Knowledge Expansion

WWGD? (What Will [Dr.] Gawande Do?) 5 key trends that may shape his strategy

Insight Article

Value-Based Operations

Brent Bowman

In 1993, one drove to a bookstore to buy a book. In 2004, one paid extra for two-day shipping, and nothing was delivered on Sunday until 2014. Before 2015, you could talk to your kids in your home without anyone listening.

Yesterday wasn’t like today for much of what we do. That’s not as true with healthcare. The industry is ripe for real disruption. Is now finally the time? The U.S. healthcare spend has surpassed $3 trillion per annum and now represents 18 percent of the GDP. The U.S. 2016 per-capita spend on healthcare was $10,348. By contrast, Canada, France and the U.K. all spent under $5,000 per capita.
 
Cost isn’t the only factor, so how do we fare in other areas? According to a 2016 Commonwealth Fund study of 11 western countries, the U.S. ranked last or close to last in access, administrative efficiency, equity and healthcare outcomes.
 
Pondering the future
I went to lunch with a “coopetitor” (cooperative competitor) a few weeks back and he asked me, “What do you think it will take for Americans to really get fed up with the high cost of healthcare?” This question, asked in such a pointed way, was not a question I’d so directly contemplated. Perhaps if our nation’s percent of GDP spend on healthcare topped 20%? Or 25%? Perhaps it will be when 15% of a family’s income is spent on healthcare, rather than the current average of 10%? Perhaps if we citizens knew with full transparency where all the healthcare spend is going and what inherent waste exists?
 
When will we reach our society’s breaking point on the cost of healthcare?
 
No one knows for sure, but many are betting that Dr. Atul Gawande and the organization he’s now leading will take their best shot at addressing what is — absent a more effective private industry alternative — a path toward state-run healthcare for all in this nation.
 
Dr. Gawande is at the center of one the largest new “how might they” contemplations in our industry: the triumvirate consisting of Amazon, Berkshire Hathaway and JP Morgan Chase, or A-B-C. In a January 2018 press release, these three companies announced their desire to form an independent healthcare company for their U.S. employees. In June, Dr. Gawande was named CEO of the venture.
 
Potential implications
Amazon, an industry-disrupting juggernaut, brings with it massive purchasing power alongside supply chain and distribution channel excellence. It’s built on a technology platform-enabled value proposition that has endeared itself to over 100 million of its Prime subscription members. Berkshire Hathaway, led by the “Oracle of Omaha,” Warren Buffet, owns 60-odd subsidiaries, including GEICO, an insurance company. Rounding out the group of three is JP Morgan Chase, the largest bank in the U.S. The combination of A-B-C brings massive scale, with over 800,000 employees on their collective payrolls.
 
By naming Dr. Gawande as the CEO of its new healthcare arm, A-B-C has again piqued the industry’s interest. It begs the question: What will Dr. Gawande, and the collective force of three billionaires behind him, do to affect change in the healthcare industry — the very industry that Buffet called “the tapeworm of the American economy?”
 
There are five key trends that may help shape a path for Dr. Gawande:
  1. Deductible plans
  2. Self-insured employer
  3. Bundled payments
  4. Consumerism
  5. Near-site clinics
 
Deductible plans
How has increasing the cost-share of health insurance to employees, giving them “skin-in-the-game,” been working? Not so well. While consumer-directed high-deductible health insurance plans have grown to covering more than 50% of workers in 2016, up from just 10% a decade prior, these plans have not stemmed the tide on healthcare costs. Dr. Gawande recently tweeted:
 
“Skin-in-the-game isn't working. Average deductibles for employer health plans tripled, and most patients can't afford to do anything except forgo care and treatment. The new venture could innovate on that by following in the footsteps of organizations like Kaiser Permanente, which offers both health insurance and healthcare to its members.”
 
As an executive at Kaiser Permanente, I’m humbled, yet left feeling mildly uneasy by the last part of that quote. JPMorgan’s CEO recently said of his high-deductible insured employees, “They didn't get the surgery they needed, when they needed it, because they can't afford the high deductible in one shot." CVS’s chief medical officer, Troy Brennan offered that some of their 200,000 employees in high-deductible plans stopped taking their medications. “Nobody in their right mind would think that it's a smart thing to basically be keeping people away from taking their medications,” said Brennan.
 
