2019 Predictions: M&A, Big Tech, and the Fate of ACOs

The Meaningful Use gravy train finally came to an end in 2018. As the strongest EHR vendors struggle to define new revenue streams, weaker ones faded from view through acquisitions or leveraged buy-out. Meanwhile, funding for ‘digital health’ start-ups continued to increase, though it likely hit the high water mark in 2018. And lest we forget, Amazon, Apple and Google continue their forays into the healthcare sector as the market is simply too big to ignore.

So what’s in store for 2019?

We brought together our analysts’ brain trust and came up with the following baker’s dozen of 2019 predictions. Over the near decade of making these annual predictions, our batting average has consistently been well above .500, so don’t ever say we didn’t give you an advanced warning on the following:  

 

Revenue cycle management M&A picks up; Optum acquires Conifer

Revenue cycle management M&A activity will continue to pick up with the most notable acquisition by Optum as it doubles down on its Optum 360 managed revenue cycle business and acquires Conifer Health Solutions from Tenet.

Alternative primary care clinics remain a side-show

Despite the hype and media attention around alternative primary care clinics (e.g. Oak Street Health, Chen Med, One Medical), the actual number of physical locations serving patients will remain paltry at less than ten percent of the number of retail health clinic locations. 

Humana finds a life partner with Walmart 

Walgreens will likely make the first move to acquire Humana in 2019, but Walmart will outbid Walgreens to win Humana over.

Regulatory approvals for artificial intelligence-based (AI) algorithms accelerate, tripling the number approved in 2019

The number of FDA approvals for algorithms in 2018 was impressive and shows no signs of abating. Additionally, 2020 will see a further tripling of regulatory approvals for AI.

Choose wisely: 2019 sees the first major shake-out of DTC telehealth vendors

Consumers’ use of telehealth will continue to see rapid growth and rising competition leading to significant consolidation among the plethora of vendors. By year-end, a major non-healthcare-specific consumer brand will join the mix, and the market will be down to five direct-to-consumer (DTC) nationwide brands.

Data science services see extraordinary growth, nearly doubling in 2019

By the end of 2019, every major healthcare analytics vendor will provide a cloud-hosted offering with optional data science and report development services.

In 2019, healthcare organizations (HCOs) adopt a cloud-first strategy

Cloud offerings have become far more robust, concurrent with HCOs’ struggles to recruit IT talent and control costs. Amazon’s AWS and Microsoft’s Azure will be clear winners while Google’s own cloud infrastructure services will remain a distant third in 2019.

New rules from ONC about data blocking have little effect because the business case does not change

Laws and regulations to-date have not compelled providers to freely share data with patients. ONC’s information blocking rule, which will be released before the end of 2018, will make it easier to transfer data to other organizations but will do little to open the data floodgates for patients, clinicians, and developers.

Big tech companies’ intentions in healthcare do little to disrupt the delivery of care

  1. Despite high-profile hires, the Amazon/Berkshire/JPM initiative will make no substantive progress.
  2. Amazon will focus only on the DTC supply chain, payer, and employer—staying away from anything substantive in the provider space.
  3. Apple’s Healthkit and sensor-laden smartwatch will remain sideshows in 2019 awaiting a more actively engaged healthcare consumer.
  4. Google [Deepmind] will never break out of clinical research and drug discovery.

Majority of MSSP ACOs stay and take on risk; hospital-led ACOs lead exits

Despite loud protests, the vast majority of provider-led MSSP ACOs will take on downside-risk as CMS shows flexibility in waivers. However, hospital-led ACOs, who continue to struggle with standing up a profitable MSSP ACO, will exit the program in 2019.

Closure of post-acute facilities shows no signs of slowing

Continued changes in post-acute care reimbursement, especially from CMS, combined with the migration to home-based services, puts further economic strain on these facilities. Nearly twenty percent of post-acute care facilities will shutter or merge in 2019.

2019 Health IT IPO market fails to materialize

The warning signs are there over the last couple of months that the stock market has become skittish. This will extend well into 2019 (if not lead to a mild recession). It will hardly be an ideal time to do an IPO, and those planned by Change Healthcare, Health Catalyst and others will wait another year.

Elon Musk reinvents healthcare

Elon Musk will have a nervous breakdown leading him to reinvent the healthcare system from his bed during his two-week recovery at Cedars-Sinai.

Stay up to the minute.

Did You Know?

Revisiting Our 2018 Predictions

As is our custom here, we like to look back on our predictions for the closing year and see just how well we did. Some years we do amazingly well, others we over-reach and miss on quite a few. For 2018, we got seven of our 13 predictions spot-on, two were mixed results and four predictions failed to materialize. If we were a batter in the MLB we would have gotten the MVP award with a .538 batting average. But we are not and have to accept that some years our prediction average may hover just above the midpoint as it did this year.

Stay tuned, 2019 predictions will be released in about one week and it is our hope that they will inspire both rumination and conversation.

(Note: the bigger and plain text are the original predictions we made in 2017, while the italic text is our review of 2018). 

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.

MISS – neither happened. However, Cigna did pick-up PBM service Express Scripts and rumors continue to swirl about a possible Humana-Walmart deal or more recently, even a Walgreens-Humana deal.

 

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.

MISS – Modest growth in 2018 for retail health clinics with an estimate of around ~2,100 by year’s end. Telehealth, which is seeing rapid growth and on-site clinics may be partially to blame.

 

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.

MISS – Apple continues to work on the periphery of care with a focus on driving adoption of its Health Records service in the near-term with a long-term goal of patient-directed and curated longitudinal health records.

 

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).

