The stance by Flagler Health+ is in contrast to much of the rest of the hospital industry. CEO Jason Barrett talks about why the Florida-based system provides its pricing data to the public.
The federal government’s final rule requiring hospitals to provide patients with more easily accessible information on covered healthcare services could bring an unprecedented amount of transparency to healthcare prices.
Though the final rule doesn’t take effect until January 1, 2021, Flagler Health+ has forged ahead of most hospitals and health systems across the country and the Florida-based system’s stance is in contrast to much of the rest of the hospital industry.
Flagler is offering detail on what the hospital system is being paid by health insurance companies while at the same time comparing its negotiated rates with those of other health systems in its Florida region. Flagler, a $350 million health system that serves northeastern Florida, first published its rates in a special section on its website in the fall of 2019.
HealthLeaders recently asked president and CEO Jason Barrett about Flagler's price transparency efforts. This transcript has been lightly edited.
HealthLeaders: What is your leadership position on healthcare price transparency?
HL: Is price transparency a threat or an opportunity for hospitals and health systems?
Barrett: Price transparency illuminates industry dynamics that consumers are not aware of, like insurance companies reimbursing large health systems at much greater rates than smaller community hospitals that are providing the same and often better services.
HL: How many payers are included in your negotiated rates that you publish?
Barrett: All of the commercial payers in Florida because they have to report that to the Agency for Health Care Administration. We got our data from the Florida Hospital Association.
HL: What about Flagler Health’s perspective is unique on this issue?
Barrett: We have already shared with the public the estimated average payments that healthcare systems in our market are receiving from commercial payers and we demonstrated that there is a big swing. We would contend our data shows that the consolidation of healthcare systems in America is actually increasing prices rather than decreasing them. One could extrapolate that small community health systems like Flagler Health+ are subsidizing inflated payments to larger systems.
HL: Can you provide an example in the market of the changes?
Barrett: [An example is] the same health systems that are building high-cost freestanding ERs that inevitably treat non-emergent conditions at exorbitantly high price. Freestanding ERs are continuing to increase healthcare costs overall and there is a proliferation of them in Texas and Florida specifically—even in this time when legislators and constituents are demanding lower healthcare costs.
At Flagler, we are focused on keeping patients out of high-cost centers like ERs and hospitals unless absolutely necessary, and we can prove that our approach is helping us reduce overall healthcare spending for our patients, local employers, and our communities.
Flagler Health+ and the clinically integrated physician network of the First Coast Health Alliance (FCHA) have a value-based performance contract with a large commercial payer in our system. In this agreement, the performance on approximately 9,000 members attributed to our network is compared with the performance of approximately 52,000 members attributed to other providers and health systems in St. Johns, Flagler, and Putnam counties.
In the most recent actuarial report provided by the insurance company comparing July 2018–June 2019 with July 2017–June 2018, our cost trend outperformed the market in total annual cost trend and risk adjusted cost per member. Our cost trend was -1.67% while the market cost trend was +4.49%.
The cost per member per month for our network was $437.74 compared with $493.15, resulting in an 11.2% savings of $55.41 per member per month or $664.92 per member per year when compared with the market.
HL: If the price transparency rule is implemented in 2021, how will you lead Flagler though this transition effort?
Barrett: We have invested in a technology company[called] Healthfully and are working together to develop consumer-centric price transparency tools that will help ensure that patients get the right care, at the right time, at the right place, at the right price.
HL: Why does healthcare price transparency matter to healthcare systems and hospitals?
Barrett: Price transparency matters to us because we care about the economic health of our patients, local employers, and communities. Neither patients nor self-insured employers should be surprised by what can sometimes be devastating healthcare bills. My own family experienced medical bankruptcy when I was child as we struggled to get appropriate care for my special needs brother. No one should have to choose between paying the light bill and filling their prescriptions.
HL: How will this be meaningful to patients?
Barrett: If their out-of-pocket exposure increased by six points and medical inflation is only three points, you are in a position where it’s taking more of a toll on their disposable income. It will help them make choices.
HL: Let’s just say the rule is delayed somehow, do you think transparency will happen and will you do it if the rule never comes to be?
Barrett: It may never come to be, but we are going to hang our hat on this concept. There is going to continue to be emphasis for those that are going to have to select [health] systems based on price.
Uber and Lyft are helping health systems to address social determinants of health and increase revenue.
Hospitals and health systems are increasingly partnering with ride-sharing giants Uber and Lyft to improve health outcomes, increase patient satisfaction, and boost revenue.
Just this week, Lyft announced a partnership with Sutter Health "to help support patient and staff transportation needs" for the 24-hospital system in northern California that serves 3 million people. The deal follows other partnerships like those Uber has formed with BayCare Health System, MedStar Health, the Cleveland Clinic, and Boston Medical Center, executives at the ride-sharing company's healthcare unit, Uber Health, told HealthLeaders.
Both Uber and Lyft say they are aggressively pursuing ways to work with hospitals and health systems and see the healthcare business as a key growth area for the ride-sharing industry.
"Finding new and innovative ways to work with hospitals and health systems to remove transportation as a barrier to care for patients is key to what we do and remains a high priority for the Uber Health team," Dan Trigub, Head of Uber Health told HealthLeaders.
Uber to Tap Into Hospitals Via Cerner Relationship
Trigub said a partnership Uber Health signed with Cerner will "be giving us access to thousands of more health systems this year and beyond who rely on Cerner's EHR." Cerner's clients, which include hundreds of hospitals and other medical care providers, are embedding Uber Health into Cerner's EHR so "healthcare providers can seamlessly schedule non-emergency transportation on behalf of patients, caregivers and staff," the companies said when announcing their partnership last fall.
