Is Radiation Oncology Ready for Alternative Payments?

Recent comments by Secretary Alex M. Azar II indicate changes ahead

 

Key Takeaways

  • Mandatory alternative payment model (APM) is coming for radiation oncologists.
  • HHS has not yet released many details but The American Society for Radiation Oncology’s (ASTRO) radiation oncology-APM (RO-APM) is a likely useful proxy for what this model might look like.
  • More than two dozen vendors have taken the OCM Vendor Pledge this year yet no single vendor, including several EHR vendors, can presently meet all of the necessary requirements for a participating provider.

 

Alex Azar delivers a speech on VBCHHS Secretary Alex M. Azar II’s recent speech to the Patient-Centered Primary Care Collaborative in Washington, DC, indicated that there is a significant change in thinking of CMS about value-based-care and voluntary vs. mandatory participation in alternative payment model (APM) programs.

“We need results, American patients need change, and when we need mandatory models to deliver it, mandatory models are going to see a comeback… (CMS will) revisit some of the episodic cardiac models that we pulled back, and are actively exploring new and improved episode-based models in other areas, including radiation oncology,” according to Secretary Azar.

Impact on Radiation Oncologists

What will this mean for radiation oncology healthcare providers and the vendors that service them? A foundational and operational re-think will be needed to manage new challenges in documentation, records management, financial analytics and reimbursement.

Although it has not yet been revealed what the new payment model will be for radiation oncology, there are clues. Both the American Society of Radiation Oncology (ASTRO) and the Large Urology Group Practice Association (LUGPA) submitted payment models to CMS to consider. The proposal by LUGPA was specific to prostate cancer and has been rejected by CMS.

It is highly probable that the new oncology radiation model will be similar to the already ongoing voluntary Oncology Care Model (OCM), but based on ASTRO’s Radiation Oncology Alternative Payment Model (RO-APM) (PDF link) and unlike the OCM, it will be mandatory. ASTRO’s RO-APM incentivizes adherence to clinical guidelines for several cancers, including breast, prostate, lung, colorectal, and head and neck cancers. It also applies to two secondary disease sites: bone metastases and brain metastases. This RO-APM is based on an episodic payment that is triggered by a clinical treatment planning CPT (rather than with the actual delivery of treatment such as with the current OCM model) and concludes 90 days after the last radiation treatment.

Regarding payment structure, ASTRO’s RO-APM is very similar to the OCM in that it would also include a monthly fee called a Patient Engagement and Care Coordination Fee (PECC), and retrospective performance-based payment incentives. The activities and goals of the PECC and retrospective measures reflect those of the OCM.

However, one of the most significant differences between the OCM model and ASTRO’s RO-APM involves the payment of fees. The RO-APM is based on an episodic model that pays a portion at the beginning of treatment planning and a final payment at the end of treatment; which, for many practices, will be a fundamental change from fee-for-service radiation oncology reimbursement, and require an overhaul of billing systems and workflows.

Healthcare IT vendors, including EHR vendors, are not yet ready with one, single solution to meet all the requirements of a healthcare provider participating in OCM.

Conclusion

Secretary Azar’s remarks indicate a complete about-face concerning mandatory vs. voluntary participation for APM programs by the Trump administration that may affect not only radiation oncology but all aspects of medicine.

Healthcare IT vendors, including EHR vendors, are not yet ready with one, single solution to meet all the requirements of a healthcare provider participating in OCM. While some vendors can meet various quality measure reporting components, there is not one single vendor today that can address all the financial and operational obligations inherent in this type of APM.

More than two dozen IT vendors, including several EMR vendors, have made the OCM Vendor Pledge this year, which is a step toward a comprehensive IT solution. However, the complexities of the system pose significant barriers which will take several years to overcome.

Want to learn more about the state of the IT industry regarding bundled payments and APMs? Look for our Bundled Payments report coming out in the next couple weeks or our Payment Integrity report slated for release in mid-2019.

Stay up to the minute.

Did You Know?

How will Proposed Changes to CMS Telehealth Reimbursement Affect Adoption?

Key Takeaways

  • CMS-proposed rule changes extend Medicare Advantage and Part D plan coverage for telehealth services starting in 2020
  • Proposal includes enhancements to the Star Ratings methodology, which include updating the cut-point determination methodology as well as adjustments for Star Ratings in times of uncertainty, such as hurricanes.
  • Under the proposed changes, starting in 2019 in Medicare FFS, CMS will reimburse for virtual check-ins, evaluation of patient submitted photos, and prolonged preventive services regardless of patient location and care facility.

What the Rule Changes Mean

doctor cares for medicare patient via telehealthOn Friday, October 26, the Centers for Medicare and Medicaid Services (CMS) announced several rule changes that affect how telehealth services will be covered under Medicare Advantage (MA) and the Medicare prescription drug program (Part D). These changes are in direct response to the Bipartisan Budget Act of 2018, which eliminated historical restrictions on telehealth reimbursement, and are intended to “improve quality of care and provide more plan choices for MA and Part D enrollees.”

