Category: Payers

Recon takes an analytical look behind select developments in healthcare

AI in healthcare III: COVID-19 applications and implications

COVID-19 has accelerated the adoption of AI in healthcare. AI based tools and solutions can work quickly, be deployed at scale, and respond to the dynamic nature of the crisis. Use-cases span all facets of responding to the pandemic, from diagnosis and triage, to treatment and combating new transmission. A wide range of players—including startups, established companies, universities, and more—are bringing their capabilities and perspectives to the table. Startups like Current Health, a UK-based remote-monitoring company supporting Mayo Clinic and Baptist Health with their COVID-19 response, are benefitting the industry’s

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Buying kit for a leadership position in the @Home revolution? Implications of Optum’s acquisition of naviHealth

Summary NaviHealth is a leader in post-acute care management; since it manages but does not provide care, its impact is constrained by quality of available providers By aligning with Optum clinical and technology assets, naviHealth can raise the capabilities of post-acute providers, direct more cases to be discharged directly to the home and speed up the return home for others Given inpatient stays often mark the start of sustained needs for help in the home, a post-acute navigator like naviHealth could be well-positioned to orchestrate longer-term “aging-in-place” support Overview of

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Covid’s backhand blow: payer mix degradation and the threat of renewed payer/provider rate brawls

Among Covid’s many repercussions, the recession shock will drive a sustained degradation of provider payer mix.  I estimate that each 5% added to unemployment will incrementally reduce hospital[1] operating margin by 1.0-1.5% and hospitals would need to charge 3-4% more on commercial care to maintain margins[2].  Given that hospital costs make up 40-45% of commercial total cost of care and we are facing unemployment scenarios of 15-20% (per Robert Wood Johnson – see table and source notes), we could ultimately expect this hospital rate pressure – if not averted or moderated

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Medicare Advantage’s durable – but underexplained – post-acute care advantage

Health Affairs has put out another study – this one by Skopec and team (subscription access) – comparing post-acute care (PAC) among Medicare Advantage (MA) vs. traditional Medicare (FFS). And, once again (see earlier study here – subscription access), we learn that MA beneficiaries use a lot less PAC than FFS with no major differences in outcomes. The pattern varies by type of PAC: far fewer post-acute MA members spend time in an inpatient rehab facility (IRF) but, when they do, they stay just as long as their FFS counterparts;

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Strategy in the Time of Covid

Preamble A recent post from Recon Strategy outlined the longer-term strategic implications of Covid-19 on 12 healthcare sectors. This post highlights the opportunity to redeploy corporate strategy assets to focus on the most important short-term strategy imperatives to not only ensure organizational resilience but to set up for success coming out of this crisis. Corporate strategy teams have tremendous analytical, creative, and operationally savvy resources that are accustomed to jumping into new situations, getting quickly up-to-speed, and delivering value. Leaders should proactively point these resources towards these areas of greatest

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The day after: Implications for hospitals, payers, biotech and more…

Even as our priority today is dealing with the Covid crisis, healthcare organizations would do well to start thinking about the longer-term implications for their strategies. In some instances the marketplace will revert to the prior dynamic, but in many others the changes wrought during this crisis are likely to persist in a way that will call for new strategy or will produce unpredictable outcomes that will require scenario planning. Sectors will be impacted in very different ways and there will be winners and losers in each. In this short

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Bolting a full-risk engine onto an urgent care chassis in New York

Last month, Warburg Pincus closed on previously announced plans to acquire a major multi-specialty practice in northern New Jersey (Summit) and combine it with an urgent care network centered in the New York metro area (CityMD).  The deal reflects private equity’s recognition that, as the stand-alone urgent care business model is increasingly vulnerable, the valuations in accountable care are increasingly compelling. Urgent care’s evolution Early on, urgent care entrepreneurs focused on filling the gap between overscheduled primary care and expensive ERs. Ramp the visits per day high enough and the

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Facing new vertically integrated competitors, WellSpan and Capital Blue Cross prepare for a long siege

Summary The Capital Region of Pennsylvania is shifting in “real time” from traditionally separate plan vs. plan competition and provider vs. provider competition to integrated vertical plan/provider vs. plan/provider competition Vertically integrated competition can initiate both arms races in delivery system capacity and new product and care management strategies The two big independents – WellSpan and Capital Blue Cross – are trying to match the disruptors with their own capital spend and a vertical alliance Once you cede decisions on terrain and timing to the competitor, you must make do

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OptumCare’s legacy entanglements could slow its site-of-service shift

By bringing together accountable-minded physicians, urgent care and ambulatory surgery centers (ASCs) on a national scale, OptumCare could prevent a lot of avoidable hospital care and move much of what remains to lower cost sites of service.  Wrap a capitation business model around it and you have a powerful “anti-system” – profitable for itself and toxic to hospital margins. OptumCare has a long way to go to put this theory into practice.  It is still in only ~35 of its target 75 markets.  And, within many of those 35 markets,

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There’s always a bigger fish: healthcare services giants are looking anxiously over their shoulders

With the closing of the CVS/AET and CI/ESRX combinations, healthcare services are now led by a triumvirate of vertically-oriented goliaths. And we can anticipate that there will be more care delivery acquisitions and investments to fill out the new vertical platforms—just as the leader UnitedHealth Group (UNH) continues to invest in its care delivery arm (with the pending acquisition of DaVita’s physician group) a decade after it first went into the clinic business. The extent to which the two new combinations have allowed legacy constituents CVS, AET, CI and ESRX