As health insurance companies shift their payments away from fee-for-service medicine to value-based models that pay providers based on health outcomes, hospitals and health systems need to find ways to make sure their patients are getting healthcare in the right place, amount, and time. And that means getting to the hospital, doctor's office, or clinic in a timely manner.
"Health systems increasingly view transportation as an essential component of value-based care programs," said Dan Clarin, senior vice president at consulting firm Kaufman Hall.
Ride sharing is being woven into commercial health insurance plans and for 2020 several Medicare Advantage plans that contract with the federal government to provide private benefits for seniors have included Lyft and Uber after the CMS changed rules to offer more supplemental health benefits that help improve or maintain the health of seniors.
Hospitals and health systems already using Uber and Lyft have reduced the number of patient no-shows and cancellations for appointments. For example, MedStar Health, Uber's partner in Maryland and the Washington, D.C., market, said its number of missed patient appointments has been reduced for doctor office visits using ride-sharing services.
"MedStar Health has increased schedule fill rates in certain practices by as much as 5–10 percentage points, creating a significant increase in revenue," Uber said in a case study report on the relationship. Uber did not provide specific financial figures.
Before formalizing its partnership with Lyft, Sutter and the ride-sharing company studied patient usage and discharges from Sutter's California Pacific Medical Center Pacific campus emergency room. "In three months' time, the program reduced [patient pickup] wait times from an average of 23 minutes to three minutes," Sutter and Lyft said in their partnership announcement.
Studying patient use and even interest in ride sharing is important for hospitals and health systems to consider, industry analysts say. "Health systems should be mindful that some consumers are still skeptical of ride-hailing services and determine whether a ride-hailing service will be an appropriate fit for the populations they serve," Kaufman Hall’s Clarin said.
But ride-sharing companies say what they are finding is that patients see these services as more reliable, particularly in more rural areas and medically underserved areas that tend to be low income, and people don’t have their own transportation or lack access to public transit.
"For some, it's not as simple as traveling from Point A to Point B," Sutter Health Chief Innovation Officer Chris Waugh said. "There are numerous real-world factors in between. Our approach takes the burden away from our patients and staff and puts them in the best position to receive the care they need or deliver the care they are trained to give."
Ride Share Addresses Social Determinants
Sutter said they can also work with Lyft to address social determinants of health. And this is a strategy that analysts say will make health systems more attractive to the health plans that pay doctors and hospitals.
"Given the insurance industry shift away from the antiquated fee-for-service model and towards value-based payments, health systems are under the gun to improve quality while reducing costs and the best way to do this is to tackle non-medical social determinants of health," said Jerry Vitti, CEO of Healthcare Financial Inc., a Boston-based firm that helps connect low-income beneficiaries to disability benefits and has health plans and health systems among his clients.
"[Health systems] are zeroing in on transportation because it isn’t as complicated and costly as addressing other determinants like housing and food insecurity," Vitti said. "You can provide reliable transportation to doctor visits for more patients faster and at less cost, improving health outcomes and the bottom line of those taking risk."
As one example, Vitti cites the high cost of care for newborns in the post-neonatal ICU.
"Families that lack transportation options are less likely to follow up with pediatric wellness visits, which can result in costly trips to the ER, inpatient hospitalizations, and readmissions," Vitti said. "By partnering with ride-sharing companies, health systems help patients avoid negative outcomes, which can lead to massive cost savings."
Centene's CEO told analysts last month the Trump administration's support of invalidating the ACA shouldn't affect the health insurer's day-to-day operations and growth plan for the future.
With the Trump administration trying again to repeal and replace the Affordable Care Act, you'd think Centene CEO Michael Niedorff would consider growing the health insurer's business away from government-sponsored healthcare coverage.
Fitch Ratings, for example, warned in its March 29 key rating sensitivities of "legislative developments that present material risks to the sustainability of current government-funded business lines to which Centene is exposed" after Centene disclosed plans to buy WellCare Health Plans, another health insurer with a large government business for more than $15 billion.
But the CEO of Centene called news about the so-called end of the ACA "headline volatility" that shouldn't affect the health insurer's day-to-day operations and growth plan for the future, he told analysts March 27, the morning of Centene's announcement it was buying WellCare.
"I think we all realize in the world in which we are living today there are different kinds of volatility," Neidorff said. "There are those based on earnings and results. There is volatility based on some very real things. And there is headline volatility."
Despite industry volatility, Centene's fourth quarter earnings grew steadily. Centene's adjusted earnings rose 67% to $290 million, according to the February 5 earnings report, compared to $173 million in the fourth quarter of 2017. Centene's total revenues rose nearly 30% to $16.6 billion due, in part, to the growth in individual coverage under the ACA as well as last year's acquisition of Fidelis Care, a health plan that operates statewide in New York.
"Our marketplace business continued to perform well," Neidorff said on the fourth quarter earnings call. "There continues to be consistent demand for affordable high-quality healthcare."
ACA court decision
The White House said in March through its Justice Department attorneys that it supports U.S. District Court Judge Reed O'Connor's December 2018 decision invalidating the entire ACA in Texas vs. the United States.
But Neidorff seemed to be taking the decision all in stride even after Centene announced plans to buy WellCare.
"At any given time, there’s going to be issues out there," Neidorff told analysts on March 27.
But with the Texas case now in the U.S. Fifth Circuit Court of Appeals, the case is potentially one step closer to damaging a large and growing portion of Centene's business given Centene manages Medicaid benefits for more than 8 million lives and provides individual coverage on the ACA’s public exchanges in 20 states for nearly 2 million Americans. Centene says its ACA individual business is 20% of the U.S. market for such coverage.
In the meantime, Centene said it has no plans to divert from its strategy to grow its government health insurance businesses.