Also included in the proposed rule changes are adjustments to methodologies and processes that should improve access to care, as well as recover funds from payments improperly applied to insurance companies. We view this as a positive development, especially as it relates to current and projected physician shortages. Greater reimbursement should allow for providing some basic services through telehealth applications, it is going to equip providers with the ability to “do more with less.”

Our recent report, Telehealth Beyond the Hospital, provides a detailed analysis of the telehealth market as a whole, but we felt it prudent to prepare a supplemental post to give a brief examination of how these rule changes could potentially impact the provision of healthcare services.

Easing Reimbursement via Classification

Telehealth services have previously seen limited implementation by MA plans because they have been traditionally classified as services covered by “supplementary medical insurance.” These new rule changes shift the classification of telehealth services to the “basic benefits” category. We have witnessed lagging adoption rates of telehealth technologies over the last several years, and view the inclusion of these services into the basic benefits category as a necessary step to increase their rate of use.

CMS expects that the inclusion of telehealth services in the basic benefits category will spur more MA plans to offer these benefits beginning in 2020, and increase their support of these services in subsequent years. This isn’t happening in a vacuum, and is in line with the broader push to promote telehealth services as viable alternatives and supplements to traditional care options. The move towards parity between physical visits and telehealth services has shown to increase reliance on telehealth services before: Michigan has seen a “77.5% increase in Telemedicine encounters after supporting service parity in telemedicine.”

This isn’t happening in a vacuum and is in line with the broader push to promote telehealth services as viable alternatives and supplements to traditional care options.

Driving Near-Term Adoption: Patient Satisfaction and Ease of Access

Recent surveys have shown that patients are growing more and more amenable to remote care options, especially if it reduces their out-of-pocket costs. The opportunity cost of non-reimbursed care is one of the primary barriers to provider adoption of telehealth services, and by removing this barrier we will hopefully see further alignment between providers and patients on this issue.

We see this alignment as a part of the greater industry shift towards value-based care (VBC). As we noted in our Patient Relationship Management (PRM) Market Scan Report, engagement was one of the areas where adoption of these new technologies for VBC was exceeding expectations. Increased reimbursement for telehealth should continue this positive trend and hopefully allow for the realization of some PRM benefits.

We predict that the CMS rule changes will encourage diversified managed care organizations (MCOs) to expand their current commercial telehealth contracts to their MA business and also potentially drive the adoption of telehealth offerings among that trend.

Impact on Providers and Vendors

These new rule changes have a large potential upside for all players in the telehealth market, but it is important to note that telehealth adoption has been incremental over the last several years and there is no reason to predict a stark diversion from that trend.

We predict that the CMS rule changes will encourage diversified managed care organizations (MCOs) to expand their current commercial telehealth contracts to their MA business and also potentially drive the adoption of telehealth offerings among that trend.

Vendors looking to capitalize on this incremental market growth are going to have to navigate the differing needs of commercial and Medicare providers. For commercial providers, telehealth is seen primarily as a cost-savings and efficiency tool. For Medicare providers, they are looking most closely at telehealth as a way to promote post-acute care management and patient engagement. To effectively sell to Medicare providers, vendors are going to have to tailor their tools and pitches to hit on the appropriate pain points.

Conclusion

As the costs of chronic condition management skyrocket, looking for innovative telehealth solutions is of paramount importance.  Reclassification as basic services and simplification of the reimbursement process will certainly help vendors supplying these solutions overcome potential buyer uncertainty on the ROI of their products.

The most important takeaway from these rule changes from an HCO perspective is that the future of value-based care is arriving quickly. HCOs need to prepare for this future by refreshing their care delivery strategies, especially as it relates to primary care. The primary care environment is changing, and HCOs need to closely examine what they need to provide in terms of physical locations, providers, and services for their patient populations. They then need to craft strategies to meet these evolving requirements.

Future Winners in Accelerating Shift to Value

Last week, CMS released its proposed rule (beware – in good government fashion it’s a whooping 607 pages) for the Medicare Shared Savings Program (MSSP) Accountable Care Organization (ACO) program. CMS is taking a big leap forward with this rule on the path to value-based care. The big leap? Moving existing MSSP ACOs from all upside contracts (no risk), to taking on an ever-increasing portion of risk (downside, e.g. reimburse CMS if targets not met). This is a real wake-up call for providers, especially hospital-led ACOs, who have by and large failed to meet targets in current MSSP ACO contracts.

What Got Us Here

The advent of ACOs is a byproduct of the Affordable Care Act (ACA), wherein the Obama administration was seeking new payment models to shift Medicare spending from fee-for-service to value-based care (VBC). To get providers comfortable with the concept, various ACO models were deployed with MSSP the most popular – currently 86% of all Medicare ACOs.

Within the MSSP ACO a provider organization could choose one of three tracks, but only Track 1 carried no downside risk. Logically, nearly all providers chose Track 1 initially and today 82% of MSSP ACOs are still in this track. Unfortunately, in 2016 this track was a money-losing proposition for CMS, as hospital-led MSSP ACOs racked up losses for CMS that were higher than the savings from physician-led ACOs.

