability to schedule same-day appointments, access their health records online, and fill prescriptions using the One Medical app – all for a relatively affordable yearly fee of about $149. With a promise that “your care is our highest priority,” the company makes the primary care experience more convenient and user friendly, a mission that’s been paying off since 2007. One Medical’s subscriber base continues to grow by tens of thousands of patients each year, particularly within the tech industry.

Although these extremely well-run primary care systems have improved outpatient quality and patient satisfaction, their impact on overall healthcare costs remains minimal. If Americans want to make healthcare affordable again, the scope and pace of change will need to accelerate at every point of care. This will require innovative approaches that rein in the rapidly escalating costs of specialty and hospital care, where most added national healthcare expenditures (NHE) exist.



Healthcare’s Dangerous Fee-For-Service Addiction

For its many users, healthcare’s fee-for-service reimbursement methodology is like an addiction, similar to gambling, cigarette smoking and pain pill abuse. Doctors and hospitals in the clutches of this flawed payment model have grown dependent on providing more and more healthcare services, regardless of whether the additional care adds value.

I don’t use this metaphor lightly, nor wish to trivialize our nation’s growing problem with addiction. Rather, as a physician and former healthcare CEO, I am increasingly concerned with the impact this payment structure is having on American health. And I worry about whether providers are willing to “kick the habit” before it’s too late.

Addictive Qualities

The Affordable Care Act, signed into law March 2010, included several provisions encouraging doctors to focus on increasing value (instead of simply maximizing the volume) of healthcare services. And yet, seven years later, between 86% and 95% of U.S. healthcare providers are still paid for each individual test, procedure and treatment they provide, an arrangement that continues to drive up healthcare costs with little to show for it. According to the latest Commonwealth Fund report, the United States spends more on healthcare than any other industrialized country but ranks at or near the bottom in almost every measure of comparative quality.

As with any addiction, America’s dependence on fee-for-service has dire financial and health consequences. This year, the estimated cost of care for an insured family of four will reach nearly $27,000, paid for through a combination of employer health insurance ($15,259), payroll deductions ($7,151) and out-of-pocket expenses at the point of care ($4,534). Year over year, patients are on the hook for a higher percentage of their total healthcare costs, which rose 4.3% compared to just a 1.9% increase in the U.S. GDP last year. This is a major warning sign. If medical costs continue to surge 2% to 3% higher than our nation’s ability to pay, the healthcare system will soon reach a breaking point. Businesses, the government and insurers will have no choice but to ration care or slowly eliminate coverage for the nation’s poor, middle-class and elderly populations.

As with all addictions, the fee-for-service model has mind-altering effects, distorting the perceptions of its users in ways that make them unaware of their growing dependence. When providers are paid for doing more, that’s what they do: They increase utilization of services and ratchet up the cost of care without even realizing they’re part of the problem. According to one study, just 36% of practicing physicians were willing to accept “major” responsibility for reducing healthcare costs. Of course, the first step, as with other habits, is to recognize the problem. Only then can we explore treatment options.

Health care fixes miss the mark


The phrase “repeal and replace Obamacare” might be in the news, but any new legislation regarding it means little for Michiganians.

Obamacare and the Republicans’ fix, the American Health Care Act, are almost entirely focused on the individual insurance market, yet the majority of Americans receive employer-sponsored health insurance coverage. More importantly, more than one million Metro Detroiters are covered by employers who “self-fund” or self-insure their employee health care benefits.

What does self-insure mean? It means your employer pays, right out of its annual budget, 100 percent of employee medical claims. Your card might read Blue Cross Blue Shield or Aetna, but the insurance company is simply the administrator who collects the claims and sends them off to your employer for payment.

Regardless of who is paying, rising health care costs are the No. 1 threat to American prosperity. Health care costs forced General Motors, Chrysler and the city of Detroit into bankruptcy; health care costs are the main reason wages have not grown in 20 years; and, Michigan spends 40 percent (and growing) of its annual budget on health care — crowding out spending on everything else.

But fixing our health care cost problem today doesn’t require a single action from Congress. Instead of marching on Washington and yelling at elected officials, we should be talking to our CEOs and heads of human resources.

Self-insured employers have tremendous power to change health care. Most employers simply outsource health care benefit construction to consultants and brokers — the same people who are compensated to perpetuate our high-cost health care status quo.

When the lame, status quo attempts at cost-control fail, the usual employer response is to cut, cut, cut. They resort to using an axe to prune rose bushes; high deductible health plans are blunt force instruments that do not sustainably control health care costs and will eventually exacerbate our cost problem.

Indeed, a few, truly innovative employers are providing better employee benefits and reducing health care costs 20-50 percent. If everyone followed their lead, it could result in $2,500 to $5,000 annual raises for each of us and immediately pump $2 billion to 4 billion into the Metro Detroit economy every year.

The solution isn’t a secret. In fact, a non-profit/501(c)(3) called the Health Rosetta was formed to publicize the simple fixes. The organization was spurred by a concerned citizen and the former global head of Microsoft’s health care business named Dave Chase.

The Health Rosetta identifies a few, easy to implement, specific improvements, the most important of which focuses on the intake or front-end of the system: primary care. Hence, the Health Rosetta’s foundation is called Value-Based Primary Care or Direct Primary Care. Other improvements are then built on top, such as “Transparent Medical Markets,” where patients receive up-front pricing and even quality guarantees on a range of surgeries and procedures.

These are the kinds of solutions employers should be considering as everyone wrestles with skyrocketing health care costs.

Tom Valenti is the founding partner of Forthright Health.

Mayo Clinic Prefers Privately Insured Patients. So What?

John Noseworthy, MD

You may have heard that John Noseworthy, MD, the president and CEO of the Mayo Clinic, recently told employees that the Rochester, MN-based health system will give preference to patients with private insurance over those who rely on Medicaid or Medicare.

At this point it’s safe to say he wishes he hadn’t said that.

Predictably, that statement opened up a nasty public relations crisis for which the health system has still not fully recovered, even two weeks later. I asked to speak with Noseworthy, but through a spokesperson, he declined to further address the issue beyond the written statement proffered after the Internet exploded in reaction to his comments.