HIT – MSSP performance data showed only 34% earned shared savings in 2017 (up from 31% in 2016) and by year’s end it is estimated there will be ~1,025 ACOs in operation.

 

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.

HIT FHIR-based read APIs are available from all of the major EHR vendors. Write APIs are still hard to find. To be fair, HCOs as a group are not loudly demanding write APIs.

 

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.

HIT – adoption of cloud computing platforms is accelerating quickly across the healthcare landscape for virtually all applications. Cloud-hosted analytics is seeing particularly robust growth.

 

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’s 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.

HIT – Awareness of the CCM billing code (CPT code 99490) remains moderate among providers and adoption is still estimated at a paltry less than 15%.

 

Mobile-first becomes the 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.

MIXED – While the majority of provider-focused care management vendors do have an integrated mobile application (proprietary or partnership), collecting PROMs is still a functionality that remains limited through an integrated mobile solution.

 

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.

HIT – despite all the hoopla in the market about the need to address SDoH in care delivery, little has been done to date to directly affect dynamic care plans.

 

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 knows what percentage of patients or encounters are impacted when available data is rendered unavailable – intentionally or unintentionally. Data blocking definitely happens but most HCOs will rightly wonder about the federal government’s 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.

MIXED – Last December we said, “The hard iron core of this issue is uncertainty about its real impact.” Still true. Supposedly, rulemaking on information blocking is complete but held up in the OMB. The current administration does not believe in regulation. So “data blocking” may be defined but there was and will be no enforcement or fines this year.

 

PHM solution market sees 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.

HIT – PHM remains a challenging market from both payment (at-risk value-based care still represents less than 5% of payments nationwide) and value (lack of clear metrics for return on investment) perspectives. All PHM vendors are now pursuing opportunities in the payer market, including EHR vendors.

 

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.

MISS – Reports and dashboards are alive and well across the industry and remain the primary way to inform front-line clinicians about care gaps.

 

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.

HIT – With about a month left in 2018 the count of FDA approved algorithms year to date is approaching 30 and could potentially hit three dozen by year end. This is a significant ramp up in the regulatory pipeline, but more is needed in the way of clear guidance on how they plan to review continuously learning systems and best practices for leveraging real-world evidence in algorithm training and validation.

 

What do you think of 2018 for health IT?

Humana-Walgreens Partnership: Primary Care Focused on Medicare Advantage

Key Takeaways:

  • Humana and Walgreens jointly announced a partnership for Human to operate senior-focused primary care clinics in Walgreens stores.
  • This comes as a response to a clear industry need for new “front doors to care” and other investments in retail health by competitors to both companies.
  • We predict these sorts of deals and services will expand in number and into other regions with these and other companies in response to unsustainable healthcare spending.

 

humana walgreens partners in primary careMedicare Advantage (MA) continues to show the most robust growth of any line of business for health insurers. Overall MA growth was 7.8% year over year in July 2018, reaching 21.4 million, while Part D enrollment grew to 25.5 million. To better serve these members, health insurers are considering several strategies – one of which is operating primary care clinics that exclusively focus on Medicare patients.

Overview

On June 19, Humana (NYSE: HUM) and Walgreens (NASDAQ: WBA) jointly announced a partnership under which Humana will initially operate two senior-focused primary care clinics inside Walgreens retail stores in the Kansas City, Missouri area. The clinics will open under Humana’s Partners in Primary Care banner; they will join four existing Kansas City area clinics, opened in 2017, which share the same name. The two co-located clinics are slated to open in the fall and occupy ~2,500 square feet (~25% of an average Walgreens store).

These clinics will have their own separate entrance, with an exit into the Walgreen’s pharmacy. While the companies are not sharing details on the nature or economics of the partnerships, Humana did note that it will operate the clinics and staff the doctors and accept a variety of Medicare coverage, including fee-for-service, MA, and Medicare Supplement plans. The clinics will serve seniors exclusively; Humana expects they could take 3-4 years to reach capacity. The companies noted that the collaboration could expand into other markets over time.

This partnership shows how both Humana and Walgreens are focusing more heavily on their longer-term clinical strategy and responding to other competitors “front door to care” strategies.

Outlook: Humana

For Humana, this pilot is a logical extension of the company’s longstanding commitment to an integrated care model that more closely aligns primary care, pharmacy, in-person health plan support, and other services for Humana’s MA and Part D members. It also follows recently acquired minority/joint venture stakes in home health and hospice providers Kindred and Curo.

Humana believes the convenience of the retail pharmacy model should help make primary care more accessible to seniors. In addition to the co-located Partners in Primary Care clinics, Humana representatives will work in select other Walgreens stores to provide general assistance on health-related services to Humana Medicare members and other customers. These in-store “health navigation” services will be available at no cost to members inside the Walgreens pharmacy store (as opposed to the co-located clinic).

The Partners in Primary Care model offers integrated services that “go beyond addressing acute and immediate health issues, and [focus] on developing long-term relationships with patients living with chronic conditions.” In addition to the four wholly owned, standalone clinics that opened in Kansas City in 2017, Humana operates two clinics under the Partners in Primary Care banner in Greenville, SC and another in Gastonia, NC.

All of these providers are risk-bearing for Humana, as will be the locations co-located with Walgreens; the latter may or may not bear risk with other payers, depending on the contracts struck with third parties. Importantly, the collaboration with Walgreens does not preclude Humana from striking any other potential arrangements with other retailers. Humana will also continue to work with Walmart on a partnership that encompasses a value-oriented, co-branded Medicare Part D plan as well as other in-store consultative efforts.