Provider readiness to take on true risk has always been the rub…With these proposed rules, CMS is going beyond meeting providerswhere they are but pushing them forward on the path to value.

Fast Forward

At the recent Leavitt Partners conference, attendees were briefed on the political climate in Washington. Despite all the political rhetoric, there are three core healthcare principles that are non-partisan:

  • Fee for service (FFS) is the problem.
  • Integrated care is better than disparate care.
  • There is a strong need for valid measures to score value.

This event also emphasized that the federal government must take the lead in pushing the industry to VBC, again for a couple of simple reasons:

  • CMS is the largest payer in the country, representing over half of all healthcare spending. Money talks.
  • Unlike employers, CMS has beneficiaries in every region of the country, encouraging and enforcing nationwide measures of value.

The MSSP ACO proposed rules are just another step, of what will likely be many, which CMS will have to take in its attempt to bend the cost curve. Rather than wait for providers to voluntarily accept and migrate to true risk – something we saw little of in the former MSSP ACO rules – the proposed rules foist that risk upon providers. Granted, providers are given one to two years in a “glide path to risk” in the new rules, but risk is definitely in their future; by contract year five, an MSSP ACO will take on enough downside risk to qualify as an Advanced Alternative Payment Model (APM) under MACRA.

In summary, CMS proposes ending the current Tracks 1 and 2 replacing them with a new 5-level BASIC track. The first two levels of the BASIC track begin with no risk to providers but annual auto-advancement to higher risk-reward layers will advance providers into risk sharing. Former Track 3 will become the ENHANCED track. The current 3-year agreement period changes to 5-years minimum and national inflation metrics will be replaced with regional metrics.

Somewhat depressingly, the total calculated projected 10-year savings for the new MSSP rules is a paltry $2.2B.

Winners and Losers Aplenty

The proposed rules are likely causing a lot of angst in the executive offices of many a hospital, but these rules will have winners as well.

 

Table 1: Winners and Losers in Proposed MSSP ACO Rules*

From our vantage point, provider readiness to take on true risk has always been the rub. The recent NAACOS survey found that 71 percent of Track 1 MSSP ACOs scheduled for renewal this year were unlikely to do so if they had to assume risk. This is likely an inflated number – when push comes to shove, far more will renew – but this is a barometer of provider sentiment and overall readiness even among those with some experience with the program.

Across the country, healthcare is anything but consistent. As Gary Loveman, former executive vice president of Aetna, pointed out at our Convergence conference last year, one has to meet providers where they are. With these proposed rules, CMS is going beyond meeting providers – but pushing them forward on the path to value. For most providers who take this path, it will be challenging, and trusted partners with previous experience in risk-bearing ACO enablement will be essential.

Without a doubt, something has to be done to bend the cost curve – and, to its credit, CMS is taking action. However, will the action that CMS is taking here with the MSSP ACO program be enough to fend off its critics, especially if projected savings are so minuscule? We’re really unsure, but one thing we are certain of is that CMS is the only entity in this market that has the ability to do something on a nationwide scale. If not CMS, then who?

 

* Reducing the Risk – Vendors Enabling the ACO, Chilmark Research Market Scan Report, March 2017

Promoting Interoperability: MU Fades to Black

By Brian Murphy and Brian Eastwood

Seeking to liberate the industry from its self-created morass of siloed data and duplicative quality reporting programs, the Department of Health and Human Services (HHS) issued 1,883 pages of proposed changes to Medicare and Medicaid. It renamed the Medicare and Medicaid Electronic Health Record (EHR) Incentive Programs (known by all as Meaningful Use) to Promoting Interoperability Programs (PI).

As widely reported, it would eliminate some measures that acute care hospitals must report and remove redundant measures across the five hospital quality and value-based purchasing programs. It would also reduce the reporting period to 90 days. HHS will be taking comments until June 25, 2018.

HHS believes that APIs will solve all of the problems that patients and healthcare stakeholders have with data access. HHS also seems prepared to declare that TEFCA compliance and 2015 Edition CEHRT guarantees that those APIs are in place.

Certified EHRs as Enablers of Interoperability

HHS believes that requiring hospitals to use 2015 Edition CEHRT in 2019 makes sense because such a large proportion of the hospitals are “ready to use” the 2015 Edition. Ready to use is not the same as using. 2015 Edition EHRs may not be as widely deployed as HHS indicates. The following 10 month old snapshot from ONC shows hospitals have not aggressively moved to adopt 2015 Edition CEHRT.

Figure 1: Adoption Levels of 2015 CEHRT
Source: Office of the National Coordinator for Health Information Technology. ‘Certified Health IT Developers and Editions Reported by Hospitals Participating in the Medicare EHR Incentive Program,’ Health IT Quick-Stat #29. Available at https://dashboard.healthit.gov/quickstats/pages/FIG-Vendors-of-EHRs-to-Participating-Hospitals.php.

Current adoption levels by HCOs are undoubtedly better, and many vendors have 2015 Edition technology ready to go, but hospitals can only change so fast. The rush to get hospitals on the most current edition has to do with the most relevant difference between the 2014 and 2015 Editions – the API requirement. APIs will be the technical centerpiece of better, more modern interoperability but adoptions levels are still low. APIs, by themselves, offer the promise of better data liquidity. For this promise to become a reality, healthcare stakeholders need more than just a solid set of APIs.