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Consider this speculative scenario on WMT-HUM: nibbling at the bottom and taking a slice off the top of the healthcare delivery pyramid

WMT is in talks with HUM about a relationship enhancement, possibly an acquisition. The two already know how to work together in alliances (narrow pharmacy network, marketing collaborations, points programs). If a new structure is needed, WMT and HUM must be considering a major expansion of scope or a set of operating models where contributions are difficult to attribute and reward (e.g. joint asset builds).  What is on their minds?  Beyond any interim incremental moves, what could be the endgame? Catching convergence fever Horizontal combinations among the top five health

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Google’s health insurance apprenticeship: some unicorns (maybe) but no masterpieces

Last month, word got out that Verily is in talks with health plans to “jointly bid” on care management contracts. Medicaid populations might be a reasonable surmised as the target given that (1) managed Medicaid requires bidding, (2) Medicaid contracts typically come in packets of hundreds of thousands of lives (which was the scale mentioned in the press reports) and (3) Verily had been considering (but decided against) bidding on Medicaid contracts using Oscar Health as a partner. It is curious, however, to see an organization seek collaboration with health

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Consider this speculative Amazon scenario in your strategic planning

Amazon has many puzzled about its plans for healthcare. Arguably, Amazon is just as puzzled, but is – in effect — running a massive Delphi process to sort out the plan. Amazon is, after all, the Breaker of Industries, Destroyer of Margins. Allow rumors to float, hire some people, have meetings, seek a few regulatory approvals, start a vaguely missioned non-profit with other business titans. Fear and greed do the rest. Stock prices gyrate as investors bet and counter bet on who is vulnerable, incumbent CEOs promise cooperation or competitive

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The UPMC/Highmark brawl spills into Philadelphia’s backyard – what happens next?

(For background on Pennsylvania market, please take a look at previous note here) Summary The UPMC/Highmark rivalry continues to open new fronts in Pennsylvania Highmark’s response to UPMC is differentiated in two ways: first, Highmark is using a coalition building strategy and, second, it is controlling its exposure to big in-patient assets; in contrast, UPMC is building an integrated, single-brand system and happily taking over hospitals (and building more) along the way When UPMC and Highmark make major investments in a region, local systems will be caught in the capex

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With the DaVita Medical Group acquisition, OptumHealth deepens its presence in existing markets rather than adding new ones

OptumHealth and its proposed acquisition target DaVita Medical Group (DMG) have a lot in common: Ambulatory care portfolios: physician practices, urgent care centers and ambulatory surgical centers (ASCs) – both directly owned and affiliated via owned independent practice associations (IPAs) Geographic position: multiple states and markets Advantaged model: within-market cross-referrals and care collaboration which should support market share, economics and a value-based care advantage Construction: largely assembled via acquisition resulting in similar challenges in integrating operations (e.g. multiple EHRs, management structures) In short, the DMG acquisition is a classic horizontal

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United’s ambulatory delivery system OptumCare can reach 70% of the US population

Who will be the first to take integrated health care delivery national? A few years ago, the best bet might have been an established provider with a nationally compelling brand and a growing affiliate federation such as Cleveland Clinic or Mayo. Instead, Optum – just a decade ago three separate services largely focused on serving United’s health benefits business – has entered care delivery and — by a constant stream of acquisitions big and small — built up beachheads in a majority of markets and is – via ongoing big

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UPMC’s race to the sea and the tentative steps towards Highmark-Geisinger alliance

On May 10, Highmark and Geisinger announced plans for a clinical joint venture to create community-based care in four rural north-central Pennsylvania counties. The target counties are small (200K lives total), largely peripheral to Geisinger and Highmark core markets, and are already served by the Susquehanna Health system. Why all this complexity and investment to launch a battle for 1.5% of Pennsylvania’s population? Look at the whole board The move should be understood in the context of the widening struggle between Highmark and UPMC. Consent decrees have temporarily fixed some

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A population health approach to value-based drug pricing

Working Paper   Summary Drug companies are naturally incentivized to price their drugs under assumptions of optimal clinical value, i.e. as high as possible.  Payers react to this by setting stringent conditions for patient eligibility for coverage of those therapies. As a consequence, patients who do not meet these conditions do not receive those drugs even though they could derive benefit, albeit not of a magnitude that would justify the cost.  Here we lay out a population health based scheme by which payers and drug companies can design a system

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Biopharma risk-sharing: what needs to happen

A couple of years ago, we addressed the question of whether drug companies could use new business models to capture more of the value they create. At the time, we pointed out that drug makers had struggled to get payers interested in new models, and that any potential solution would need to consider aspects of the drug (as it relates to the overall care paradigm and system), and of the payer. Fast forward to 2016, and there are a number of factors that suggest that now may be the right time for drug makers and payers

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Context is King – When to use an Agile corporate strategy?

“Agile corporate strategy” (as defined in a previous post) is already the established the weapon of choice for small, early-stage innovators trying to re-invent their marketplace, where the product is the company and uncertainty is the hallmark new emerging markets.  Startups like agile strategies – often referred to a “Lean Startup” – because they effectively counter the scale advantage of incumbent competitors without requiring massive initial investment.  But contrary to the conventional wisdom that firms must abandon agility as they get larger and more complex, in the right market context

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