"We have always maintained: 'Base your decisions … on the facts as they are known today,' " Neidorff told analysts. "There are times when we were expanding on the marketplaces and people said, 'Why are you doing that now?' There was a lot of doubt."
Business as usual?
Neidorff's decision to maintain business-as-usual seems to have paid off as larger players including Aetna, Humana, and UnitedHealth Group exited the ACA's individual business, in part blaming an uncertain regulatory environment. But this year Centene expanded again, offering individual coverage on marketplaces in four new states.
And Centene is heading toward expansion into Medicare Advantage, the privatized version of health benefits for seniors. The addition of WellCare will give Centene more than 900,000 Medicare Advantage members.
Centene is several times smaller than UnitedHealth Group’s 5.1 million Medicare Advantage enrollees but the business now has a larger platform to expand into more markets.
Now that the Trump administration has changed the rules to allow Medicare Advantage plans to cover more supplemental benefits, one analyst says this will only add to private health insurer enrollment.
"Aside from growing nationally, the goal for many MA plans is to gain meaningful local density in a number of target states and even metropolitan statistical areas to drive to a differentiated MA offering," says Andrew Kadar, managing director and partner, healthcare services, at L.E.K. Consulting in San Francisco.
More than 22 million seniors are signed up for Medicare Advantage with projections from L.E.K Consulting showing there will be 38 million enrolled in such plans, or 50% market penetration, by the end of 2025.
Neidorff, who will lead the combined company as chair and CEO pending regulatory approval, told analysts during the Centene-WellCare announcement, "When [the merger] comes together, we will be in a stronger position no matter what happens."
Neidorff continued, "We have to look at the practical, the political. And everything I saw said [to me]: "This is a great transaction. It puts two great companies together in a very meaningful way, serving a lot of audiences that you can never do enough to serve. This really will prove to be a very successful and serious transaction."
Although Neidorff seems optimistic about furthering Centene's ACA business, one analyst instead sees the WellCare transaction as a way to grow in other areas with less risk.
"We see this as a way for Centene to drive margin expansion and accelerate growth, while also diversifying against policy risk with the ACA including the TX Court decision," SVBLeerink analyst Ana Gupte, PhD, wrote in a March 27 report.
Amazon could join retail clinics already competing with hospitals and health systems to provide outpatient healthcare services.
Even in a digital age where more services are headed online, e-commerce retail giant Amazon could be poised, alongside retail healthcare clinics, to compete with hospitals and health systems on their brick-and-mortar playing fields.
And there's little preventing Amazon from doing this, especially after news the company is looking to launch new "urban grocery stores," which could serve as a possible beachhead for expansion into outpatient medical care services. Amazon would join retail providers Walgreens, CVS Health, and Walmart, which are competing already with hospitals and health systems to provide outpatient services in their communities.
This potential competition to hospital outpatient business comes as CVS is testing a "HealthHub" store concept in Houston following its acquisition of health insurer Aetna, and as Walgreens is dedicating armies of Microsoft scientists to a "store of the future." Analysts expect these retail clinics to change the way U.S. healthcare is delivered, which includes efforts to give patients less need to use the hospital and its ancillary outpatient services.
And why not Amazon as well?
"Amazon's basic approach has been to create a transactional platform that supports an ecosystem of interrelated products and services," says Ken Kaufman, managing director and chair of consulting firm Kaufman Hall. "Adding brick-and-mortar stores to its online platform will support Amazon's grocery business and its competition with Walmart but could be applied to other products and services, including healthcare, which is very much on Amazon's radar."
Amazon last year acquired the online pharmacy PillPack and formed a new venture recently named Haven with Berkshire Hathaway and JPMorgan Chase to examine ways to lessen the cost of care and improve health outcomes for the three corporate giants' 1.2 million employees. Amazon's announcements don't directly impact hospitals and health systems, though analysts say Amazon, like Walmart, has a laboratory in its large workforce to test what works.
For now, Amazon "plans to launch urban grocery stores that could offer a spectrum of goods that include beauty products alongside food," as The Wall Street Journal reported. Amazon declined HealthLeaders' request for comment on its plans.
But Kaufman sees this as a potential entry point for Amazon to get into brick-and-mortar retail healthcare, given its history to add on services over time from the successful platforms.
For example, Amazon in recent years has opened brick-and-mortar bookstores in New York, Chicago, and Washington, D.C. Earlier this month, Amazon said it is closing 87 of the pop-up kiosk variety stores in malls and Kohl’s stores, but it is maintaining Amazon Books and Amazon "4-star" stores that are largely stand-alone sites.
Amazon is looking at a grocery store model that includes leases with more flexibility than traditional commercial leases, as the Journal reported. That could allow Amazon to jump into healthcare services more quickly.
Though it's unclear what kind of healthcare services and products Amazon could offer, Kaufman thinks that there's not much keeping Amazon from exploring brick-and-mortar healthcare delivery in the future.
"It is always difficult to predict the long-term intentions behind Jeff Bezos' short-term moves," Kaufman said.
"The more comfortable Amazon gets with physical commerce, the easier it will be to pivot toward healthcare," he added.
The move to private Medicare Advantage takes hospitals further away from fee-for-service medicine, putting pressure on these providers to improve quality and health outcomes or risk being excluded from insurer networks.
Hospitals are seeing an unprecedented number of patients covered by Medicare Advantage as health insurers take on a larger role in administering health benefits for aging baby boomers.
The swift move to private Medicare Advantage also takes hospitals and health systems further away from fee-for-service medicine, ratcheting up pressure on these providers to improve quality and health outcomes or potentially be excluded from insurer networks as part of value-based models that are proliferating.