Price Transparency: Easier Said Than Done

HHS is also proposing that hospitals post standard charges and to update that list annually.

This is a nice thought, but it will take some heavy lifting to pull this off. For starters, HHS doesn’t even have a definition of “standard charge” and is seeking stakeholder input before the final rule is published. HHS also must determine how to display standard charges to patients, how much detail about out-of-pocket costs to include (for patients covered by public and private insurance), and what noncompliance penalties are appropriate.

Above all, there’s the thorny issue of establishing what a standard charge is in the first place. Charges vary by payer. Can a hospital truly state, without a doubt, the cost of an MRI or a colonoscopy? Most cannot – and technology alone will hardly solve this problem.

Patients (Not) Using Their Data

The existence of APIs will stand in the stead of the old view/download/transmit (VDT) requirement. Regarded as one of meaningful use’s most troublesome and fruitless requirements, this rule has been shed by HHS because of “ongoing concern with measures which require patient action for successful attestation.”

VDT is one of several MU Stage 3 requirements pertaining to patient engagement – along with providing secure messaging or patient-specific educational resources – that HHS has proposed dropping, under the pretense that it is “burdensome” to healthcare providers. While hospitals have struggled to get many patients to participate, the VDT requirement set the bar at one patient out of an entire population. What’s more, dropping the requirements fails to take into account how burdensome it is for patients to try to access their data, communicate with their physicians, and learn about their conditions and treatment options. It is also contrary to CMS Administrator Seema Verma’s remarks, first at HIMSS18 and again this week, indicating that the agency seeks to “put patients first.”

HHS says that third-party developed apps that use APIs will deliver “more flexibility and smoother workflow from various systems than what is often found in many current patient portals.” Whether such apps deliver “smoother workflow” is not a foregone conclusion.

Reporting Burden Reduction

HHS proposes “a new scoring methodology that reduces burden and provides greater flexibility to hospitals while focusing on increased interoperability and patient access.” The proposed scoring methodology uses a 100-point system (explained over 24 pages) in which attaining a score of at least 50 means there will be no Medicare (or Medicaid) payment reduction.

Table 1: Proposed Scoring Methodology for Promoting Interoperability Program (PI)

HHS is also mulling whether to abandon these measures altogether in favor of scores calculated at the objective level.

The TEFCA Angle

The biggest regulatory effort in recent months related to interoperability, other than this proposal, has been ONC’s proposed Trusted Exchange Framework and Common Agreement (TEFCA), required under the 21st Century Cures Act. TEFCA, well along in the planning stages, is a new set regulations from ONC whose goal is to catalyze better data availability using APIs. HHS in this regulation wants public comment on whether participation in a TEFCA-compliant network should replace the process measures in Health Information Exchange objective. Stated another way: Should TEFCA compliance replace 80 percent of the score for PI (75 percent in 2020)?

TEFCA is widely expected to provide a safe harbor from data blocking liability although ONC has been mum on this point. TEFCA then could do double duty: Eliminate the need to meet or report on health information exchange metrics and provide a shield from data blocking enforcement.

But there are, as yet, unanswered questions about TEFCA:

  1. How much will it cost providers to comply and can they make money for providing access to their data?
  2. Will TEFCA compliance, as a practical matter, accomplish anything? Will it make it easier for healthcare stakeholders to use each other’s data?

HHS is also considering doing away with Public Health and Clinical Data Exchange objective. It floated the idea that a provider that supports FHIR APIs for population-level data would not need to report on any of the measures under this objective. This would replace 90 percent of the score for PI (85 percent in 2020) when combined with the TEFCA knockout.

The specific API mentioned, called Flat FHIR and still in development, will probably contribute to part of the complex process of public health and registry reporting. This activity currently requires highly skilled data hunter-gatherers, usually with clinical credentials. In many organizations, these hunter-gatherers manually sift and collate multiple data sources to meet the varied requirements of the recipients of different registries. Flat FHIR, assuming it were production-ready, will certainly help, but it is unlikely that it could provide all, or even most, of the information needed for the range of public health reporting programs.

MIPS and APM Concerns

HHS acknowledges that providers are less than thrilled with aspects of the Quality Payment Program (QPP). HHS wants to know how PI for hospitals can better “align” with the requirements for eligible clinicians under MIPS and Advanced APMs. In particular, it wants ideas about how to reduce the reporting burden for hospital-based MIPS-eligible clinicians. It is undoubtedly looking for market-acceptable ideas to reduce the reporting burden where it is arguably more deeply felt – among non-hospital-based MIPS-eligible clinicians. While reducing or eliminating the reporting burden would help such providers, the big unanswered question, as it is with hospitals, is the burden of getting to 2015 Edition CEHRT.

Mandating Interoperability with Other Regulations

HHS also asks the industry how it could use existing CMS health and safety regulations and standards to further advance electronic exchange of information. It is ready to change Conditions of Participation (CoPs), Conditions for Coverage (CfCs), and Requirements for Participation (RfPs) for Long Term Care Facilities regulations to this effect. It wants to know whether requiring electronic exchange of medically necessary information in these regulations would move the interoperability needle.

