Day Two Notes – JP Morgan Healthcare Conference, San Francisco
It was another interesting day at JP Morgan, the healthcare conference that never disappoints. Surprising declarations of war and peace, partnering that really works and strong growth stories all were heard today.
Here’s some of the highlights:
Anyone want another $3 billion a year (or, alternatively, who needs a Power Ball lottery ticket anyway)?
In addition to the well-rehearsed and expected re-telling of the Cigna acquisition story, Joe Swedish left many mouths hanging open this afternoon when he told the audience in great detail how he believed that Express Scripts (ESI) owes him $3 billion more per year – for each of the next three years until 2019. That’s $9 billion in total. According to Anthem, the existing pharmacy benefits management (PBM) agreement between Anthem and ESI has a renegotiation clause that triggered in December 2015. Anthem is asking for significant repricing based upon their reading of the contract and independent pricing studies, and Anthem believes that its shareholders and members deserve to receive the benefit of the ESI agreement. Per Anthem, ESI is considering the situation but hasn’t yet engaged with Anthem in a manner responsive to Anthem’s concerns.
Now, it’s not unusual for the gloves to come off during a high-value contract negotiation such as a PBM agreement for an entity as large as Anthem. What is surprising is the choice by Anthem to air the laundry in public at one of the highest profile annual events. For some of us in the audience, we read between the lines and saw what looked like a declaration of war (not Joe Swedish’s language nor confirmed by him). This was a pretty big gun that was fired this afternoon, and we’ll be fascinated to see what happens next. If I am in ESI’s shoes, it was not a happy day, as not only was the Anthem contract called into question. Anyone else who has an ESI PBM contract up for renegotiation is going to take note and think hard about their renewal or repricing. And, further, if your ESI customer service has been less than optimal, you too are going to be thinking hard about what ESI may or may not have been doing with those excess ESI dollars claimed by Anthem. Remember that old cigarette commercial with the slogan, “I’d rather fight than switch?” Good day to be an ESI competitor…
A Kinder, Gentler Tenet?
When you think of Tenet from days gone by, you have many adjectives and phrases in your mind but “a trusted partner to leading nonprofit health systems” was not one of them – not by any means whatsoever. But yet, that’s what Tenet reframed itself as today at the JP Morgan conference. It’s actually a brilliant play. With nonprofit hospitals representing approximately 80% of all U.S. hospitals, it’s a large sandbox out there for Tenet to play in. So, what are the key elements of their strategy? First, be open to joint ventures with local nonprofit systems, such as the Baptist joint venture in Birmingham, Alabama, or the Baylor Scott & White joint venture in Dallas-Fort Worth, Texas. Second, be a “one-stop” shop for hospitals looking to shift to coordinated care and population health management. Third, provide solutions that let Tenet share in the approximately $100 billion of patient revenue from its current partners through multiple service lines that support non-profit hospital systems, such as USPI’s ambulatory surgery centers, urgent care centers and imaging centers and Conifer’s revenue cycle management and other managed care/coordinated care service lines.
Oh, and by the way, continue to support their existing hospitals by building out physician networks, increasing high acuity, high margin service lines (neurosurgery, ortho, cardiac, trauma, etc.) and improving quality.
Now that we can see how Tenet is visualizing the USPI acquisition, there’s an interesting story being told here. Looking forward to see how the market reacts to the “new” Tenet.
AccentCare gave a great presentation today, showcasing how to effectively put together population health management, joint ventures, bundled payment initiatives and technology in the post-acute sector and make it work. Chief Executive Office Stephan Rodgers, formerly of Optum, took the audience through an impressive array of statistics that showed how home health, personal care services, medical home care and hospice services can be integrated to make a significant cost dent and quality improvement in complex care management patients. The post-acute sector has a large number of small providers, with large variations in pricing and quality across geographies. With more focus recently on post-acute, there’s a need for a sector leader to emerge and innovate, while partnering with hospital systems.
Ascension continued to show strong growth as a system. With two recent closed acquisitions and the pending letter of intent in Wisconsin for the Wheaton Franciscan system, Ascension would add another $1.8 billion in estimated revenue for 2016. Additionally, Ascension financially benefited (as did many other systems) from Medicaid expansion in states that chose to expand coverage. Ascension also talked about further developing integrated systems of care and has taken steps in that direction, such as working to bring all of their employed physicians into a single medical group structure, bringing on board a healthcare insurance company and creating a joint venture for post-acute home health care and infusion therapy.