"Hospitals will have a hard time not playing ball with MA plans," says Andrew Kadar, managing director and partner, healthcare services, at L.E.K. Consulting in San Francisco. "MA plans will continue to encourage a higher quantity of value-based care reimbursement arrangements that align their provider partners to MA plans' quality, revenue, and cost incentives."
Cigna just this month said more than half of its Medicare and commercial payments to providers are made through "alternative payment arrangements in the company's top 40 markets."
MA enrollment increases
Meanwhile, the Centers for Medicare & Medicaid Services has projected Medicare Advantage enrollment will reach an "all-time high" in 2019 with 22.6 million Medicare beneficiaries amid unprecedented growth. And industry analysts like L.E.K. Consulting project Medicare Advantage enrollment will rise to 38 million, or 50% market penetration by the end of 2025.
The market shift is already being felt at hospitals across the country. Bill Rutherford, chief financial officer at HCA, said "about 38%, 37% of our Medicare book, if you will, is managed."
"We've seen that grow pretty steadily over the past several quarters," Rutherford told analysts on the company's fourth quarter earnings call last month of Medicare Advantage. "We've been dealing with growing MA in most of our markets, so we think it will continue to grow."
Medicare Advantage plans contract with the federal government to provide certain extra benefits to seniors than traditional fee-for-service Medicare, such as disease management, nurse help hotlines, vision and dental care, and wellness programs. And regulations are changing to allow for more supplemental benefits like adult day care and caregiver support services.
What this means for hospitals
To prepare for the expanded supplemental benefits, hospitals taking payment from MA plans need to offer an array of outpatient services having already made large investments in primary care, urgent care, surgery centers, home health, and hospice.
"Hospitals and health systems that control a large portion of the care continuum will be at an advantage if managed appropriately," Kadar said. "MA plans will increasingly partner with hospitals and health systems that have the HCIT infrastructure needed to actively manage care and share detailed data and reporting."
Health insurance companies that sell Medicare Advantage increasingly use narrow networks to limit choices of doctors and hospitals to their preferred lists, which could leave hospitals out. "MA plans will continue to offer new products, including HMOs with narrow networks of curated providers who demonstrate to the MA plan that [they] provide high-quality care at a low cost," Kadar said.
These health insurers are also weaving more measures into contracts to make sure hospitals and other providers deliver care in the right place, at the right time, and in the right amount.
Health insurers and MA
Aetna and UnitedHealth Group are also paying out more than half of their reimbursements to providers via value-based contracts as they take on greater share of seniors choosing Medicare Advantage. UnitedHealth had nearly 5 million Medicare Advantage enrollees at the beginning of the year from the 4.4 million a year ago. Aetna's parent, CVS Health, will release its latest MA enrollment later this month when it reports fourth quarter earnings.
UnitedHealth points to its own provider services company as an example. UnitedHealth owns Optum, a health services unit, that is focusing on outpatient care in doctor practices and urgent care centers that compete directly with hospitals and health systems in dozens of markets.
"In care delivery, our clinical leaders are applying clinical decision support based on evidence-based guidelines that promote better health and ensure the right care at the right time in the right method," Andrew Witty, CEO of Optum, the healthcare services business of UnitedHealth said during the insurer's fourth-quarter earnings call last month. "We achieved significantly lower total medical cost by keeping people healthier and avoiding unnecessary hospital use, which translates to up to 30% lower cost for our Medicare Advantage patients relative to original Medicare."
How do hospitals compete with insurance companies?
Analysts say hospitals and health systems have several opportunities that don't necessarily involve forming their own insurance companies to compete with health insurers.
When going up against the likes of UnitedHealth, which owns Optum; or CVS Health, which owns Aetna; and Humana, which has clinics, doctor practices, and home care, providers that have ownership of their own MA plans could have an advantage if they offer services that rivals in their communities do not have as a way to compete.
Health systems also have an opportunity to compete with the payers by partnering with an insurer's rival. "Providers who wish to continue to serve MA patients will need to take a proactive approach to partnerships, as each one is complicated and an MA plan's network management team has limited bandwidth to negotiate with multiple provider parties," L.E.K.'s Kadar said.
Providers can also consider an end run by working on direct-contracting relationships with employers, a business that could counter any potential loss of Medicare business.
"Hospitals and health systems that can't become an MA plan themselves can either direct contract with employers for particular services or join with another hospital and health system that needs a broader network or more geographic coverage to offer an MA plan," Kadar said. "The provider can also become a center of excellence so that an MA plan has to include them in their network at more favorable rates to ensure the MA plan has a marketable network."
The drugstore chain's partnership with Microsoft is designed to close existing gaps in care in the traditional healthcare system, says Walgreens.
News that Walgreens Boots Alliance has formed a strategic partnership with Microsoft is more bad news for hospitals that a drugstore chain with more than 9,500 U.S. locations is looking for even more ways to keep the patient inside the drugstore.
Certainly, hospitals and health systems have their own information systems and partners like Cerner and Epic helping them with interoperability and communicating with other providers to make sure the care is being given in the right place, in the right amount, and at the right time.
But Walgreens says its partnership with Microsoft is more than improving the exchange of health information and is designed to also close existing gaps in care in the traditional healthcare system. Walgreens executives say they want to make sure the patient is tied into an "ecosystem" of low-cost, quality providers and the growing menu of services offered by the retail pharmacy chain.
"Our strategic partnership with Microsoft demonstrates our strong commitment to creating integrated, next-generation, digitally enabled healthcare delivery solutions for our customers, transforming our stores into modern neighborhood health destinations and expanding customer offerings," Stefano Pessina executive vice chairman and CEO of Walgreens Boots Alliance said in an announcing the deal.
Engaging patients
This means Walgreens is adding even more services and technology to play a greater role in communities long dominated by hospitals and health systems, analysts say. The Microsoft relationship builds on alliances Walgreens is already forming with other providers like its relationship with Humana to put senior health clinics inside its drugstores.