Corroborating these anecdotes, PwC’s 2018 Health Research Institute report found that 60% of those with high-deductible plans were more likely to have skipped or delayed care or getting medications. 69% of high-deductible enrollees likely would choose a different plan type next year if available, and 72% currently not enrolled in a high-deductible health plan were unlikely to choose one in the future.
 
Self-insured employers
The second trend of note is the growth in employers who choose to be self-insured. In my home state of Colorado, more than half of the insured market consists of employers who are self-insuring their employees. Nationally, that number is 40.7% (2016). These figures assert that insurance carriers don’t add enough value to cover the risk mitigation aspects of their plans. The self-insured employer is actively demonstrating to the insurance industry that it’s not doing enough to curb healthcare costs, so employers are taking matters into their own hands.
 
The Self-Insurance Educational Foundation claims cost savings in non-claims expenses alone can range from 10-25%. Self-insured employers don’t have to adhere to state coverage requirements, they can customize benefits packages for their employees and they can emphasize wellness programs with incentives that are impactful to the health of their staff. Self-insured companies have transparency around their employees’ claims data. Of course, the flipside comes in the form of managing the provider network, claims management (unless outsourced to a TPA), and sleepless nights for the CFO due to the risk of one or two high-cost claimants breaking the budget, stop-loss insurance aside.
 
Bundled payments
The third trend is bundled payments for certain procedures with a curated network of providers. This approach is gaining new traction after decades of existence and support from organizations like the Heritage Foundation and the American Medical Association. Carrum Health, out of California, has created a bundled payment solution that connects employers directly to regional healthcare providers, identifies top-performing providers, manages those providers and engages employees to use their services. Carrum Health self-reports a 40% cost-savings on knee and hip replacement, spinal fusion and coronary bypass episodes.
 
Recently, it became known that Cisco and Stanford Health have directly contracted to improve health outcomes at what is a 10% lower rate than other plans offered to its employees. Intel’s similar plan reports saving 17% on healthcare costs for the 38,000 employees enrolled in the plan, and other large organizations like Boeing and Walmart have also entered into direct contracts with provider organizations.
 
Consumerism
The fourth key trend that may be shaping Dr. Gawande’s path as CEO of A-B-C’s healthcare arm is consumerism. Meeting consumers where they are, on their timetable, has been a cornerstone of the decade-long smartphone era’s value proposition to consumers. The ability for technology to more efficiently bring care to the patient has paved the way for providers like Dispatch Health, who delivers mobile, on-demand urgent care and is currently rated a 4.6 out of 5 stars on Google in the Denver market. Dispatch Health seamlessly puts the power of “ordering” an in-person visit with an ER-trained provider in your home within an hour (after an initial triage, of course). It’s the nostalgic house call from over a century ago, enabled by a Toyota Prius instead of a horse drawn carriage.
 
Advances in telehealth, such as video visits and the online physician chat platform built by organizations like CirrusMD, have positioned care providers to more cost-effectively manage a growing subset of conditions via non-face-to-face channels. Patient adoption rates are mixed with video, but our organization has seen a meteoric rise in utilization of our online “chat with a doctor” tool in the 18 months since we implemented it — all with 95% patient satisfaction rates.
 
Amazon’s Jeff Bezos said in 2017 that healthcare will be one of those industries that is “made better by machine learning and artificial intelligence,” adding, “Echo and Alexa do have a role to play in that … [including] medication compliance.” Amazon has already developed a line of private-label OTC medications and has just announced a near-$1 billion purchase of PillPack, an online pharmacy that operates in all 50 states. What’s one of the most common things you do for your health at home? You take your medications. A-B-C may look to more cost-effectively deliver your medications to where you are — to your home — and then remind you to take them.
 
Near-site clinics
The final key trend is the rise of near-site clinics. These points of care, which are found standalone on street corners in the form of urgent care centers; within pharmacies, grocery stores and retailers; or at employer sites, have grown rapidly. In fact, from 2006 to 2015, urgent care visit rates for the commercially insured increased by nearly 800%. These locations are meant to disrupt costly ER visits or long waits for a primary care appointment. Their prevalence can be leveraged through benefit design structures or other creative incentives to help consumers obtain treatment for simple, acute care needs and can be better leveraged for ongoing chronic condition management.
 
