Payers, Policy

Analyzing the biggest payer storylines in 2018

A selection of the biggest payer stories in 2018, ranging from Amazon's healthcare incursion to Medicare Advantage's continued growth.

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The past 12 months represent something of a watershed moment in the healthcare industry as tech giants like Amazon made more definitive moves in healthcare, while incumbents — especially in the payer world — responded to the challenges by new dealmaking and partnerships.

Here’s my take on some of the year’s biggest news items and here’s where I make my educated guesses on what’s coming down the road.

Alexa, can you fix healthcare?
2018 was the year that new entrants staked out some territory in the healthcare world.

Of course, the road to Damascus is littered with big corporations who have tried to revolutionize healthcare and failed, with notable examples including Microsoft’s HealthVault experiment. But the foundational clinical data layer created by the transition to EHR systems and the advancement of technologies like artificial intelligence and machine learning to harness that information has made the timing more ripe for tech companies looking to make major inroads in an industry traditionally resistant to change.

Amazon looks poised to do just that, especially with early investor John Doerr saying he expects Amazon Prime Health to be rolled out in the not-too-distant future.

In the past year alone, the e-commerce juggernaut acquired San Francisco online pharmacy startup PillPack, started selling a line of branded medical devices, developed a healthcare collaboration with J.P. Morgan and Berkshire Hathaway and launched a new software service called Amazon Comprehend Medical meant to extract valuable info from unstructured medical data, among a host of other healthcare hires and investments.

So what exactly do those moves mean for the future?

  • Amazon’s PillPack acquisition headed off Walmart’s potential bid for the online pharmacy and almost instantly gave the company the license to ship drugs to 49 states. Additionally PillPack’s focus on packaging and sorting medications for easier chronic disease management fits with Amazon’s consumer-centric approach as well as its launch of its Choice line of low-grade medical devices to provide medical commodities at lower prices cutting out pharmacy business middlemen in the process. 
  • The company’s healthcare collaboration with J.P. Morgan and Berkshire Hathaway has a made string of important hires ranging from CEO Atul Gawande to former Accolade and Comcast leader Jack Stoddard to veteran insurance executive Dana Gelb Safran. While plans for the still unnamed venture have yet to be announced, the choice of partners and their combined scale opens up the possibility of directly negotiating with providers. It also given them the insurance and financial expertise to develop a data-driven coverage model for employer-based healthcare (thereby cutting out traditional health plans in the process).
  • Amazon Comprehend Medical will allow the company to ingest large amounts of medical data with the possibility of being eventually able to turn that expertise to helping consumers manage their own health. Diameter Health CEO Eric Rosow said he sees Amazon’s role in health IT as “liberator, rather than a competitor” and that the company’s role in normalizing unstructured data could enable a whole host of new applications built on top of clinical data. He pointed to the combination of healthcare and consumer behavior data with Amazon’s ownership of Whole Foods as potentiality unlocking major insights into the social determinants of health and better driving preventive health.

Integration activation
In the face of this new potential disruption, health plans have been forced to make moves to protect their existing business and position in healthcare’s future. Their reaction is best exemplified by AHIP CEO and President Matt Eyles, who said to Amazon, et al. during the organization’s annual meeting in San Diego, “Bring it on!”

Of course, that’s easier said than done with insurers consistently playing catch-up when it comes to consumer experience and trust. Still, traditional payer organizations have started to circle the wagons through vertical integrations and mergers like Cigna’s bid to purchase Express Scripts and CVS Health’s $69 billion effort to acquire Aetna.

CVS has touted the combined company’s ability to bring together both claims and pharmacy data to better understand the patient and leverage the pharmacy chain’s extensive nationwide footprint to act as new front door of health. But there’s plenty to be skeptical about — and organizations including the American Medical Association have made their reservations known — but some observers like healthcare consultant Rita Numerof remain optimistic about the possibility of consolidation to better control costs.

“The CVS-Aetna deal represents a potential for significant market disruption for drug manufacturers and healthcare delivery organizations,” she said.

Greater market clout, the theory goes, means better negotiation power to drive down costs, which means more competitive insurance products and so on. Additionally if sites of care can be shifted from expensive hospitals and ERs to your local pharmacy, it could also change care delivery model incentives.

While the term payvidor has been rightly pilloried for being a silly shorthand to describe the trend of increasing integration between providers and payers and changing role of payers in the healthcare system, it doesn’t mean it isn’t true.

