Day 3 Notes at the 2020 J.P. Morgan Healthcare Conference
CMI, CMMI, and Changing the Consumer Experience in the U.S. and China
Case Mix Index: Sitting in multiple hospital, payor and physician organization presentations at the J.P. Morgan healthcare conference this year, it is clear that the healthcare market continues to move ahead with the shift toward value and risk-based reimbursement. But, the number one target for healthcare savings in a value or risk-based reimbursement model is the reduction of hospital inpatient admissions and bed days where clinically appropriate, which likely will reduce hospital revenue and perhaps profitability unless proactive responses are taken. Yet, at this year’s conference only a minority of the hospitals presenting spoke to a critical indicator for their financial wellbeing that will become even more important for hospitals’ survival in a risk-based environment.
That factor is a hospital’s Case Mix Index, or CMI. CMI reflects the clinical complexity and resources needed for inpatient cases during a defined measuring period. CMI is derived by looking at relative weighted DRGs (diagnosis related groups for reimbursement purposes) averaged over total hospital discharges. While revenue or days cash-on-hand most often were cited as leading indicators in this year’s conference (by the way, both are in general going up this past year for larger health systems as they generally continue to improve performance and grow organically and through acquisitions), such measures are, in a sense, backward-looking indicators, whereas a rising CMI foretells increasing revenues and likely profitability as more complex and higher revenue care and procedures are provided. So what strategy best fits with increasing CMI?
With more and more procedures moving to an outpatient basis (Providence in their presentation estimated that 52% of DRGs will move out of hospitals to drug therapies or other ambulatory settings in coming years), what choices do health systems and hospitals have? Clearly one prevalent and popular choice is to diversify and increase the number of “doors” for patients owned or managed by the health system byadding physician practices, urgent care centers, ambulatory surgery centers and other outpatient facilities. Another and related approach is to move into more risk-based contracts and, where possible, be the entity bearing the global risk (professional, institutional and pharmacy risk) to maximize systemic control and upside retention for the hospitals. In presentations and press reports this week, Providence and Southern California health system PIH Health leadership both indicated an appetite for more risk, bucking the historical attachment of hospital leadership to the traditional fee-for-service system.
Another approach is to focus more intensely on the “highest, best use” approach that potentially also increases profitability and economies-of-scale. This approach was well presented in an intriguing presentation by David Lubarsky, Chief Executive Officer of University of California at Davis Health (UC Davis Health) on how academic medical centers can survive the oncoming transformation of healthcare. He gave an example of how the UC Davis Health system provides tertiary care for over 30 California counties and was experiencing a lower CMI for its neonatal intensive care unit (NICU). UC Davis Health partnered with a community hospital that was sending a significant NICU referral flow to the UC Davis NICU and counterintuitively worked to reduce that referral flow, resulting in the UC Davis CMI increasing from 1.17 to 1.63, a 39% increase. This was accomplished by UC Davis staffing the community hospital NICU with UC Davis pediatric hospitalists, working with the local hospital to raise the NICU from a level 1 to a level 2 designation, and providing telehealth support. This reduction in referral flow freed up UC Davis NICU beds for higher complexity cases, strengthened the community hospital (pediatric admissions increased by 50% and average daily census increased by 35%), and kept sick kids much closer to home and their families. And it strengthened UC Davis’ financial performance, while playing to the strengths of an academic medical center: (i) providing coordinated specialty care with all expertise in one place (multiple sub specialties not found in certain geographies); (ii) providing highly technological care (e.g., robotic surgery, technology guided procedures and Level 1 trauma center); and (iii) providing very focused subspecialty care (e.g., transplants, treatments for rare and/or aggressive cancers, complex procedures, high level NICU). In a separate program, UC Davis Health worked with a local federally qualified health center (FQHC) to obtain a HRSA waiver to allow UC Davis specialists to be co-located in an urban FQHC site. This provided better access for patients, increased utilization at the FQHC and decreased pressure on the nearest UC Davis Health hospital emergency room. An interesting pathway to consider…
CMMI: With the appointment of Brad Smith as Director of the Center for Medicare & Medicaid Innovation (CMMI) at CMS and Senior Advisor to Secretary Azar for Value-Based Transformation, the industry is looking to hear his priorities and initiatives. One big wish that we heard over and over again from physician organization executives at J.P. Morgan’s healthcare conference, including many of the leading global risk-bearing physician organizations and the next-generation leading population health management companies, was a desire for further clarification of the recently launched Direct Contracting initiative from CMMI. Many of the companies discussing this in the hallways indicated that they were holding back or had serious concerns about the treatment and measurement methodologies for risk adjustment under the new direct contracting model. The general consensus was that if risk adjustment closely follows the Medicare Advantage program, there will be significant uptake and participation in the direct contracting model (and by extension in the upcoming geographic model as well). If, on the other hand, the risk adjustment model is watered down or burdened unnecessarily, then participation will not occur, and CMS will have another Pioneer ACO 2.0 on its hands where most participants exited the program or declined to participate. In such event, such companies will focus instead on making the case to original Medicare FFS members to transition to Medicare Advantage, bypassing the Primary Care First and Direct Contracting programs entirely. We all hope to hear from CMMI soon.