"Retail pharmacies offer an opportunity to engage with the patient much more frequently than at an office visit," says Forrester senior healthcare analyst Arielle Trzcinski.
"Chronic care patients see their pharmacist frequently," Trzcinski says. "I've seen figures that indicate the average diabetic patient sees their provider once every six months. This gap creates an opportunity for the pharmacist to help monitor the patient's health and prompt the patient to receive preventative care in the retail clinic or through a virtual care visit."
The Walgreens-Microsoft partnership is also designed to push on-site and virtual care offerings that are less expensive to the individual than hospital care. The companies aren't yet disclosing specifics, but say they want "to develop new health care delivery models, technology, and retail innovations to advance and improve the future of healthcare."
Retailers push forward onto traditional healthcare turf
Walgreens said it will roll out a pilot program that includes 12 in-store "digital health corners" that will sell healthcare-related devices and products. The companies are also discussing whether to establish joint innovation centers in yet-to-be-disclosed markets.
With the help of Microsoft's Azure cloud and artificial intelligence platform, Microsoft CEO Satya Nadella said the two companies want to put "people at the center of their health and wellness."
One key goal of the partnership is to avoid the hospital and health system by getting more outpatient care and wellness services to consumers upfront, Microsoft and Walgreens said in announcing the partnership. "The companies will proactively engage their patients to improve medication adherence, reduce emergency room visits, and decrease hospital readmissions," Walgreens and Microsoft said.
The Walgreens-Microsoft alliance comes as retailers are already pushing deeper into healthcare, and therefore on the turf long dominated by hospitals and health systems. Amazon's purchase last year of the online pharmacy PillPack and drugstore chain CVS Health's purchase of the health insurer Aetna are two examples of the retail push by larger players to add more healthcare services and benefits.
These retailers are already gaining more attention from employers, insurers, and others picking up the tab for healthcare. Such retail healthcare services either didn't exist before or are now reasons to avoid a traditional provider like a hospital, health system, or doctor practice, analysts say.
In the Kaiser Family Foundation 2018 Employer Health Benefits Survey, among all employers with 50 or more workers, 68% of respondents say they offer benefits that "cover healthcare services received in retail clinics, such as those located in pharmacies, supermarkets, and retail stores in their largest health plan." Within that same group of employers, 15% of respondents say they provide a "financial incentive" for their workers to use a retail clinic instead of a visit to a doctor's office, the Kaiser employer health benefits survey said.
Retail to cause potential hospital closings?
Stronger retail drugstores could create competition with hospitals and could even fuel closures of underperforming healthcare facilities, particularly hospitals in rural areas, analysts say. Hospitals have already been closing at a rate of about 30 each year, according to statistics from the American Hospital Association.
"The risk of facility closures coupled with changing consumer expectations will only further support this," Forrester's Trzcinski said. "Consumers will turn to retail locations like Walgreens, Walmart, and CVS for convenient care options as well as virtual care delivery to fill the gap."
CVS has vowed to change the way U.S. healthcare is delivered, including efforts to give patients less need to use the hospital and its ancillary outpatient services.
With its acquisition of Aetna complete, CVS Health is rolling out a menu of new health services and programs that are an immediate threat to U.S. hospitals and health systems.
CVS Health CEO Larry Merlo has begun disclosing new health programs as well as pilots to test new medical services to keep patients healthy and treat them for chronic conditions, such as heart disease and diabetes, inside the pharmacy chain's more than 9,700 stores. Merlo has also taken to the road to explain the benefits of the drugstore chain's $70 billion acquisition of health insurer Aetna now that the deal is closed.
"These businesses working together as an enterprise create a uniquely powerful new platform that will enable us to transform the consumer healthcare experience," Merlo said at last week's JPMorgan Healthcare Conference in San Francisco.
CVS has vowed to change the way U.S. healthcare is delivered, which includes efforts to give patients less need to use the hospital and its ancillary outpatient services.
Part of Merlo's mission is to funnel Aetna-insured patients to CVS pharmacies and retail clinics as well as to provide new services and pilot programs that will refer patients away from hospitals and health systems.
A 'New Front Door' to U.S. Healthcare
"Larry Merlo is saying, 'We want to create a new front door to American healthcare,' which is a shot across the bow of hospitals in America," Ken Kaufman, managing director and chair of consulting firm Kaufman Hall, said of the CVS chairman and CEO. "For the last year 50 to 60 years, the front door to American healthcare has been America's hospitals."
But CVS is looking to change that, opening new front doors for patients at the drugstore's pharmacy counter and in its more than 1,100 MinuteClinics staffed by nurse practitioners. Though some services have yet to be announced, CVS disclosed at the JPMorgan Healthcare conference there is "potential to allocate up to 20% of space to healthcare service offerings by scaling back on underperforming categories/products while scaling up new categories."
Beginning this month, Merlo said the combined company will begin guiding Aetna health plan enrollees to health and wellness services at CVS pharmacies and MinuteClinics. And Merlo said patients will be more closely monitored thanks to integrated management of prescription claims via the CVS Health Caremark pharmacy benefit management (PBM) company and medical claims from Aetna.
"To prevent avoidable hospital readmissions, this month we're piloting a program to enable Aetna care managers to facilitate the scheduling of MinuteClinic follow-up visits within 14 days post-discharge when patients are unable to see their provider," Merlo said. "And we're also piloting a program that leverages CVS pharmacists to provide face-to-face interactions to educate Aetna members on the available care management programs as well as provide patient-specific strategies to mitigate the risk of nonadherence, side effects, or gaps in care."
