iSustainability of our healthcare system was an interesting topic at Day 2 of the 42nd Annual J.P. Morgan Healthcare Conference. Paul Markovich, CEO of Blue Shield of California, expressed the concern that “[T]he status quo is an existential threat to our healthcare system.” Markovich is worried that the healthcare system is losing the public’s trust – which will make it harder to effectively fix our system – while also not delivering the quality of care and accessibility needed by our population. For example, Christopher Riopelle, CEO of Strive Health, shared today that 42% of U.S. patients whose kidneys fail never have seen a nephologist prior to that catastrophic event, and 90% of kidney disease patients are undiagnosed. For a disease that has a total spend of approximately $420 billion, how is our system missing these patients?
Farzad Mostashari, CEO of Aledade, pointed out that the American healthcare system generally just waits until we, as patients, slide over the waterfall – experiencing that heart attack, kidney failure or stroke – to then commit to spend any amount of money once that event has occurred. So, unless you’re in one of the few delegated global risk arrangements in this country, there is no money for prevention of the catastrophe, only money to chase health once it has been lost or harmed. As Mostashari said today, it is becoming increasingly clear to primary care practices that the current system is not sustainable.
It’s also complex, and, as we know, complex systems are more prone to failure. Steve Sell, CEO of agilon health, today had to explain to the conference audience why agilon’s medical loss ratio (MLR), i.e., its medical expenses as compared to total revenue, recently had worsened. Sell noted that there had been higher utilization coming from hip and knee replacements in their Medicare Advantage (MA) population, as well as certain drug and other costs. To those of you who think that a hip and knee replacement spike should be knowable from a commensurate increase in prior authorization requests, keep in mind that the MA health plans in recent years have increased the number of plan designs that are PPO (preferred provider) based, rather than with an HMO design. Members like the PPO design as it allows for more patient choice of physicians and facilities. BUT, while the HMO plans generally require a prior authorization, the PPO MA plans generally do not require a prior authorization. So, a delegated group at risk won’t necessarily see a spike in prior authorizations that allow tracking and addressing of an expense increase – until the health plans share the data after the fact. And for payors, that lag of sharing the data downstream to provider entities may be 1-3 months, with agilon reporting an average lag of 1.6 months. So, the butterfly wings that beat strongly during the health plan’s benefit design decision making during its Medicare Advantage bid process in the June of the preceding year to shift plan offerings to a PPO design caused the unexpected result of unforeseen jumps in medical spending for certain categories of disease over a year later. And that knee or hip replacement likely was supposed to have occurred earlier but was postponed for a time due to the pandemic. It’s a very complex and interconnected, but still fragmented, healthcare system that we have.
Tell me that again slowly please
We were talking about oncology in yesterday’s blog, and I was just gobsmacked on Day 2 to hear from Moffitt Cancer Center in Tampa Bay, Florida that one-third of the patients referred from the community had their diagnosis changed by Moffitt. That’s one-third who initially were diagnosed with the wrong cancer or didn’t have cancer. Just think about what that wrong diagnosis means for treatment choices and survival rates. It also raises the question of what happens with the cancer patients who don’t go to a cancer center or other sophisticated facility. Perhaps we need to rethink how we as a country are approaching cancer care.
I also was intrigued by Moffitt’s focus on T cell therapy research and commercialization. They are not only doing the research and partnering, but they are building a life sciences industry campus to help companies launch and grow. Bringing the physicians, scientists and entrepreneurs together in close proximity can aid communication, innovation and positive feedback loops. As mentioned yesterday, Cleveland Clinic is building an “innovation district” along the same lines.
Collagen and Chronic Disease
I learned about ECM today – that’s extracellular matrix – and its relationship to chronic diseases and cancer. Nordic Bioscience, a manufacturer of biomarkers and other products, connected some interesting dots about chronic disease and inflammation. As many of us know, it’s not good to have inflammation in our bodies on an ongoing basis, as chronic inflammation stresses the body and has been associated with DNA damage that can lead to cancer. Collagens are the backbone of all tissue in the body, but not all collagen is within the boundaries of cells. In between and outside cells, there also is collagen, hence the term extracellular matrix. This ECM is being demolished and repaired on an ongoing basis normally, but most chronic diseases (over 50 pathologies) result in the dysfunctional remodeling of ECM that results in cell death and collagen fragmentation. These fragments and debris attract inflammatory cells to the site of the damage, and the process of rebuilding ECM and tissues also results in protein fragment debris and additional inflammatory cells. So, while an acute injury may result in one-time destruction and rebuilding, ongoing chronic disease can result in escalated and ongoing inflammation. Chronic disease creates an ongoing battle within the body. This inflammation can exacerbate chronic disease and/or create further disease, like cancer.
