Innovation and Disruption

Hospitals Face Business Impacts from Healthcare Innovators

November 15, 2018 9:24 am

A growing number of traditional and nontraditional companies are seeking to become consumers’ digital front door into health care, analysts say.

Nov. 14—Hospitals are facing a range of business impacts from innovative partnerships and approaches that have been launched in recent months and years, according to industry analysts.

One recent and growing trend has been the purchase of physician practices by insurers, led by the largest commercial health plan, UnitedHealth. The for-profit insurer’s employment of more than 30,000 physicians has aimed partly to prevent hospitals from buying up practices but also to shift the care delivery of those clinicians, said Matthew Borsch, managing director, BMO Capital Markets.

Borsch and other industry analysts addressed trends in healthcare innovation during a Nov. 14 roundtable in Washington, D.C.

The approach is markedly different from the earlier sole-payer system of physicians, as established by Kaiser Permanente, in that the new round of insurer-employed physicians are multi-payer providers. And the newer approach has worked well so far, serving as the lynchpin of UnitedHealth’s strategy to buy other provider types, such as ambulatory surgical centers, urgent care clinics, and hospices, said Ana Gupte, PhD, managing director with Leerink Partners.

“They have seen a remarkable mix shift of ED [emergency department] visits to urgent care,” Gupte said.

Insurers have not pursued hospital ownership for a variety of reasons, including the memory of failed ownership experiences in previous decades, Borsch said.

“Where is the spend? The spend is in the hospitals, and [insurers] have had this vision of not just moving healthcare costs out of the inpatient setting and into the outpatient setting but just creating a very robust ambulatory access,” Gupte said.

Physician employment arrangements work best in markets with a diverse payer mix and where the insurer has good market share and good availability of cash flow, said Gupte. Insurers like Humana want to buy more practices, but that company’s valuations are too stretched.

UnitedHealth’s physician practices have become numerous enough to generate about 15 percent of its revenue, which is “enough to make a difference,” Borsch said.

The new insurer-led arrangements also are well-positioned to take advantage of a growing push by the Trump administration to move more Medicare procedures into lower-cost settings, said Paul Heldman, managing partner with Heldman Simpson Partners.

“The jury is still out” on whether the insurers have succeeded in changing the clinical practices of their physician groups, said Borsch.

Private-equity firms also have snapped up a growing number of physician practices. Their objective may be to implement efficiencies that somewhat increase the revenues of those offices and to then sell them after five years, said Borsch, who confessed he does not know their “endgame.”

“If you can make a 10 to 15 percent loss-ratio differential because of how you manage that senior [population], there’s a lot of money to be made there,” Gupte said. “Can you do that as a solo practice? No.”

One source of savings for those acquired practices could be the ability to spread compliance costs from the Medicare Access and CHIP Reauthorization Act (MACRA) among a larger number of practices, Heldman said.

Insurer-Pharmacy Affiliations

The combination of CVS and Aetna and a possible deal coming between Walmart and Humana aim to take a subset of stores and repurpose them as a type of “neighborhood health center,” said Borsch, referring to the former entity.

“Something that would build out from the relatively limited and low-acuity level of services provided by the Minute Clinics,” Borsch said.

The model, which is not envisioned to include physicians, would be piloted after the merger between the companies is finalized.

“If it works, it has the potential to be a lower-cost site of care delivery, particularly if there are no physician personnel,” Borsch said.

Gupte was doubtful the approach would disrupt the existing primary care model. For example, she questioned whether existing nurses in CVS clinics, who primarily treat minor episodic health conditions, would be able to successfully manage complex chronic conditions.

Instead, Gupte expected home healthcare services to greatly expand their appeal to Medicare beneficiaries.

High-Tech Approaches

Among the increasing number of massive high-tech firms taking a growing interest in health care is Amazon.

Borsch expects the country’s largest online retailer to undertake initiatives such as online sales of medications—that reflect its strengths. Google is likely to develop advanced decision-support tools, which it will sell to health systems to help manage complex populations. 

Another area where technology firms will increasingly engage is in efforts to be seen by consumers as the “digital front door” for health care. A dominant platform in that area could become the gateway for consumers’ telemedicine needs, electronic health records, and information about insurance benefits, out-of-pocket costs, and provider networks.

The efforts of tech giants to fill that role are being contested by existing healthcare entities, such as through UnitedHealth’s purchase of Rally, which allows access to health records and information on provider networks and out-of-pocket costs.

One area that Gupte doubts technology firms will enter is insurance, which would require them to establish clinical network contracts.

“That is a slog, it needs years of work in IT systems, and there are a lot of downside risks with getting so involved and driving policy to manage health and treatment decisions,” Gupte said. 

Gupte sees the high-profile health venture established by Amazon, Berkshire Hathaway, and JPMorgan Chase as symptomatic of “angst and dissatisfaction in the very large employers.”

A growing number have pursued direct provider contracting, worksite wellness centers, centers of excellence, and arrangements for transportation to lower-cost providers. And the Amazon trio may be able to carve a role in employer-sponsored benefits, she said.

For instance, Amazon could move into drug supply chain services, serve as the digital front door, and innovate in worksite wellness, Gupte said. She expects the three companies to use their combined 1.2 million employees to pilot those approaches. 

“And if it works out, then you can market those solutions more broadly,” Gupte said.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare


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