Bottom Line

HHS believes that APIs will solve all of the problems that patients and healthcare stakeholders have with data access. HHS also seems prepared to declare that TEFCA compliance and 2015 Edition CEHRT guarantees that those APIs are in place. It roundly ignores the mesh of incentives that make stakeholders unwilling to share data and patients unable to access data. The industry has cried out for less process reporting and better insight into outcomes for years. This will accomplish the former but set the industry back with respect to the latter if interoperability is declared solved based on technology alone.

One More Step in the Long Road of Precision Medicine

CMS decision removes important barrier for some Medicare cancer patients to access next generation sequencing and companion targeted therapies as well as potential clinical trials.

For any new therapy, diagnostic or device brought forth by our healthcare innovation community, there are three high-level barriers generally encountered on the path to commercialization: Regulatory approval, payment confirmation (generally coverage by public and/or private healthcare payers) and adoption by healthcare providers. For new classes of therapy, such as genetically targeted therapies and their companion diagnostics, there is often a greater challenge to pass regulation, assure coverage and gain adoption since there is little precedent.

As of mid-March, there is new precedent to leverage for gene-based diagnostics and all stakeholders in the development of genomics applications in medicine. Following the November 2017 approval by the FDA of Foundation Medicine‘s FoundationOne CDx, (F1CDxTM), the Centers for Medicare & Medicaid Services (CMS) proposed a National Coverage Determination (NCD) for diagnostic lab tests that include Next Generation Sequencing (NGS). These first steps were the culmination of a great deal of work by industry players, researchers and regulators. On March 16, 2018, CMS announced a finalized NCD for NGS for Medicare patients with advanced cancer (including Stage III, Stage IV, recurrent, relapsed, refractory or metastatic cancers). These are diagnostic tests that, as companions to other diagnostics, identify treatment options based on certain genetic mutations.

As policymakers and payers take on the burden of cost coverage, the progression of the healthcare sub-industries focused on leveraging patient’s genetic and other “-omic data” will benefit from the step toward better coverage.

The burden of payment for genetic sequencing was a topic of discussion at HIMSS18 among players in the space of gene-based therapy (HIT, providers, etc.). Prior to the CMS coverage decision, patients often had only the option to pay out of pocket for genetic sequencing. Based on this NCD, Medicare patients with advanced cancer have coverage. That coverage will be limited to FDA approved diagnostics, such as F1CDxTM, but the test results may be used both to match patients with FDA-approved gene based therapies and to identify patient candidacy for clinical trials of therapies not yet approved by the FDA. This potentially charts a clearer, more predictable path for additional NGS diagnostics in development, not only because of payment and regulatory precedent, but importantly because of the potential to speed up clinical trials for gene based therapies if candidates are identified more quickly.

Patients diagnosed with cancer, or really any life-threatening condition, want and deserve access to the latest proven advancements in medicine. This NCD marks a big step in patient access and for development of targeted therapies and companion diagnostics. It also brings stakeholders attention to the looming challenge of payment at a systemic level. This remains a primary focus of the discussion among payers and policy makers.

CMS Administrator Seema Verma and other high-ranking Government officials have discussed their intentions to curb costs for Medicare and Medicaid specifically related to novel genetically targeted therapies because they come at notably high cost. Therapies of this type can be priced between $300,000 and $500,000, with some reaching as high as $1 million. CMS does not negotiate prices, so its efforts to reduce the cost burden are focused on alterations to the format of payment for state agencies and managed care organizations who do. Some concepts floated by officials include paying less for a given drug based on the target indication used with a patient, or paying for high-cost drugs over a longer period of time. The CMS final NCD for genetic sequencing diagnostics only further brings this cost challenge to the forefront.

As policymakers and payers take on the burden of cost coverage, the progression of the healthcare sub-industries focused on leveraging patient’s genetic and other “-omic data” will benefit from the step toward better coverage. However slow and bumpy the progress may seem, expect to see continued or accelerated investment in diagnostics and therapy by both public research sources as well as private equity.

As these areas of investment continue, HIT vendors will have an opportunity to differentiate. Cancer in particular offers a slightly more carved out business channel for vendors to target with specialized solutions and a big market to warrant the investment. Cancer patients often have large care teams to manage, often have greater needs to make contact with the care team or show up for therapy and have a lot of test results to manage. EHR systems, telehealth companies, care management, risk based business models and other subsets of HIT all have an opportunity for differentiation within this specialized care community.

Vendors such as Flatiron, recently acquired by Roche for $1.9 Billion, Syapse, 2bPrecise, Orion Health and others have taken early focused steps both with respect to “Precision Medicine” and to advancements in oncology care (as the CMS NCD specifically pertains to). Healthcare IT vendors, with this NCD, have yet another signal to consider the role of genomic and other comparable complex data types in their systems.