So, in COPD patients, the remodeled ECM collagen is stiffer in the lungs, making it harder to breath, and there is 50% less formation and 50% more degradation of tissue. In rheumatologic diseases, non-functional tissues (fibrosis) is formed in the skin, liver, lung or kidneys or increased degradation occurs leading to tissue loss. Now I understand why my primary care physician tests me annually for inflammation through a C-reactive protein (CRP) test. It’s an indirect way of testing for the presence of chronic disease inflammation. The CRP test also shows whether there is an increased risk of diabetes, hypertension and cardiovascular disease, and perhaps even cancer. And if it is cancer, I will think very carefully about where I go for my diagnosis…
Getting to the End
A study quoted today suggested that 90% of Medicare patients would prefer to pass at home, but only 34% achieve this. By dying in the hospital, or as Atul Gawande put it, medicalizing our mortality, the majority of Medicare lifetime medical expenditures occur during the last year of life, burdening the system and shifting resources, while frustrating patients’ choice. The good news is that we are seeing positive movement toward confronting this problem, both in advance care planning and palliative care.
Aledade in 2022 purchased Iris Healthcare to provide advance care planning to its patients. Farzad Mostashari noted that generally it takes about six hours for the patient and the family to work through and discuss the necessary advance care planning – but a primary care physician won’t have that type of time available. Thus, a service like that provided by Iris or Vital Decisions (acquired by Evolent in 2023) can benefit patients while easing the physicians’ burden.
agilon health also has put palliative care programs in place for its joint venture partner cohorts, with the 2024 cohort being the first to launch with both palliative care and renal programs in place upon launch (the first such cohort to achieve this early a programmatic beginning). Monogram Health also spoke to the use of palliative care programs for its chronic kidney disease patients.
WellBe Senior Medical, an in-home value-based Medicare Advantage provider that has over 107,000 members and $2+ billion premium under management in seven states, announced on Sunday right before the start of the healthcare conference that it had received an investment from CVS Health Ventures, the venture capital arm of CVS Health. WellBe provides a range of services, including palliative care, in the home to the sickest and most complex patients.
In other recent similar activity, Optum had acquired palliative care and in home care providers Landmark Health and Prospero Health and merged them together in early 2023, according to press reports.
GLP-1’s for Chronic Kidney Disease?
Many of the health plans presenting at the J.P. Morgan conference were asked about coverage for the GLP-1 weight reduction drugs, such as Ozempic and Wegovy. While there were a variety of essentially temporizing answers from the health plans, the more interesting note on GLP-1’s came from the kidney care presentations. These companies are starting to explore whether the GLP-1 drugs can delay the progression of chronic kidney disease as well as address many of the common co-morbidities, such as diabetes and hypertension. That would be an interesting development to watch, given the high cost of treating chronic kidney disease and its co-morbidities.
A More Active 2024 for Hospital Mergers & Acquisitions and Ambulatory Care Networks as a Competitive Weapon?
We are seeing a rise in hospital mergers and acquisitions in the early days of 2024, especially in certain areas of the country where there is strong population and/or economic growth. Further, certificate of need regulations are being weakened or phased out in certain states, which will accelerate consolidation activities. With the growing disparity between successful and stressed health systems, the systems with a strong balance sheet are moving to expand market share and enter new markets by purchasing stand-alone hospitals, smaller systems and hospitals being divested by larger chains. We expect to see enhanced antitrust scrutiny of these deals, but we believe that, given the environment, systems still will attempt these transactions.
Additionally, many health systems are exploring the expansion of ambulatory care networks even in geographies where the system does not have acute care facilities. As an interesting market tactic that can be destabilizing for competitors, surrounding a competitor with ambulatory centers, imaging centers, urgent care centers and physician groups (especially high margin specialties) can undermine the defending hospital’s margin and interrupt their physician networks at a relatively low capital cost. This destabilization then can make the impacted hospital more likely to transact with that expanding competitor. Additionally, this ambulatory care network approach also increases the system’s catchment area and referrals back to the mother ship. We expect to see this strategy deployed even more in 2024 and 2025 in the face of increased hospital competition and financial stress.
That being said, the state level merger reviews are increasing. Ten states have enacted some form of Cost and Market Impact Review (CMIR) with California’s review by the new Office of Health Care Affordability (OHCA) being the most aggressive and broad ranging, which goes into effect for covered transactions in California that close after April 1, 2024. Other states with varying levels of regulation now include Oregon, Washington, Illinois, Indiana, Connecticut and New York. We have been working with the regulators and industry participants to understand and, if possible, mitigate the effect of these new laws; please contact us if you are contemplating a transaction that may be impacted by these laws. Transactions can include both acquisitions and sales, but also joint ventures, changes of minority equity ownership and other forms of affiliation. It’s important to learn about these new review processes, as the timeline can be extended – up to perhaps nine months – and come with significant additional work and transaction costs.
Day 1 Notes from the 42nd Annual J.P. Morgan Healthcare Conference
Day 3 Notes from the 42nd Annual J.P. Morgan Healthcare Conference