And when CVS isn't launching new services that compete with hospitals, health systems, and their outpatient facilities, the healthcare giant will be trying to prevent unnecessary hospital care and working to prevent patient readmissions to hospitals, Merlo said.
"We will work to reduce unnecessary emergency room visits through the early identification of frequent ER users and education on the care setting options that are available to them," Merlo said. "We're developing a series of comprehensive programs to better manage complex chronic diseases, such as kidney disease where the goal is to reduce hospitalizations and delay the progression of the disease or oncology where our objective is to align provider incentives to focus on quality and outcomes while enhancing patient support."
Merlo says that CVS is also testing "health concept stores" in Houston.
"We are piloting concept stores that offer health care services and products," Merlo said Monday at an address at the National Press Club Monday in Washington. "These concept stores will enable us to meet a range of basic healthcare needs, including monitoring for chronic conditions, lab tests, eye exams, and hearing tests. And we'll be able to do all of this—not in a fragmented way—but seamlessly with patients, their doctors, and the many other players in the healthcare system it takes to coordinate care."
With Aetna's more than 22 million health plan members covered by commercial, employer, and Medicaid and Medicare insurance, CVS sees a captive audience for its services.
CVS 'Knows the Cash Business'
"There's no doubt that CVS wants to attach themselves to outpatients in a whole different way," Kaufman said. "They feel that the outpatient business is rotating from a semi-inpatient business to a retail business, and they're thinking, 'We know the retail business and that's a great rotation for us.' "
Though CVS owns Aetna and will integrate more services into its health plans, many of the new services CVS is offering will be attractive to those patients who have to pay cash because they have high-deductible health plans. These cash patients could be lost to CVS, analysts say.
"CVS knows the cash business," Kaufman says. "We think there's a fight for the patients here."
To be sure, American consumers are paying more out-of-pocket costs as deductibles and co-payments rise. Across all health plan types, the "median in-network deductible" for 2018 was $1,500 for employee-only coverage and $3,000 for family coverage, according to the National Business Group on Health's 2019 Large Employers' Health Care Strategy and Plan Design Survey.
Though CVS still has to follow through and execute Merlo's strategy, those who provide health benefits say the ability of hospitals and health systems to compete with this disrupter in the medical care business will come down to who can better deliver medical care in the right place, at the right time, and in the right amount.
"The follow through and execution, particularly in better integration and coordination of medical and pharmacy claims data and clinical management, will be important," National Business Group on Health Vice President of Public Policy Steve Wojcik said. "Hopefully that leads to smarter care and enhances value and lowers costs for patients and payers, including employers. It is part of a larger trend that even hospitals and health systems are embracing: the move to value-based care and population health management."
Employers and health insurers are becoming more selective about the doctors, hospitals, and health systems they offer to workers in hopes of boosting quality and reducing healthcare costs.
The nation's employers and health insurers are becoming more selective about the doctors, hospitals, and health systems they are offering their workers in hopes of boosting quality and reducing the cost of healthcare.
It's likely to mean some winners and losers among U.S. health systems as such trends escalate.
These strategies are narrowing medical care provider networks and, in some cases, shutting out some health systems in favor of others for hip, knee, and spine surgeries; transplants; and cancer treatments. The strategies will place a significant hurdle to a worker's ability to choose the hospital or health system that they want but employers say they are guiding them to the higher-quality health systems with the best outcomes.
A snapshot of this trend can be seen in an analysis out this month from health research and consulting firm Avalere Health that finds "health plans with more restrictive networks … continue to be the most common types of plans" in the 2019 public exchange market for individuals purchasing coverage under the Affordable Care Act, with "72% of the market comprised of such plans." This trend has increased from three years ago when 60% of plans offered on the ACA's exchanges had narrow networks.
These narrow network plans include health maintenance organizations and exclusive provider organizations (EPO) that limit medical care provider choices to their networks. The remaining 27% of ACA health plan choices for 2019 are preferred provider organizations (PPO) or point-of-service plans that allow patients to go outside of a network for treatment but generally not for a discount.
"Plans are increasingly deploying narrow provider networks," Avalere Health founder Dan Mendelson said. "This is a trend that we see elsewhere in health insurance markets and is being deployed by plans to reduce cost and gain more control over patient outcomes."
Centers of Excellence
The trend is taking various forms from employers, who are increasingly becoming savvier purchasers of healthcare services and demanding quality choices of hospitals, doctors, and health systems to make sure care is done right the first time.
"Fundamental change is coming to delivery systems in many areas as a result of more sophisticated outcomes-based contracting," Avalere's Mendelson said.
The National Business Group on Health (NBGH), which represents some of the nation's largest employers, said employers are increasingly sending more patients to Centers of Excellence (COE) for even more treatments, surgeries, and procedures than ever before.
COEs are designed to coax employees in need of surgeries and complex specialized treatments to medical care providers with the highest-quality care, NBGH executives say.
The use by employers of some form of COE is jumping to 88% next year (2019) from 79% in 2016, according to NBGH's 2019 Large Employers' Health Care Strategy and Plan Design Survey of 170 large U.S. employers. And while most of these contracts are between providers working with health plans, NBGH said direct contracting between employers and COEs are "rising rapidly" to 18% of employers next year from 12% this year.
"For a health system … you should be wanting to make sure that you are going to be a part of this because that is going to be a trend that is going to continue to grow," said Steve Wojcik, NBGH's vice president of public policy. "You want to at least put your toes in the water. You could be missing out on a lot of volume."
Among employers, COEs were first used for workers who needed transplants with 74% of employer-sponsored health plans contracting for such procedures.
Increasingly, though, employers are tailoring COE programs for other "conditions or procedures, such as bariatric surgery (58%) and surgical procedures to treat musculoskeletal problems (38%)," NBGH said in its survey. "COE growth has been up across a number of procedures/conditions over the last two years, but COEs for cancer (up 10%) and fertility treatments (up 7%) will experience the greatest growth in 2019."