Here are a few specific applications to keep an eye on related to this evolution:

  • EHR systems should have workflows to manage needs of patients who can benefit from existing gene-based therapies. This may or may not include more complete sources of “-omic data,” but the trend will be to gather more insights from these kinds of data even if not maintained directly within the EHR.
  • HCOs with IT infrastructure and processes to help patients identify potential alignment with clinical trials should consider how they will add to their existing systems to include genomic sequencing and facilitate candidacy evaluation based on findings of such diagnostic information.
  • HCOs should consider how they will properly educate and inform the patient and relevant members of the care team with respect to NGS.
  • HCOs should consider how factors related to NGS will be communicated across the care team.

As NGS data becomes more readily available and expected as a component of care, analysis and facilitating utility of these complex forms of data will be an opportunity for competitive advantage.

Amid the Fire & Flurry – #JPM18

This past week I attended the annual J.P. Morgan Healthcare Conference, and the multitude of satellite events surrounding it, which attracts about 40,000 people from across the industry. It is where the business of health occurs, where money (Wall Street, PEs, VCs) looks to make a deal with just about any business in healthcare (life sciences, medtech, hospital systems, payers, start-ups, etc).

It’s a fascinating event to attend and arguably one of the best for getting a broad read on the entire healthcare sector and its future trajectory. Following are 8 significant takeaways:

Loud noises, but steady hand at the tiller. A lot of political “fire and fury” came out of Washington in 2017 regarding the Affordable Care Act, but despite several attempts ACA repeal did not occur. Political noise may continue to spout from Pennsylvania Avenue – but over at HHS, new leadership will quickly get down to business, proceeding with value-based care initiatives. The latest example: CMS’s reinstatement of rules for voluntary bundles as an APM under MACRA.

Medicaid in stormy seas. While CMS stabilizes Medicare, state-run Medicaid programs will see turmoil. As of this writing, CHIP remains unfunded, and Medicaid funds distributed via state designated health programs under 1115 waivers will evaporate. This will impact many states significantly, as healthcare costs are already a leading line item in their budgets – nearly 40% in our home state of Massachusetts. How states address this federal shortfall bears close watching.

Cost consciousness arises. The transition to value-based care (VBC), contractions in CMS spend and likely increase in uncompensated care will force healthcare organization (HCOs) to take a hard, deep look at costs. Administrative and supply chain costs will be primary targets. As a corollary, this cost consciousness extends to health IT. If your solution does not deliver a clear ROI in a year or less, you will get the brush-off.

New breed of CIO. The majority of CIOs that oversaw go-lives of enterprise EHRs over the last decade are not likely to be the ones to drive their HCO’s digital health strategy going forward. A new breed of CIO is on the rise: One with a combination of clinical, business, informatics, and IT skills. They intuitively understand the operational and strategic value of IT in both a clinical and business context.

Tax reform accelerates M&A. Recent passage of the tax reform bill brings fresh cash into the coffers of businesses. This cash influx will be leveraged to drive further consolidation rippling across all sectors of the healthcare market. The proliferation of start-up health IT companies with few exit options will lead to rapid consolidation as larger companies leverage cash for strategic fold-in acquisitions.

Next generation of start-ups emerge. I spent some time at the Startup Health Festival to hear many a pitch from young start-ups. Instead of conversations on how to disrupt or transform healthcare, which were the norm a couple of years back, conversations this year addressed a specific issue or problem in the healthcare system. These companies demonstrate a deeper level of understanding of healthcare than years past – typically on how they will provide a “tech-enabled service.”

There’s gold in removing administrative burden. From physician burnout to increasing expenses, administrative friction creates a huge burden across this sector. HCOs will increasingly look for solutions that minimize this burden. During a panel I moderated on Blockchain, the panel was unanimous: Blockchain, in conjunction with cloud computing and smart contracts, shows significant promise of removing administrative friction in provider-payer interactions.

Blockchain is coming, and coming fast – but it will not be widely deployed until ~2022. More near-term is the use of AI/ML to optimize and automate administrative activities. I spoke with several companies, typically at Series A funding level, which have already gained significant wins in relatively short order. This is one area to watch closely in 2018; growth in demand for these solutions will ramp up significantly.

 

The Fury

Vice President Joe Biden spoke at the Startup Festival, reflecting on his son Beau’s death due to cancer. Biden spoke passionately to the crowd about the Cancer Moonshot initiative and the dire need to change the current system of health in this country.

He did not mince words.

Biden implored the audience to dedicate themselves to improving healthcare delivery and persist until they get it done. But Biden also deplored the industry for failing to deliver, after $38B in federal investment, a digitized healthcare system with data liquidity at its core. Unlike most, who readily level this charge at vendors, Biden placed blame squarely on HCOs, which is not unfounded.

Will FHIR come to the rescue in 2018? Unlikely in any significant degree, as we wrote in our 2018 Healthcare IT market predictions, outside of clearly defined clinically integrated networks.

 

The Flurry

It is clear that the flurry of activity that concluded 2017 (Optum-DaVita, CVS-Aetna, Providence-Ascension, Dignity-CHI, Advocate-Aurora, Humana-Kindred) will not subside anytime soon. 2018 will be yet another year of significant consolidation as the entire industry grapples with tighter margins and the need to migrate from tertiary, system-centric care to preventive, consumer-driven care.