Outlook: Walgreens

Walgreens has recognized the need to make changes to its store format and is exploring various partnerships that will add new services. This announcement with Humana appears consistent with a strategy of incremental, capital-light partnerships with other healthcare services providers to convert its stores away from retail toward a more comprehensive healthcare offering.

Others within the healthcare continuum have received more attention for their efforts to provide a more convenient location to access healthcare services – namely CVS Health with its acquisition of Aetna. But Walgreens has been actively growing its suite of healthcare services that can be offered both inside and outside the retail pharmacy: Partners in Primary Care with Humana, MedExpress with UnitedHealthcare, LabCorp PSCs, Walgreens Hearing, Walgreens Optical, and its new Find Care Now telehealth service.

In addition, Walgreens is piloting a set of differentiated service offerings in the Gainesville, FL market. These include Walgreens Plus (a subscription-based, in-store savings program with an option for free same-day prescription delivery) as well as an in-store partnership with Sprint for phone purchase and activation.

It appears that any new store concept is very much a work in progress, and Walgreens expects to update investors on its store strategy in about a year. We expect Walgreens to test the “Partners in Primary Care” concept in these two test stores before making a decision to roll it out more broadly, as with its other pilots.

partners in primary careLooking Ahead

We see four key questions about the Humana-Walgreens partnership.

Will patients come?

Humana has stated that it could take 3 to 4 years for the two new clinics to reach capacity. Humana did not provide details on how it will advertise these new clinics to new or existing Humana MA beneficiaries, what types of MA beneficiaries are likely to enroll in these clinics, and how it might convince MA beneficiaries to switch from the long-term relationships they have with their PCPs. These clinics might be a good fit for certain Humana MA beneficiaries (e.g. patients within walking distance of a Walgreens or patients without a regular PCP) – but it would not be surprising to see these clinics struggle to reach capacity unless they hire an existing PCP or two who can bring a large patient panel of MA beneficiaries.

Will it actually bend the cost curve?

Assuming a patient panel of 500 to 700 MA patients per physician at these new clinics, they are likely to only serve 1,500 to 2,000 Medicare patients in addition to the four existing Partners in Care clinics in the Kansas City area. Humana currently supports more than 65,000 MA and Part D prescription drug members in the Kansas City area. Will those few thousand beneficiaries regularly seeking care at Walgreens be enough to decrease hospital admissions and ultimately the medical loss ratio?

How quickly will the model expand?

While Humana has acknowledged that retail could be a powerful distributor of provider capabilities for its MA members, its view that model as still unproven. Humana expects to experiment with smaller, more targeted retail initiatives vs. broader ones, at least in the near term. Walgreens as well appears to be in no rush to rapidly expand this concept either, with its pilot starting at two sites and expected to last at least 12 to 18 months.

Will they build or buy an EHR?

It has not been disclosed if Partners in Primary Care is using a commercially available EHR or choosing to build its own product. Some primary care clinics focused on the MA population, such as One Medical, use a commercially-available EHR (eClinicalWorks). Others such as ChenMed and Iora Health have chosen to build much, if not almost all, of their own IT offerings, including a proprietary EHR. The startups that have built proprietary solutions felt that commercially available EHRs were not well-suited for their patient populations for several reasons (such as insufficient HCC coding and documentation support); as long as they only served the Medicare population, they found they were better off building and maintaining their own EHR.

 

We expect this type of coordinated care services model for MA beneficiaries to expand to other geographies over time. While this partnership is immaterial to either Walgreens’ or Humana’s financials over the next few years, it shows how both companies are focusing more heavily on their longer-term clinical strategy and responding to other competitors “front door to care” strategy for MA – especially CVS-Aetna and UnitedHealthcare-WellMed.

Blockchain in Healthcare: Enthusiasm is growing, but still a long way to go to realize impact

Key Takeaways:

  • Blockchain can be useful in healthcare in contexts where there is dependency between transactions and an asset, such as data, passes from one party to another.
  • Some of the applications most ready for ‘prime-time’ include data sharing between payers and providers.
  • Over the next decade, blockchain will be a significant part of solutions to interoperability challenges.

The speculative craze around Bitcoin and the Initial Coin Offering (ICO) market for startups in the digital currency and blockchain space has heightened the interest in blockchain beyond the crypto-community and into the mainstream. The speculation in the ICO market has driven investment in these vehicles to reach nearly $7 billion in 2017 virtually dwarfing venture capital for startups across all sectors including healthcare. Among the hundreds of startups in the blockchain ICO count are over 70 dealing with healthcare according to industry observer Vince Kuraitis. But speculative capital rarely translates into long-term sustainability and the disruptive business models that startup founders espouse. Limitations with scalability, transaction speeds, energy consumption have been some of the dominant concerns. This is particularly true in healthcare and we have reached an important point in the evolution of the blockchain space where it is worth pausing to take stock of how blockchain applications are evolving and what specific pain points in health IT can current blockchain infrastructures realistically address.

Blockchain can be valuable in contexts where there is dependency between transactions and an asset, such as data, passes from one party to another. Furthermore, when verification of the integrity or provenance of the data is valuable the immutability and time stamping features that blockchain provides are very useful.