Changing the Consumer Experience: In addition to the more generic theme of transformation that was bouncing everywhere this year in the conference, a specific point was made that the consumers were ready for a radical change in their experience of healthcare. Livongo argued that healthcare was ready for a tipping point, much like Google has brought to information availability and Amazon has brought to commerce. The companies that provide a better consumer experience will establish the distribution “pipe” trusted by the consumer through which multiple products and services can flow. Livongo, which is starting with the 32 million person diabetes addressable market, noted that 72% of that diabetic population has hypertension, and approximately half are obese. But how do you both change the experience and influence care and health effectively? For both Livongo and Oscar, the magic formula they described was to use both technology and human interactions to create a caring, connected relationship with the consumer. Livongo uses technologically sourced “nudges” to create consumer action, with a reported 40% efficacy (relatively high in terms of responsiveness compared to other traditional modalities), and supplies personalized scalable coaching interactions that are relationship based and based on data science approaches. As noted in an earlier blog, Oscar combines its app and messaging with a Concierge care team of multiple people with differing competencies to address and connect on member needs. The technology allows for a data-driven, consistently present approach, wrapped in human touch. Is it scalable and possible across multiple demographics? This is the challenge of the 2020s, as solving this will help to solve our societal need for managing chronic conditions and the total cost of care.
The China Track: Once the nonprofit hospitals finished their two days of presentations atop the 32nd floor, we saw the second year of a major China track at the J.P. Morgan healthcare conference. We noted last year the significant number of Chinese companies and investors attending, far in excess of prior years. Even with the recent trade war, we again saw a high level of participation by, and interest in, Chinese companies. The range was broad as well, including medical device companies, genomics and life sciences companies and pharmaceutical manufacturers. In the rapidly growing Chinese digital health space, Ping An Good Doctor – a Chinese healthcare platform looking to connect the 100 million middle class Chinese families to doctors and establish an online healthcare ecosystem – reported substantial progress. Another interesting initiative backed by Tencent, Goldman Sachs, and others is WeDoctor Group Ltd. WeDoctor has four main lines of business, according to press reports has been valued in excess of US $6 billion, and is collecting astonishing amounts of healthcare data arising from its consumer interactions and partners. Their business is an interesting mix of business-to-business and business-to-consumer in an interconnected fashion, and it will be worthwhile to see at next year’s healthcare conference how WeDoctor Group Ltd. has progressed. A February 2019 Harvard Business Review article describes their business as (quoting)
WeDoctor HealthCare is composed of two disease diagnoses systems, one for Western (RealDoctor) and one for Chinese medicine (Huatuo AI Doctor), both of which are facilitated by artificial intelligence (AI). The latter offering is reflective of the continuing reliance on traditional medicine in Chinese society. One of its more notable capabilities is detecting cervical cancer.
WeDoctor Insurance offers varying insurance options for users based on gender and concerns (cancer insurance, leukemia insurance, children’s insurance) at different price points.
WeDoctor Cloud allows its partnering hospitals, clinics, government, and businesses to use tools such as data processing, record management, AI diagnosis, pension management, and remote consultation.
WeDoctor Pharma integrates its healthcare services to provide patients a “one-stop shop” to receive a virtual consultation and receive an electronic prescription that can be immediately filled.