The Most “Disruptive” Development of 2017 Goes to…Taxes!

Physicians in the Cross Hairs: As states with business-friendly tax codes become a physician’s mecca, those of us in high-tax states may find a dwindling number of practitioners in the next decade.

As we take stock of the winners and losers of tax reform heading into 2018, let’s reflect on the details. First, as promised, change is certainly present for large C-corps (healthcare and non-healthcare). They will get fat and happy thanks to their 21% tax rate (decreased from the previous rate of 35%), particularly since there is no requirement to allocate any percentage of income to research and development, rank and file employee training, increased wages, or new hires, although several have committed to do so.

As states with business-friendly tax codes become a physician’s mecca, those of us in high-tax states may find a dwindling number of practitioners in the next decade.

Piles of Cash for Healthcare Corporations

For healthcare corporations, this no-strings-attached approach will result in greater piles of cash to spur stock buybacks, increased dividends and acquisitions, all of which offers some relief from the shackles thrown on healthcare in the past few years. No industry has found itself more at the mercy of a fluctuating political agenda as healthcare has—the new tax code and the industry’s new-found purchasing power frees it from being dictated by a variable it can’t control. HCO mergers will give the combined larger entity greater bargaining power with payers. Cross-industry mergers and acquisitions provide diversity in healthcare to better manage risk for all organizations in its ecosystem while complementing one another’s core competencies and bottom lines (e.g., CVS’ Aetna, and Cigna’s Brighter, just the beginning of a massive trend).

Additionally, it seems only a matter of time before larger organizations will be granted the same relief from ACA requirements that the current administration granted their small business counterparts, freeing them to restore businesses’ and insurers’ offerings and giving consumers increased affordability and choice.  Seems rosy, right?

Not So Fast. Hospital systems still face many financial challenges. More than 55% of hospitals operate at a loss. Further, Medicare reimbursement has remained flat at 90% of patient expenses, a losing equation from the start. The repeal of the individual mandate means health facilities will treat more patients without reasonable expectation of payment, forcing many into the debt-collection business and further eroding the support of sicker, more costly patients. A lack of payer-provider convergence with respect to financing patient care triggers frequent and costly contract negotiations.

 

How will Physician Practices Fare?

More than 45% of physicians are partnerships, and as service providers they are exempt from benefiting from the new lower S-corp. tax rate of 25% for pass-through businesses. Instead, they face individual tax rates of 35% for Single Filers earning over $200,000. Anjali Jayakumar, CPA of FIT Advisors, examines the real estate of her physician practice clients and the feasibility of establishing it as a separate entity. This permits separation of the medical practice (the service side of the business) from the real estate operation, which is eligible for the lower tax rate. However, Jayakumar cautions her clients to look to 2019 for IRS rules and regulations to be issued in response to this year’s filings.

Similar to the highly capitalized companies above, expect mergers and acquisitions of smaller scale (e.g., physicians joining or merging practices, or purchasing a standalone pharmacy). An argument could be made for even acquiring the local cooking school, gym or corner bodega, reasoning that those businesses are integral to social determinants of health, a priority of CMS; although there is a lack of guidance on how the IRS would view this.

Physician compensation accounts for an average of 10% of a community hospital’s operating budget. Many hospitals are overstaffed as patients are referred to skilled nursing facilities, outpatient surgical facilities and home care, leaving more beds unoccupied and the trend continues. In response, there is an increase in unaffiliated physicians, with privileges at several facilities. Yet, as referenced above, the new tax rate benefits filers with incomes under $200K, and married couples with incomes under $400,000. With the average medical student graduating with $200,000 in debt, the elimination of the federal deduction for state income tax and a cap on deducting property taxes above $10,000, earnings below those levels decrease the viability and sustainability of such practices and practitioners in high-tax states.

 

The Great Migration?

As business-friendly states become a physician’s mecca, high-tax states will find a dwindling number of practitioners in the next decade, largely through attrition. As medical school applications increase in states without income taxes and lower property taxes (e.g., Texas, Florida and Nevada) and graduates seek residencies there, most will build careers in those regions without incentives to settle elsewhere. Much as states have wooed Amazon, they may find themselves bending over backwards with concessions to reverse the coming trend of fewer physicians in high-tax states, or perhaps insurers will be pressured into larger reimbursements. Absent that tipping point, we may be at the beginning of a professional migration, not seen since the Gold Rush, when the pick and shovel salesmen found the quickest way to riches. Likewise, your local business and medical supply retailer stands ready to outfit your new Midwestern office.

Back to the Crystal Ball: Our 2018 Healthcare IT Market Predictions

couple looks into a crystal ballOur favorite post of the year is this one. As analysts, we come together with our propeller hats on to collectively look ahead at the key trends in the year to come in the healthcare sector. While there are any number of predictions one might make for this dynamic market, we will stick to what we know best: Healthcare IT and the broader issues that influence this sector. 

Following is our annual Baker’s Dozen. As always, love getting your feedback in the comment section. Let the dialog begin.