Chilmark Research is releasing our “Market Scan Report (MSR) on “Blockchain in Healthcare” with this goal in mind. We wanted to explore the first generation of use cases and startups in the blockchain space and provide a strong foundation for understanding the potential applications in areas that speak to the core capabilities of blockchain as they relate to payers and providers: identity management, data sharing/exchange, provider directories, patient indices, claims adjudication, supply chains and revenue cycle management. We can think of blockchain as having a role in addressing pain points in the healthcare system where we see some of the following challenges:

  • When multiple parties have need for a shared source of data or registry to generate transactions across a network of disparate agents or tracking of data use is required (delays in reimbursements to providers are frequently driven by inaccuracies in provider registries used by payers)
  • Where trust is required (in data, in reliability of agents in the network) to fulfill transactions (a major roadblock for data sharing and care coordination across complex networks) or there is currently a minimal amount of trust across the ecosystem of parties that generate transactions (trust in data shared across providers and transparency in when patient data is changed or updated can help reduce medical errors)
  • Third parties are used to verify parties in transactions but there may be delays or high transaction costs or administrative costs associated with this intermediary role
  • All data shared in the system requires high privacy and security standards/regulations to be met for compliance or protecting patient/provider data and patient consent but decentralized control of the data would lead to more effective services

Contexts where there is dependency between transactions and an asset, such as data, passes from one party to another are important areas where blockchain can be valuable. Furthermore, when verification of the integrity or provenance of the data is valuable the immutability and time stamping features that blockchain provides are very useful.

Blockchain Applications in Development

Our research into the current applications in development and most-ready for prime time in the next year include companies working in the following areas of the provider-payer nexus:

  • Provider data management: use of identity management schemes for creating Master Patient Indices and hashing disparate clinical records for patients into a common patient-held wallet
  • Proof of Provenance, Tracking and Tracing in supply chains: this leverages experience in commodities, digital assets and food supply chains to provide similar services to prevent fraud, enable serialization of pharmaceutical products and protect the integrity of pharma and hospital supply chains. In some markets, globally, up to 50% of drugs can be counterfeit and create tremendous public health problems
  • Patient benefits and insurance authorization: automate and keep up to date verification and authentication of patients
  • Claims adjudication: use of APIs and blockchain to create administrative efficiencies and automation of claims adjudication
  • Care coordination: enable better interoperability of data flows across providers to improve care coordination
  • Better integration of data beyond the EHR: patient-generated data and social determinants data can potentially be compiled and shared while improving privacy and security as well as more patient control of this data via blockchain applications
  • Provider Directories: Consortia of providers and payers have an opportunity to create up to date provider network registries and automate this process through blockchain.

We provide brief vendor profiles of consulting firms, large tech providers and startups working in the blockchain space and an analysis of where we see this market going in the coming years. These also include some of the larger consulting and tech firms offering enterprise Blockchain-as-a-Service offerings including IBM, Accenture, Deloitte and T-Systems. The startups profiled include PokitDok, Simply Vital Health, Solve.Care, MedRec, Change Healthcare, Factom. There are also alternatives to blockchain or a growing number of companies that have chosen to develop “blockchain friendly” applications until the blockchain ecosystem reaches a higher level of maturity. Google’s DeepMind Health is using an alternative distributed ledger technology with patient records in the UK’s National Health System after creating an uproar over perceived misuse of patient data without approvals or prior consent. Blockchain offers an auditable way to address this controversy. A supply chain/cybersecurity offering by Cloudface provides an analytics solution for hospital supply chain with plans to create blockchain applications in the near future. There is also growing interest in IOTA’s Tangle for the Internet-of-Things (IoT).

Blockchain as an Enabler of Transformation

One interesting example that emerged at the end of our writing this report was the recently announced Optum-Quest-Humana-MultiPlan blockchain initiative to improve provider directories. This is part of an effort to streamline back-office operations for payers. The initiative was developed to address the problem that arises when claims from providers enter the system and there is a mismatch between the records payers have on providers and the provider identity. Often the payer directories are not up to date and the resulting lack of reconciliation of claims submitted by providers results in delays or non-payment of claims. The initiative will launch a pilot during the summer of 2018. What is important about this initiative is the involvement of multiple stakeholders making it a more salient use-case of blockchain for pain points resulting from lack of coordination and effective sharing of data across multiple companies. We view blockchain as a tool for industry transformation rather than disruption of companies, this is a prime example of how to begin thinking about utilizing blockchain in a transformative manner. Over the next decade, we expect to see fewer discussions of blockchain in isolation and it will be a component alongside the cloud, AI and other technologies used to automate administrative functions and enable more efficient sharing of data.

Over the next decade we expect to see fewer discussions of blockchain in isolation and it will be a component alongside the cloud, AI and other technologies used to automate administrative functions and enable more efficient sharing of data.

Blockchain’s Future

The example above also leads us to how Chilmark Research is beginning to think about the future of blockchain in healthcare. Blockchain is an inherently complex new technology that necessarily involves coordination across networks of stakeholders. This means that blockchain ‘disruption’ of healthcare that solves the interoperability challenge or other major pain points with a single technological quick fix is not anywhere even remotely close on the horizon, but we do believe the full impact of the transformative potential of blockchain will play out over the coming decade. 2018 will see a growing number of pilots and experimentation as the hype of 2016-17 spurred considerable interest.

Even government has gotten involved with a Blockchain Caucus in Congress. The ONC’s white paper challenge and recent Trust Exchange Framework bode well for blockchain’s future as well. Blockchain proponents would be well served in the long run by moving beyond a strict techno-centric approach and developing more robust thinking on managing consortia, governance mechanisms, and the broader cryptoeconomics of blockchain in the context of the health economy. Thinking is lagging on these fronts and the froth around easy money via ICOs in 2017 has not helped matters in developing the critical thinking tools towards long-term success for blockchain in the health IT ecosystem.

For those interested in learning more Chilmark Research will be attending the Second Annual Healthcare Blockchain Summit on June 11-12 in Boston where many of the vendors and use cases we analyze in our report will be represented.