COE convert: Walmart
One convert to the COE movement is Walmart, which employs more than 1 million U.S. employees.
Walmart has doubled the number of health system partners in its Centers of Excellence Program in just the last two years. "Whether you're a cashier in Wyoming who's been with the company for six months or you're a 20-year associate running a store in Miami, if you have Walmart health insurance, you have this benefit," the giant retailer said in announcing an expansion of the Centers of Excellence program two years ago.
Walmart today has health system partners in 15 cities across the country, establishing relationships with more than a dozen systems including Cleveland Clinic, Mayo Clinic, Geisinger Health System, Johns Hopkins, and Memorial Hermann.
There's a significant financial incentive for an employee that is willing to participate and get care from a COE, Walmart executives say.
Evaluation and care of the patient is covered at 100% "with exception of bariatric," Walmart's Center of Excellence program says. If someone goes outside of the COE network for a spine, knee, or hip surgery, those procedures would be "considered out of network with a 50% coinsurance," the Walmart program says.
In addition, Walmart pays for "all travel, lodging, and a daily allowance is provided for the recipient and a caregiver for all services covered under the Centers of Excellence program except weight loss surgery," a company spokesperson said.
Walmart won't disclose exactly how many of the procedures and surgeries are being taken from community hospitals and sent to Walmart's health system partners, but it's clear there are some winners and losers.
One winner is Mayo Clinic, which gets about 80 to 100 transplant patients a year from Walmart employees at Mayo locations in Rochester, Minnesota; Jacksonville, Florida; and Phoenix, Mayo executives say. Mayo has had a relationship with Walmart to do transplant procedures of the retailer's workers for more than 20 years.
But in the last two years, the relationship has expanded from transplants and cancer care to hips, knees, and spine surgeries.
"They trust us to get the diagnosis right," Dr. Charles Rosen, medical director of Mayo's contracting and payer relations group. "That value of getting that diagnosis right is incredibly high."
To be sure, the move from fee-for-service medicine to value-based care that reimburses doctors and hospitals based on outcomes is key to the Centers of Excellence strategy.
In Walmart's case, they have sent workers to facilities in its COE network who haven't ended up needing surgeries. That is key for an employer facing higher costs year after year only to find out the fee-for-service system historically may have been leading to unnecessary procedures.
Beginning in January 2019, Walmart said it will begin requiring its health plan participants to travel to one of eight COE locations for spine surgeries that will be covered. The requirement comes after the program generated positive outcomes for prospective spine surgery patients.
"Travel will be mandated after finding that about half of the participants who went to these locations were able to avoid the extensive surgery altogether," Walmart spokesperson Justin Rushing said. "As you can imagine, we're always reviewing potential partnerships that help us ensure our associates and their families are getting access to the highest quality of care possible."
The pharmacy chain and insurer are touting the success of their pilot collaboration. If their work proves fruitful, the model could add to the threats diverting revenue away from incumbent providers.
News that Humana and Walgreens may make major investments in each other could be part of a new competitive threat to hospital revenue as the two healthcare giants work to guide seniors covered by Medicare to low-cost outpatient retail care settings.
Neither company would confirm a report in The Wall Street Journal last week that said they are in "preliminary discussions to take equity stakes in each other." But both Humana and Walgreens have expressed excitement in recent weeks about the early success of their joint venture developing senior health clinics in the Kansas City market, where a pilot of two sites inside drugstores has been underway for three months.
Humana and Walgreens executives have been talking up early successes of the partnership during meetings and conference calls with investors and Wall Street analysts. They seem optimistic about the prospect of expansion.
"The initial signs are very, very positive and that's a big deal," Walgreens executive vice president and global chief financial officer James Kehoe said during the Credit Suisse Healthcare Conference in Scottsdale, Arizona, on November 14. "This is moving from pharmacy to managing outcome-based medicine. The goal is to reduce the actual total cost of healthcare."
If its successes continue, the partnership could add to the heap of threats siphoning revenue from hospitals and health systems.
A Scalable Model?
The effort is designed in part to keep people out of the more-expensive hospital setting and make sure Medicare patients have their care more closely monitored by Walgreens pharmacists and physicians in Humana's health plan networks. The two companies think they can do a better job of reaching patients who visit Walgreens retail locations and making sure they get better care upfront before they get sick.
"The traditional settings where care is provided now will change over time and, more importantly, … retail stores are a clear asset and differentiator given the access to the patient," Mizuho Securities analyst Ann Hynes wrote following reports that Humana and Walgreens are discussing equity stakes in each other.
Kehoe said the senior-focused clinics are not like urgent care clinics, where patients need "immediate help." Rather, the senior clinics are designed to complement the prescriptions and pharmacy services offered at Walgreens with Humana's "Partners in Primary Care" centers that opened last year in Kansas City. Hospital care is not a part of the equation of the Humana-Walgreens partnership with keeping Medicare patients on their medications as one key to its success, executives involved have said.
When the partnership was announced in June, Humana said its employees are available inside Walgreens "to assist Humana Medicare members, and other customers, with information and assistance in accessing a range of health-related services," the companies said in a statement at the time. "From conducting diabetes education to identifying local community support groups and finding a new senior fitness class, a holistic approach to customers' health will be available at no cost, and close to home."
And since the launch, Humana and Walgreens executives say they are guiding patients to these wellness and outpatients services, as well as the lower cost clinics inside the stores, rather than a hospital or more expensive care site.
"The convenience of the store is highly appreciative," Humana CEO Bruce Broussard told analysts earlier this month on the company's third-quarter earnings call. "We've seen that the traffic that goes into these particular clinics is more [and it] has increased as a result of the location."