 

Merger & acquisition activity continues; Humana or Cigna acquired.
Major mergers and acquisitions that mark the end of 2017 (CVS-Aetna, Dignity Health-CHI and rumored Ascension-Providence) will spill over into 2018. Both Humana and Cigna will be in play, and one of them will be acquired or merged in 2018.

Retail health clinics grow rapidly, accounting for 5 percent of primary care encounters.
Hot on the health heels of CVS’ acquisition of Aetna, growth in retail health reignites, albeit off a low overall footprint. By end of 2018, retail health clinic locations will exceed 3,000 and account for ~5% of all primary care encounters; up from 1,800 and ~2%, respectively, in 2015.

Apple buys a telehealth vendor.
In a bid to one-up Samsung’s partnership with American Well, and in a bid to establish itself as the first tech giant to disrupt healthcare delivery, Apple will acquire a DTC telehealth vendor in 2018.

Sixty percent of ACOs struggle to break even.
Despite investments in population health management (PHM) solutions, payers still struggle with legacy back-end systems that hinder timely delivery of actionable claims data to provider organizations. The best intentions for value-based care will flounder, and 60% of ACOs will struggle to break even. ACO formation will continue to grow, albeit more slowly, to mid-single digits in 2018 to just under 1,100 nationwide (up from 923 as of March 2017).

Every major EHR vendor delivers some level of FHIR support, but write access has to wait until 2019.
While some of the major EHR vendors have announced support for write access sometime this year and will definitely deliver this support to their most sophisticated customers, broad-based use of write APIs will happen after 2018. HCOs will be wary about willy-nilly changes to the patient record until they see how the pioneers fare.

Cloud deployment chips away at on-premises and vendor-hosted analytics.
True cloud-based deployments from name brand vendors such as AWS and Azure are in the minority today. But their price-performance advantages are undeniable to HIT vendors. Cerner will begin to incent its HealtheIntent customers to cloud host on AWS. Even Epic will dip its toes in the public cloud sometime in 2018, probably with some combination of Healthy Planet, Caboodle, and/or Kit.

True condition management remains outside providers’ orbit.
Providers will continue to lag behind payers and self-insured employers in adopting condition management solutions. There are two key reasons why: In particular, CMS reluctance to reimburse virtual Diabetes Prevention Programs, and in general, the less than 5% uptake for the CMS chronic care management billing code. In doing so, providers risk further isolation from value-based efforts to improve outcomes while controlling costs.

Mobile-first becomes dominant platform for over 75% of care management solutions.
Mobile accessibility is critical for dynamic care management, especially across the ambulatory sector. More than 75% of provider-focused care management vendors will have an integrated, proprietary mobile application for patients and caregivers by end of 2018. These mobile-enabled solutions will also facilitate collection of patient-reported outcome measures, with 50% of solutions offering this capability in 2018.

Solutions continue to document SDoH but don’t yet account for them.
A wide range of engagement, PHM, EHR, and care management solutions will make progress on documenting social determinants of health, but no more than 15% of solutions in 2018 will be able to automatically alter care plan interventions based on SDoH in 2018.

ONC defines enforcement rules for “data blocking,” but potential fines do little to change business dynamics that inhibit data liquidity.
The hard iron core of this issue is uncertainty about its real impact. No one know what percentage of patients or encounters are impacted when available data is rendered unavailable – intentionally or unintentionally. Data blocking definitely happen,s but most HCOs will rightly wonder about feds willingness to go after the blockers. The Office of the National Coordinator might actually make some rules, but there will be zero enforcement in 2018.

PHM solution market see modest growth of 5-7%.
Providers will pull back on aggressive plans to broadly adopt and deploy PHM solution suites, leading to lackluster growth in the PHM market of 5%to 7% in 2018. Instead, the focus will be on more narrow, specific, business-driven use cases, such as standing up an ACO. In response, provider-centric vendors will pivot to the payer market, which has a ready appetite for PHM solutions, especially those with robust clinical data management capabilities.

In-workflow care gap reminders replace reports and dashboards as the primary way to help clinicians meet quality and utilization goals.
This is a case where the threat of alert fatigue is preferable to the reality of report fatigue. Gaps are important, and most clinicians want to address them, but not at the cost of voluminous dashboards or reports. A single care gap that is obvious to the clinician opening a chart is worth a thousand reports or dashboards. By the end of 2018, reports and dashboards will no longer be delivered to front-line clinicians except upon request.

At least two dozen companies gain FDA-approval of products using Machine Learning in clinical decision support, up from half a dozen in 2017.
Arterys, Quantitative Insights, Butterfly Network, Zebra Medical Vision, EnsoData, and iCAD all received FDA approval for their AI-based solutions in 2017. This is just the start of AI’s future impact in radiology. Pioneer approvals in 2017 — such as Quantitative Insights’ QuantX Advanced breast CADx software and Arterys’s medical imaging platform — will be joined by many more in 2018 as vendors look to leverage the powerful abilities of AI/ML to reduce labor costs and improve outcomes dependent on digital image analysis.

What are your healthcare market predictions for 2018?

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