Can Kindred Help Humana Bend the Cost Curve?

In December 2017, national health insurer Humana and two private equity firms, TPG Capital and Welsh, Carson, Anderson & Stowe (WCAS), announced the $4 billion acquisition of Kindred Healthcare, a national provider of post-acute services. This was not terribly surprising as it was rumored back in April that Kindred Healthcare was exploring sale options, with Humana and private equity firms as interested buyers.

This deal marks yet another sign of increasing convergence between payers and providers. Vertical integration continues to be a key strategy, as evidenced by UnitedHealth’s deal with DaVita and the pending Aetna and CVS merger.

In evaluating potential home health partners, Humana sought a platform that has the capability to move beyond Medicare FFS home care to robust data collection and sharing, as well as anticipatory actions that will “bend trend” for MA members.

Humana Acquiring Kindred at Home

This transaction involved three parties: Humana, TPG Capital, and WCAS.

  • Humana is taking an initial 40% stake in Kindred’s home health, hospice and community care businesses (Kindred at Home) for $800 million on a valuation multiple of 11.5x EBITDA. (See Table 1.)
  • Following the acquisition, Kindred at Home will operate as a standalone company with 40% owned by Humana and 60% by TPG Capital and WCAS.
  • TPG Capital and WCAS will assume Kindred’s facilities assets, including the inpatient rehabilitation facilities (RehabCare) and the long-term acute care hospitals (Kindred Hospitals). These will operate as a separate specialty hospital company under the ‘Kindred Healthcare’ name.
  • Humana has a call clause and TPG & WCAS have a put clause to ensure that Humana buys them out in  a few years if either party wants.
  • The “put/call” provisions would value the residual value in Kindred at Home at 10.5-11.5x EBITDA, with the valuation range determined by the future financial performance and performance on clinical metrics of the JV.
  • The transaction is expected to close during the summer of 2018.

Table 1: Kindred Healthcare Assets

What Humana Wants in Home Health

Humana sought more than just cost-lowering levers for seniors in its 3.3 million member Medicare Advantage (MA) business. Instead, it was looking to actually purchase home health and hospice providers with a national presence for a few key reasons:

  1. Nature of Medicare Advantage. Humana has strong incentives to improve the health of its MA members. The company earns a fixed fee, adjusted for patient conditions, with guaranteed issuance. Many of these seniors already have chronic conditions. As such, Humana has incentives to focus on value, not maximize utilization. MA also incentivizes the buildout of capabilities to improve quality and leverage quality analytics through the STARS rating system.
  2. Reducing inpatient utilization. While medical cost trend benders now extend well beyond the acute care hospital, hospital bed days provide a quantifiable framework for illustration. Humana’s average bed days/1,000 is estimated to run in the 220-230 range for its MA business. This compares to 180 for best-in-class MA plans and 260 for lower-ranked plans. Each reduction in bed days/1,000 is worth $25 to 30 million annually across Humana’s MA members. If Humana can reduce its bed days/1000 to the best-in-class rate, it could save up to $1.5 billion annually.
  3. Extending their existing home health programs. Humana’s Home model, begun in 2007 and now serving about 800,000k members, focuses on the coordination of care rather than the delivery of healthcare services, since Humana does not directly operate licensed home health agencies. The Kindred acquisition gives Humana more direct control of home health providers.
  4. Reducing external home health spend. Approximately 10% of Humana’s individual members utilize home health, representing $750 million in annual spend. This presents an opportunity for Humana to reduce its annual home health spend if MA patients utilize Kindred at Home facilities and providers vs. other home health or community care businesses.      

 

Why Select Kindred?

In evaluating potential home health partners/targets, Humana sought a platform that has the capability (systems, culture, training) to move beyond Medicare FFS home care to robust data collection and sharing, as well as anticipatory actions that will “bend trend” for MA members. The model needs to be clinically focused, proactively looking for other opportunities while in the home.

Humana reportedly evaluated a number of other larger home health companies with a nationwide presence, including Amedisys Inc., LHC Group Inc., and Encompass Health Corporation. Humana reportedly came close to acquiring Almost Family, Inc., but Humana wanted more sophisticated clinical capabilities that could be used to identify and act on care opportunities.  Subsequently, Almost Family merged with LHC Group in November 2017 instead.

There are five key reasons why Humana purchased Kindred:

  1. Price and deal dynamics. Humana paid a fairly high price for Kindred Healthcare but mentioned that there is approximately 65% overlap with Humana’s Individual MA membership and the counties where Kindred at Home operates. Getting MA members to use the Kindred at Home services in meaningful numbers is another matter entirely, though.  
  2. Technology. At the end of 2016, Kindred at Home completed the rollout out of DeVero’s forms-based point-of-care system to all its home health and hospice locations. This ensures that all field staff can document electronically and have mobile accessibility. Netsmart acquired DeVero in July 2017; this continues Netsmart’s expansion into the post-acute space, along with its recent JV with the Allscripts Homecare business (March 2016) and acquisition of HealthMEDX’s long-term care EMR and Vision home health/hospice solutions (October 2017). Netsmart’s expanded post-acute solution suite and national HIE present some interesting possibilities for Kindred moving ahead forward including data sharing among Kindred’s legacy IT solutions.  
  3. Value-Based Care. Humana’s interest in Kindred rises from its long-term ability to provide care in a low-cost setting, identify health risks while in the home, and relay cost mitigation opportunities back to Humana’s central care coordination efforts. Humana will provide Kindred at Home with capabilities to transform the home health model to a value-based care platform though Humana’s Transcend and Transcend Insights solutions — even though Humana is going to scale back their Home model program in the interim.
  4. Data Sharing. Furthermore, the data sharing between the two companies will likely improve Humana’s analytics and predictive modeling capabilities, allowing the company to develop deeper insights in order to better care for its members. Humana also indicated that the deal provides a platform to further the development and adoption of technologies such as remote monitoring and telehealth.
  5. Reach. With Humana recognizing the value of Kindred at Home, it has wanted to add capacity to get in more member’s homes. UnitedHealth Group’s House Calls operation now executes 1.25 million house calls per year, for its own MA membership. Humana wanted this capability — and now has it through Kindred’s home health services.     