Yet Another Competitor
The Walgreens-Humana partnership is the latest competitive pressure facing hospitals and health systems as insurers form closer ties with retailers and other outpatient providers in the healthcare business. UnitedHealth Group, the nation's largest health insurer, owns Optum's growing medical care provider business, and drugstore chain CVS Health is expected to finalize its acquisition of Aetna, the nation's third-largest insurer, on Wednesday.
Walgreens and Humana say the partnership thus far has been about executing a strategy to manage the care of elderly patients over time. "This is about a long-term management of a patient over a multi-year period to reduce total medical care cost and what's the role our pharmacist can play in that, together with the primary care physician in managing the total cost," Walgreens' Kehoe said.
It's unclear, though, how soon hospitals and health systems could see competition from any Humana-Walgreens senior clinics beyond Kansas City. The companies will need more time to evaluate their relationship in Kansas City before expanding nationally, and the two have said they also may want to evaluate it in other markets before rolling it out across the country.
"We do see Humana being more discussed as both from a health plan point of view, but also from just a primary care clinic point of view," Broussard told analysts on the company's third-quarter earnings call. "We are very positive and excited about the exposure it provides. We find that it does offer another opportunity for the retail side where they've seen increased urgent care visits in the back of the store."
The deals Walmart is signing with providers mean a guaranteed stream of patients to hospitals.
Walmart is strengthening its relationships with health systems across the country, launching insurance products tied to value-based contracts with doctors and hospitals caring for the retail giant's more than 1 million U.S. employees.
The new approaches being offered by Walmart to an increasing number of their employees in certain regions of the country come as the retailer looks to reduce employer health costs while improving quality of care offered to workers. It also could open a window into the kinds of partnerships retailers like Amazon and CVS Health could unveil once the online retailer gets deeper into healthcare and the pharmacy chain completes its merger with Aetna.
And for health systems, the deals Walmart is signing with providers mean a guaranteed stream of patients when the retailer contracts to send them to doctors and hospitals for improved health outcomes.
"Walmart has been quietly going about doing things that are innovative," said David Carmouche, MD, president of Ochsner Health Network, which last month announced it was offering the Ochsner Accountable Care Plan to Walmart workers in the New Orleans Metro, Baton Rouge, and North Shore areas of southern Louisiana.
"Walmart and Ochsner Health Network came together with the common goal of reducing healthcare costs, while focusing on improved quality and patient experience," Carmouche said. "Walmart associates now have a plan that simplifies copays, coordinates care, and provides access to thousands of providers in dozens of locations.”
Walmart Inks 10 Health System Deals
The Ochsner Accountable Care Plan is the tenth direct-contracting relationship Walmart has launched with a health system or hospital in the U.S. since 2016, the retailer confirmed. Walmart employees began selecting the Ochsner plan during this fall's open enrollment effective for the 2019 benefit year that begins in January.
After two years of testing direct-contracting relationships with medical care providers in select markets, Walmart executives say they have seen enough results to continue forming such partnerships. A similar plan has been launched with Memorial Hermann Health System in the Houston area effective for select Walmart workers for 2019.
Walmart also has relationships with accountable care organizations (ACO) linked to other health systems including Banner Health in Arizona; Emory Healthcare in Atlanta; Mercy Health System in northwest Arkansas, Oklahoma City, southwest and east central Missouri, and St. Louis; Presbyterian Healthcare Services in Albuquerque and Santa Fe; St Luke's in Boise, Idaho; and UnityPoint in parts of Iowa and western Illinois.
In these markets like Ochsner's, Walmart offers health plans linked to ACOs that include doctors and hospitals in the ACO networks. A third-party administrator works with Walmart and the ACOs to administer the employee medical claims. An ACO includes doctors, hospitals, and other providers, contracting with employers and health insurers to improve quality and health outcomes, lower costs, and keep any money saved from year to year based on the arrangement with the health plan.
The Ochsner Accountable Care Plan is lower cost to Walmart and Sam's Club workers than traditional preferred-provider organization plans or high-deductible plans that include a health savings account that employees can already choose given the nature of the relationship with Ochsner providers.
"We spend a lot of time talking about quality and appropriateness of care," Lisa Woods, senior director, plan design and benefits at Walmart said in an interview. "The reality is, we are testing and piloting things to see what works and what doesn't work. We are still rookies in the ACO world."
But Woods said Walmart is committed to value-based care models and the national trend moving away from fee-for-service medicine.
Walmart isn't ready to disclose specifically how much money has been saved or data on outcomes in specific markets. But Woods said executives like what they have been seeing in certain markets and are committed to growing the accountable care models.
"I am optimistic about a few things that we are seeing," Woods said. "We are seeing lower inpatient admits and lower ER rates. All of those things directionally are what you hope to see.”
To get better outcomes, Walmart said employees are more closely monitored by the providers in the closed system of the ACO. In the Ochsner plan, for example, employees who participate in the Ochsner Accountable Care Plan have access to patient engagement specialists via a 24-hour call center dedicated to employees in the health plan.
Walmart Vows to Share Best Practices
"Patients will be directed to the most appropriate care within the network," Ochsner and Walmart said in a joint statement announcing the plan last month. "Additionally, a coordinated complex-case management program will serve Walmart patients enrolled in the ACP."
Healthcare providers in the plan's network "either use or have access to" Ochsner's Epic electronic health record system, which executives involved say works to better coordinate care of Walmart employees and their families.
For now, Walmart's accountable care plans are only offered to its workers, and the retailer has no immediate plans to sell such health insurance products to the public at large. But Woods said its long-term goal is to produce reports on what the retailer learns to benefit the U.S. healthcare system at large. "Walmart is very committed to sharing what we learn," Woods said.