The payers of the future will shift to being more like integrated health systems with strong provider arms or essentially networked connector of healthcare services. That involves heavy lifting in building and updating legacy tech infrastructure telegraphed by big insurers and bringing on top tech talent to bolster its leadership.

As Aetna’s Chief Digital Officer Firdaus Bhathena put it in an interview, “I didn’t join Aetna because Aetna wants to be an insurance company for the next 20 years. I came to Aetna because we are transforming ourselves form a healthcare financier to being a health and wellness partner for the members we serve.”

If you need more evidence just look at the nation’s largest payer organization, UnitedHealth Group which is diligently working to close its acquisition of DaVita Medical Group, and has been vacuuming up providers across the country. Their next big initiative? Launching a portable individual health record by the end of 2019 which could be used as a data sharing infrastructure for its provider partners as well as other health plans.

Government in action
With this month’s ruling by a Texas judge striking down the entire Affordable Care Act through somewhat dubious legal reasoning, it seems likely that the statute will be going back to the Supreme Court for the third time since its passage.

The Affordable Care Act and its associated health insurance exchanges have weathered some pretty serious challenges over the past few years, including some actions from the federal administration meant to oversee its implementation.

Still, the roughly 20 million people who have received coverage through the ACA has become a major patient constituency and providers and insurers have already functionally invested time and money to take advantage of value-based incentives. A reversal of those sunk costs seems unlikely.

And even as the current presidential administration has hamstrung the law in some ways, the federal government and CMS has made some major moves to push the industry kicking and screaming into a value-based care future that controls costs.

One of the most controversial moves has been the move to site-neutral payments for hospital clinic visits which is projected to reduce Medicare spending by $380 million in its first year. While the American Hospital Association has filed a legal challenge to the rule, CMS looks to be steadfast in its intentions.

As Numerof of consulting firm Numerof & Associates explained it: “There’s a lot of interest from insurers to move care to an appropriate setting for a given patient. If a procedure can be done safely in an outpatient or ambulatory care setting then why should we be doing it in an expense setting?”

The federal government has also pushed forward on better preventive and chronic care management through its reimbursement approvals of technologies like telemedicine and remote monitoring. HHS Secretary Alex Azar has even the broached the possibility of tackling social determinants of health through means like allowing hospitals to pay for housing using Medicaid dollars.

While most experts have waved off the possibility of a single-payer healthcare system, instead pointing to the need for a type of universal access guarantee, the theory is not completely convincing.

For one, public opinion has shifted in favor of the single-payer proposal. A Reuters survey earlier this year found that 70 percent of the country support a “Medicare-for-all” system, including a majority of self-identified Republicans.

Healthcare was the number one issue for voters during this year’s mid-term elections and three states not normally thought of as liberal bastions voted to expand Medicaid.

With nearly half of all personal bankruptcies in the country stemming from medical bills, it’s clear that changes that lower the cost burden and improve health outcomes is also an economic imperative. What exactly that system looks like is yet to be determined.

Medicare Advantage flies high
One area which has seen major growth and investment in the past year has been Medicare Advantage. In 2018, enrollment growth jumped up 8 percent, outpacing growth in the Medicare-eligible population, and showing the increasing popularity of the program as well as the major business opportunity in a largely untapped market.

The program holds particular sway among aging baby boomers already accustomed to managed care programs. With its bipartisan support, Medicare Advantage has even been posited as a potential model for universal coverage that is open enough to encourage experimentation and choice.

Case in point: New payer startups have sought to ramp up in the space. In the past year alone, Oscar Health raised $375 million from Alphabet to help it move into Medicare Advantage and competitors Bright Health and Devoted Health each raised $200 million and $300 million respectively to fuel growth into new Medicare Advantage markets.

While incumbent carriers like UnitedHealth, Humana, Kaiser and Aetna still control the bulk of the market, these new entrants can make significant inroads in a value-based capitated system where strong data infrastructure and consumer friendly technology tools can make a major difference in cutting costs and coordinating care.

Startups are using provider alignment strategies that mirror larger trends among traditional carriers and could hold promise for patients in more rural areas that have fewer and fewer doctors and providers.

“More than a dozen new carrier entrants in Medicare Advantage combined with aggressive expansions by incumbents suggest payers are in agreement that this market is highly underpenetrated and will remain so for the foreseeable future,”  said Brandon Gee, a senior analyst with Decision Resources Group, in an interview. “Nationwide the main thing I’m going to be looking at is how these upstarts do and whether they did well enough to continue growing to additional markets, or even continue offering in the markets they started in.”

Picture: Getty Images, Mykyta Dolmatov

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