Transforming U.S. Healthcare in the New Health Economy: Part 1

According to PwC, the New Health Economy has come of age in 2019.  With bellies full of woe and worry, American patients may be seeing some light at the end of the MRI tunnel at some point within the foreseeable future.

Transforming the highly complex health care and pharmaceutical industries requires a combination of free-wheeling capitalism, imagination and technology.  Before our very eyes, American consumers have seen the drip…drip…drip of news reports about the sickness in the healthcare system, unbearably high prescription drug prices and frequent M&A activity, but where is all this heading?

Consumers today have more access to information and a pressing interest in monitoring their health and fitness and are engaged in collaborating with health care providers as valued partners in their care.  The “patient empowerment trend” should not be taken lightly.  Consumers are taking an active, vital interest in the healthcare system and seem to be eager to be positioned at the center of it, to safeguard their health, forestall the incidence of disease and improve their quality of life.

Let’s take a look at the range of forces that are shaping America’s New Health Economy.  One thing is for sure, companies are using vast amounts of data to develop and test new ideas and develop new business models.  Is it all coming together or lurching towards disaster, coming apart at the seams?

Transition to Value-Based Health Care Model

Perhaps you do not realize it, but a major change has been coming to the American healthcare system for several years.  The Centers for Medicare and Medicaid Services (CMS) began to shift away from a fee-for-service system which emphasizes payments to providers based on the number of interventions performed (e.g. procedures, lab tests, etc.) to one that holds healthcare providers accountable for patient outcomes, empowering them to innovate and provide care which is high in quality but lower in cost.  Value-based care (VBC) pays for health care services in a way that directly connects quality, patient experience with healthcare and cost with performance. 

At this point, 48 states currently use some form of the value-based payment model.  This is a seven-fold increase from five years ago.  As of January 2019, only 14 percent of Medicare providers were participating in value-based payment arrangements, however CMS is actively working on innovative new payment models, such as those which include a focus on specific types of diseases such as renal disease and cancer.  CMS is also working to find new ways to expand the value-based payment models beyond Medicare.

It is three years since the Medicare Access and CHIP Reauthorization Act (MACRA) and MIPS and APM payment provisions go into effect this year.  

This means that hospitals and health systems will now adopt more full and shared-capitation risk contracts.  The new models dictate that the providers concentrate on driving outcomes and managing patient health, leading to more process enhancement, use of clinical data for better decision making and patient care.

In April 2019, the United States Department of Health and Human Services (HHS) announced the CMS Primary Cares Initiative, a new set of payment models designed to deliver better value for healthcare dollars.  This will help to reduce administrative burdens and increase focus on primary care for patients.  These payment models will test the concept of paying for patient health care outcomes rather than simply for procedures.  Based on empirical data which demonstrates that shoring up primary care has a direct association with higher quality, better outcomes and lower costs, the model focuses on the advantages of the familiarity patients tend to have with primary care practitioners.

Many patients only utilize a primary care clinician or have more frequent interaction with their primary care physician as the initial point of contact with a healthcare delivery system.  CMS has demonstrated results with using incentives for primary care clinicians aligned to reward high value care.  In these cases, the quality and cost effectiveness of patient care tends to improve.

Vertical Integration Means More Connectivity Between Pharma and Healthcare

The impetus for the flush of vertical integration M&A activity has been an attempt to gain greater control over the supply chain to reduce costs so that savings could be passed along to patients.  One outcome of this is expanded access to an abundance of data.    By investing in systems, staff and technology resources, companies can use the data to craft personalized customer experiences, enhanced outcomes and find savings. 

Let’s take a closer look at two of the newly formed organizations:

CVS Health-Aetna

Formed to create a health care model that is easier to use and access, the new organization plans to focus on localized, less expensive care with consumers at the center of the care model.  Concentrated on community-based access to high quality care, the model will deliver a simplified, more responsive, affordable experience to consumers.  More primary health services and management of common chronic conditions will be added to CVS MinuteClinics.

The plan is to deliver essential products and prescriptions to the doorsteps of consumers, provide critical services in consumers’ homes as well as an abundance of resources at their fingertips.  The combined new organization includes the Aetna insurance business as well as one of the largest pharmacy benefit management managers (CVS Caremark).

Cigna-Express Scripts Holding Co.

Focus on personalized, “whole-person healthcare”, the merger pairs health insurance giant Cigna with the largest pharmacy benefits manager in the United States.  Cigna announced that it will invest $200 million to improve health in local communities.  This includes a $25 million investment over five years in the health of children, initially by improving nutrition.  Healthcare industry experts are hopeful that providing a direct interface between medical and pharmacy benefits could potentially enable the company to view patients’ health in a more holistic manner to reduce costs.  Regardless of the merger, not every Cigna customer will also contract with Express Scripts.