Looking Ahead

This merger created a few interesting trends we are watching:

Integrated care as a core component of Humana’s strategy. Humana is attempting to bring together primary care, home-based care, behavioral health, and the drug benefit around members to manage their whole health and disease progression. The question is whether this investment, and others recent investments in clinical capabilities, will lead to a lower medical loss ratio and higher quality scores that generate values to its members and helps to build additional MA membership.

Netsmart taking aim at interoperability. Netsmart has aggressively expanded its post-acute capabilities over the past two years and supposedly has had talks with Kindred about wiring them into Netsmart’s national HIE network. With Netsmart’s extensive install base in the behavioral health market, it presents a very interesting strategy to build a coordinated communication system at a national scale with a large number of post-acute and behavioral health providers.

More acquisition of post-acute providers. This deal sets up a strong likelihood that other mid- and large-sized post-acute providers will be acquired over the next 12-18 months. Will it be other Medicare Advantage payers who are trying to replicate what Humana is doing? Will it be a new entrant with other significant non-hospital provider assets — even though Kindred ‘Integrated Care Markets’ strategy failed for several reasons (including debt burden and fiscal pressure on post-acute payers due to reimbursement?   

Humana remains a likely acquisition target. After the failed proposed merger of Aetna and Humana last February, it was speculated that Humana was going to be acquired by another behemoth such as Wal-Mart, Walgreens, or Anthem. Despite some speculation that this Kindred acquisition makes an acquisition less likely in the interim, Humana still represents an attractive takeover target, especially for a firm that wants to aggressively enter the Medicare Advantage market to compete with United Healthcare on a national scale. Only a handful of companies, though, could possibly afford the M&A price.

HIMSS’15 Pilgrimage: Impressions and Takeaways

CRinMoroccoAnother year, another HIMSS conference. While I often may gripe about this event; the seemingly endless parroting of buzzword(s) de jour, the countless press releases that really are much ado about nothing and highly questionable surveys and research results, that have little founding in reality, there is a silver lining to all of this…

HIMSS affords me the opportunity to meet with so many people I’ve come to know in this sector. Some are my mentors, others clients or partners and all have become friends. That friendship extends from a shared desire and dedication to improve healthcare delivery through the effective adoption and use of IT.

While HIMSS is utterly exhausting it is also incredibly invigorating – kind of a Yin/Yang thing.  I always return from the event with a ton of ideas as to where Chilmark can further assist this industry, because frankly, finding good objective research and insights in this sector sure seems tough to come by.

Key Takeaways:

The “Big Data” hype cools to a simmer. Thankfully, the number of companies quoting, referencing or inferring how they address big data has subsided. This sector needs to get the little data right before it can step-up in any meaningful way to big data.

PHM is a too vague a term. The challenge with population health management (PHM), as a term, is that it is so broad. This results in virtually any vendor laying claim to it – though they may only be solving a very small piece of the PHM puzzle. No vendor at HIMSS’15 has a solution that can fully enable a PHM strategy. Met with many a CIO who has come to same conclusion, but every CIO struggled with same problem: Where best to start and with who?

Everyone does Care Management. In his post prior to HIMSS, our analyst Matt predicted that care management/care coordination would be the new buzzword term de jour. He was spot on. Countless vendors had banners promoting their ability to address care management processes. Unfortunately for users, when one takes a deeper look at these care management apps, one typically finds a glorified spreadsheet. Surely we can do better than this!

Clinical analytics is cool, but financial and clinical analytics together insures long-term survival. Saw plenty of vendors promoting their latest analytic wares and virtually all the demos focused on clinical analytics. Only a few vendors have taken the next step and are co-mingling clinical and financial analytics – which will be absolutely critical for HCOs. Unfortunately, most of these solutions make it far too difficult to perform such a simple task as: At the patient level, identify the most costly patients, what is driving the high costs of care for these patient(s) (visits to specialists, procedures, labs, meds, etc.) in order to determine what may be done to reign in costs.

Notes & Observations

A couple of companies I spoke with, Arcadia and Health Catalyst, did talk about the co-mingling of clinical and financial data, but as mentioned previously, they were in the minority.

ICW was back after a five year hiatus from HIMSS. They’ve gone through a major restructuring to refocus their development efforts on HIE and care management. They’ve always had some pretty decent technology under the hood – their challenge has been channel(s) to market. Not easy for a company from abroad.

Humana announced Transcend Insights (combo of Certify Data Systems, Anvita and nliven), yet another payer-led solution suite. They’ll be challenged to compete with Aetna’s Healthagen and UHG’s Optum. Humana’s deep expertise in Medicare may be key differentiator.

Caradigm looks to be finally gaining some traction and their booth was very busy. They are beginning to get some wins for their Care Management suite, which they co-developed with Geisinger Health.

Orion Health has the most visionary architecture for CNM that I have witnessed to date. Now they have to execute on that vision.