According to Forbes, a Humana/Walmart partnership focused more on illness prevention would pressure other retailers to supply more affordable ways to “merchandise” healthcare. The Aetna/CVS merger also predicts greater leveraging of CVS’s infrastructure of walk-in clinics for those covered by Aetna plans. Amazon has recently identified ways to bring brick and mortar locations into its strategy through its new retail store concept and recent acquisition of Whole Foods. The neighborhood grocery store is already a common place for nesting other industries within those highly trafficked hubs by adding banks, pharmacies, and of course, near-site clinics. A-B-C could leverage this asset as part of its healthcare offering.
 
Some employers are taking the concept of near-site clinics and making them available to their employees and family members. Onsite employer clinics have been around for a while. Shipyards had them during WWII. Your elementary school likely had a school nurse in a “clinic.” The difference nowadays is that some are being stood up without clear, short-term financial justification. Smaller employers, like New Belgium Brewing in Fort Collins, CO, staff a full-time physician for fewer than 500 onsite employees. Historically, a benchmark was that an employer needed about 2,000 employees on site to financially justify such a presence.
 
Cisco has launched LifeConnections Health Centers in three locations around the globe. The concept is self-described as: “a patient-centered medical home model, integrating advanced primary care with alternative medicine. Award-winning and high-tech, LifeConnections Health Center offers world-class health care on campus for Cisco employees and their families.” Employers are losing faith in the healthcare system’s ability to meet their need to deliver high-quality, affordable healthcare for their employees. They’re taking matters into their own hands.
 
A-B-C is taking on “big healthcare”
Make no mistake, A-B-C is taking on “big healthcare.” The aim is to disrupt an industry that recently surpassed retail as the sector that employs the most in this country. So, WWGD?
 
If one were to predict, A-B-C will employ or contract directly with exclusive primary care physicians, non-physician advanced practice providers and nurses to provide those services for their employees at very low or zero cost to employees. This will be heavily reliant on virtual care to keep costs down, but onsite or near-site options for face-to-face visits must be available, particularly in larger markets. This approach will aim to counteract the care “self-rationing” that’s been occurring for employees not wishing to pay the cost of care up to their deductible.
 
Acute and specialty care needs will be managed via contract, but the usage of each will be viewed by A-B-C as either a “failure” of their primary care system for allowing employees to be under-managed on the prevention end of healthcare, or justifiable based on a referral from one of their own value-incented primary care providers. Bundled payment models will be established around centers of excellence for certain surgical procedures, particularly in the ambulatory setting. Coordination of care for chronic illness will be managed nationwide via chronic care coordinators. Hospital contracts will be market-comparable, and thus costly on a unit basis, particularly in the short term. However, with all the investment in making it easy to access needed care upstream in the care continuum, hospital admission and readmission rates should be lower than the national average.
 
Now, those are all aspects of health care, which according to the well-cited 2002 HealthAffairs paper by McGinnis, Williams-Russ, and Knickman, only account for 10-15% of health outcomes, while some “40 percent of deaths are caused by behavior patterns that could be modified by preventive interventions.” If A-B-C really wants to affect change for its employees, it will identify innovative ways to support and incent healthy behavioral choices, such as diet, exercise and medication adherence.
 
On behalf of all Americans I wish you the best, Dr. Gawande. As a “big healthcare” industry member, I stand ready to contribute in my small way to help.
 
Here’s to “coopetition.”

Learn more
Interested in a frank dialogue on how healthcare is being reshaped rapidly, and how a consumer-centric focus and understanding of technological disruption can lead practices to lower costs and better care outcomes? Attend the author’s session at MGMA 18 | The Annual Conference in Boston. “Dueling Disruptors: Understanding Consumerism and Technology in Healthcare Today” will take place on Monday, Oct. 1 at 11 a.m.
Get the details and register.

 

About the Author

Brent Bowman
Vice President, Strategy and Expansion Markets Kaiser Permanente Colorado Denver, CO

As Kaiser Permanente Colorado’s Vice President of Strategy, Brent Bowman is responsible for strategic planning and execution, as well as patient experience. He is the market leader for Colorado’s Northern, Southern, and Mountain Colorado service areas. Prior to joining Kaiser Permanente, Brent was a managing consultant with PricewaterhouseCoopers and IBM Business Consulting Services in the global customer relationship management practice based in San Francisco. He has a Bachelor of Science in Information Systems and accounting and a Master of Business Administration.

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