Newly formed partnerships can lead to differences in the competitive landscape.  Companies that have participated in vertical integration are finding new synergies given newly expanded capabilities.  More M&A activity is anticipated this year, leading to less barriers between health care plans and healthcare delivery networks.  This is often driven by the trend toward value-based care and the increased use of data driven decision making.  With insurers’ deep data pools and expertise in managing patient care, the sharing of expertise regarding health care delivery and clinical effectiveness will provide a more well-rounded understanding of the continually evolving patient health care paradigm.  The role of data in developing new care models should not be under-estimated.  Organizations that are best positioned to make use of healthcare data will have a demonstrably better competitive advantage in a crowded, dynamic market.

Employer Activists Innovate

With healthcare costs continuing to rise, major employers are taking action.  According to the Large Employers’ 2019 Health Care Strategy and Plan Design Survey, employers surveyed anticipate that the total cost of providing medical and pharmacy benefits will increase by 5 percent for the sixth consecutive year in 2019 to an average of $14,800 per employee in 2019.  Increases were reportedly due to cost drivers including high cost claims, specialty pharmacy and incidence of specific diseases.  170 large employers were surveyed across a wide array of industry sectors.  Together, the group offers insurance coverage to over 19 million employees and their dependents.

Employers are concerned as the increased healthcare costs continually outpace workers’ earnings and increases in inflation.  The employer group has recognized that they are no longer able to rely on the traditional model of cost sharing as the means to effectively manage costs and are taking an activist role in innovating new health care delivery models.

Patients Embrace Consumer-Friendly Technology for Health Care

American consumers of all age groups have incorporated technology into the fabric of their lives-even in their healthcare.  Today, patient care records are no longer scrawled on unwieldy pieces of paper, shoved into manila file folders but rather are digital, capable of being shared electronically with health insurance providers and practitioners across the health system.  X-rays, MRIs and other diagnostic tools can be shared and viewed online, via desktop computers and even on mobile devices.

A 2018 Deloitte survey examined technology use by age group and found that people in all age groups acknowledged using technology to measure their fitness and health improvement goals.  Today, consumers can monitor their water intake, chart their heartbeat, measure the number of steps they walk each day and so much more by simply utilizing a mobile application with a smart phone or a smartwatch.  In general, consumers have become much more comfortable with technology and have embraced its insertion into all aspects of daily life.

According to the U.S. National Center for Biotechnology Information (NCBI), Wearable Health Devices (WHDs) have demonstrated solid  value in aiding people in monitoring health and fitness levels as well as providing data to clinicians for use in earlier diagnostic and treatment guidance.  An important element of the “patient empowerment” trend, consumer use of wearable technology aligns well with the objective of preventive and value-based care to make patients live longer and maintain the status of good overall health. 

Telemedicine is becoming more popular with both patients and physicians.  Moving to a value-based care model to facilitate quality care that provides better outcomes at a lower price has been the impetus of the push towards telemedicine.  The telehealth trend also includes remote patient monitoring, which is anticipated to dramatically increase in 2019.  CMS is expanding reimbursable telemedicine and remote patient monitoring services.  As the largest single payer for healthcare in the United States, this expansion is bound to have a significant impact

According to the Deloitte 2018 Survey of U.S. Physicians, patients and physicians agree on the benefits of virtual care but diverge in their intention to use it.  The study cites data that only 23 percent of consumers have had video doctor visits.  57 percent of patient respondents reported that while they had not had a video doctor visit, they would be willing to do so in the future.  Physicians remain on the fence, however.  Only 14 percent of physicians have video visit capability today while only 18 percent of the remaining physicians anticipate adding this feature within the next two years.

Physicians attribute their low interest in video visits to factors including complex licensing requirements, the high cost of technologies and lack of reimbursement.  In addition, doctors were concerned about reliability, data security, medical errors and privacy.

Conclusion

Whether your experience with personal health lies in interaction with getting health insurance through Healthcare.gov, reading front page news about health care reform, or haggling with an insurance company over a claim, if you are like most Americans, you have concerns about the future of affordable, accessible patient care.  You do not need a healthcare administration degree to understand that this involves complex issues and may necessitate innovative healthcare solutions.

Transforming healthcare takes more than negotiations over insurance coverage, navigation across the insurance marketplace during the established annual enrollment period or a checklist of what should be included in terms of basic health coverage for every patient.  Today, patients are actively participating as consumers, using technology to gain information about the healthcare industry as well as to monitor individual health and fitness.  Large employers are joining together to leverage their resources to innovate new solutions for better health coverage, affordable care and common-sense health insurance for their employees and dependents.

The federal government, across multiple administrations, has planned and is executing the transition to value-based care to enhance patient outcomes and quality of care while reducing costs.  The healthcare industry is consolidating.  Through vertical integration, an avalanche of mergers and acquisitions is realigning the health care supply chain to cut cost and align care to better meet patient needs.

It is undoubtedly a long, laborious and slow process, but it is underway.  How does this impact the cost and accessibility of prescription drugs?

Stay tuned for Part Two of this blog “Transforming U.S. Healthcare in the New Health Economy” to learn about how other pieces of the puzzle are coming together in this critical transition.

CHECK OUT PART 2: Transforming U.S. Healthcare in the New Health Economy