RelayHealth now has both performance analytics (HBOC) and MedVentive under its wing. They will be combining RelayHealth’s data aggregation capabilities, these analytics solutions and hosting in Microsoft’s Azure Cloud. Going beta this summer at ten sites and G.A., by end of summer.

Apervita was one of the more interesting briefings, as they are a company trying to create a marketplace for analytic algorithms that an HCO can source and apply to their EDW. Recently landed Series A round – one to watch.

Aetna’s Healthagen is targeting self-insured employers as well. In North Carolina, the PHM program Healthagen rolled-out across the 680K state employees realized a savings to the state of some $450M over three years. Not sure how those savings were calculated, but a number even half that is impressive.

Kryptiq, which recently spun-out from Surescripts, is taking to market Care Manager, an app originally developed at Providence Health in Portland. Solution automates many of the tasks required for CCM reimbursement under Medicare.

The EHR bubble is over but big question is: Will bolt-on sales of PHM-enabling modules be enough to sustain this market? Cerner is seeing very good traction for its Healthe Registries product, but a contract sale of that product likely pales in comparison to a Millennium sale.

The EHR vendors with the biggest, most elaborate booths are also the ones that are struggling the most in today’s increasingly competitive market.

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Athenahealth had by far some of the best marketing booth panels I’ve ever seen at HIMSS.

InterSystems is jumping into the patient portal business. We’ve never been fans of EHR-tethered portals and Intersystems’ move is welcomed.

Health Catalyst continues its momentum, both in raising funds and landing new clients. They are moving fast knowing that the likes of Epic, Cerner and other best of breed vendors are in pursuit.

Lumira, management buy-out of Wellogic from Alere, is building out a solution suite combining engagement, data exchange, biometrics and analytics. Lumira sees itself as a becoming an “Outcomes Company”. How that differs from a traditional MCO is hard to gauge right now.

Everyone wanted to know the implications of IBM’s big announcements at HIMSS. Certainly thought provoking, but IBM has a ways to go to convince the market, especially providers, of what value they can deliver.

The record winning CCD file that Medicity has seen fly over its network was 100MB – that’s HUGE! By way of comparison, one of our 100+pg market trends reports averages about 1.3MB. Is it any wonder that this industry struggles with interoperability.

Plenty of talk and wringing of hands over issue of interoperability, but saw nothing at HIMSS that gave me hope that this issue will be solved across the country in the next 12-18months. Think 3-5yrs at best.

Box had a small booth at HIMSS and unbeknownst to me, acquired a start-up that has a pretty slick DICOM image viewing and medical grade mark-up application that now resides on Box.

BluePrint Healthcare IT’s Care Navigator is a nicely packaged app for care coordination. Children’s Specialized Hospital in NJ have been able to derive some high value from its use in caring for its pediatrics patients.

Wrap-up

Of course, with 42K+ attendees, some 1.2K+ exhibitors there is no way any one person can take it all in. One needs a plan and a highly targeted one at that to be able to really get any value out of this event. As they say, practice makes perfect and this being my eighth or so HIMSS, I am getting a little more practiced at how to navigate this event. Never easy, always exhausting, at times depressing, but also never boring. See you in Las Vegas – the site of next year’s HIMSS.

Wellness Market: Too Many Chasing Too Little

CrowdHaving taken a hiatus from last year’s Health 2.0 event, was looking forward to this year’s event to see what may be new and upcoming among those looking to disrupt the status quo. Unfortunately, surprisingly little.

Health 2.0 a couple of weeks back had your usually cheery crowd of those who are looking to transform healthcare. As with past Health 2.0 events we have attended, hype was far out in front of market reality but that does not seem to deter the cheerleaders, which were again present with abundance among the some 1,700+ attendees.

Show Me Your Big Data – That’s what I thought, not so big after all
There was plenty (i.e., too much) talk about Big Data when in reality, presentations focused on relatively small datasets with little thematic similarity in any one session. For example, the Risk Assessment & Big Data session had Dell talking about genomics, Sutter Health talking predictive analytics for CHF, another about mashing up claims and clinical data and the last looking at risk assessment. At the conclusion of this session, nary a question was asked – audience confused. Another session on Big Data tools for Population Health Management (PHM) was cut short, thankfully, when the power died. Hard to say if it is the industry drinking the hype, this particular event (though experienced similar at HIMSS’13), or what but this silliness has to stop – we really need clarity, not smoke n’mirrors =- and don’t even get me started on PHM…

Track Me – Track You and no, I probably don’t want your data, at least not yet
In addition to riding the Big Data hype, the event also jumped on the hype surrounding the rapid proliferation of self-tracking, biometric devices now entering the market and all the great things that will come as a result of consumer adoption and use of such devices to monitor health. Not all are jumping on this band-wagon and for good reasons. There is no doubt that in time, such devices will be used by clinicians and patients together which will be the focus of a forthcoming Insight Report from Chilmark but our early research points to a number of challenges in the adoption and use of such devices in the context healthcare delivery.

There was again a plethora of solutions for price transparency. Some odd partnerships that are more opportunistic, for the partners, than providing value for the end users, e.g., the Dr Chrono-Box.net demo was so laborious I can’t imagine any clinician actually doing it. On the patient engagement front, plenty of new solutions on display and was particularly impressed with what Mana Health had build for the NYeHC patient portal contest. Simple, clean, straight-forward and intuitive to use refreshing.

Of course no Health 2.0 event would be complete without one of the large commercial payers taking the stage to announce their latest and greatest member outreach initiative. Two years ago it was Aetna with CarePass. This year it looked like it would be Humana until they were a no show – but Cigna was there with GO YOU Hub. First impressions of GO YOU: a fairly shallow pool in the health & wellness domain with lots of catchy phrases and colors – something your pre-pubescent daughter may like – but this adult quickly lost interest after four clicks

Health & Wellness Redux, Redux, Redux
And again, no Health 2.0 event would be complete without a gaggle of health & wellness solutions, the majority of which won’t be around by 2016.

There are now far more health and wellness solutions in the market than what the market can absorb. This situation is not likely to get better anytime soon as the numerous incubator/start-up accelerators continue to spew more of these solutions into the market every year. The only thing I can think of is that the barriers to entry must be exceedingly low, yet few of these companies realize that the barriers to adoption are exceedingly high and the market is on the verge of contraction.

The Big Squeeze
We are now projecting a significant level of contraction in the health and wellness arena as the broader market comes to grips with a shift in risk from payers to providers with providers ill prepared to accept that responsibility and the migration of many employees off of their employer plans and onto Health Insurance Exchanges (HIX).

This will create two challenges:

Providers are not accustomed to providing such solutions to their patients. While risk may shift to providers, provider adoption and use of such solutions to manage their patient populations is limited. When one adds in self-tracking devices, well…

…providers are struggling with the data dumps from their recently install EHR. The last thing they are seeking is another data source. Healthrageous is one example. A self-tracking wellness solution that was developed by provider Partners Healthcare, adopted in pilots by some big providers, failed to gain traction and was quietly sold to Humana. Not a pleasant outcome. If a provider organization can’t make a go of it through a spin-out, to the multitude of these health & wellness solutions think they can?

Second, we are at the very beginning of a massive shift of employers directing employees to HIX. Despite a fitful start, the use of HIX will grow overtime as a wide range of employers, but especially those in the retail and hospitality industries, direct their employees to these exchanges. Shifting employees to HIX reduces employer exposure (risk shifting) and will lead to decreasing interest and adoption of health and wellness solutions by employers.

Yet despite these challenges, the cheerleading at all Health 2.0 events and a questionable future, one thing that comes through every year is that there are a significant number of people that truly want to do something good, something meaningful to improve the sorry state that is our dysfunctional healthcare system, which we all struggle with at times. These are the people that attend Health 2.0, the ones willing to talk about the “Unmentionables”, the ones to project a vision of a better future for us all, the ones willing to take a risk. For that they should be applauded. But be wary as most will not be around three years hence.

But next time, can we actually have some front line providers in greater abundance to give us their take on all of this. Unfortunately, this event was sorely lacking in such, though it did have its fair share of various healthcare representatives – they just weren’t the ones from the front lines which is who we all need to be hearing from today.

Special thanks to Graham Watson for the image. Graham is easily the best cycling photographer in the world today.

And an extra special thanks to Cora who was there with me and provided a few tidbits of her own to this post.

 

At the Intersection of Obesity and HIT

We Americans are on a very terrifying path, health-wise, based on the latest obesity projections from RWJF.

Medical “innovations” around the obesity epidemic are unsettling, to say the least. Most recently, Dean Kamen (of Segway fame) filed a patent for a self-serve Stomach-Pumping Machine.

Disturbing medical devices aside, what does the obesity crisis mean to healthcare IT (HIT)?  Yes, increasing obesity rates means more metabolic syndrome, more intervention, more biometric data,more data stored in EHRs, more HIE to share that data, more clinical analytics and care coordination software, …

Does this sound interesting to you?  In my research I am more focused on how technological innovation can function as a solution to the obesity crisis. First let’s consider the payers — the large, innovative ones who continue to rally for behavior change.

Payer-Sponsored Wellness & Patient Engagement Soldier On

Payer-sponsored behavior change programs have never sustained results in the long term, but this doesn’t stop the early adopters from soldiering on.   For our 2012 Payer Benchmark Report, we profiled several large, innovative payers working to engage their members and the public through low-cost consumer technologies.

Some interesting new developments in this space include:

  • Aetna is looking to make running on a treadmill bearable. Its new ‘Passage’ app (storing data in CarePass), promises to make exercisers feel as if they are travelling within a city of their choosing.
  • Cigna has just released a ‘Healthy Living App Pack’, bundling the extremely popular FoodEducate app with 3 less-popular ones.  (Cigna didn’t develop FoodEducate, but licensed it from founder Hemi Weingarten).
  • Humana has begun offering the HumanaVitality rewards system to a group of Medicare Advantage members. Let’s hope that seniors will take more kindly to this program than to HumanaVille, Humana’s failed attempt at creating an online senior health education community.

Consumer Health Companies Need to Move Beyond Fanatics

If payer apps can’t motivate widespread weight loss, then maybe the consumer space can? Consumer companies are currently busy developing software and testing out motivational models on the fly.  This is not exactly the scientific method but it works for small agile environments…and is definitely something that large payers are less adept at.

There is a belief among many of the quantified-self set that just the act of presenting health data to the consumer affects behavior change.  I seriously doubt this, and believe that consumer health startups have played a miniscule role in affecting real behavior change.  So far, they have provided diet and exercise fanatics better tools to fuel their obsession.

In order to reach the ‘bottom of the pyramid’, must we then dole out dollars for weight loss? I recently spoke with Gregory Coleman, one of the founders of nExercise, which offers a gamified “rewards program” where users randomly accumulate points, similar to a lottery, which can be applied towards real world discounts.

(nExercise is also the driving force behind the recently formed FITco, or ‘Founders In Technology Combating Obesity’. FITco functions as a place for founders to form data sharing/interoperability partnerships, and aggregate marketing dollars).

Talking with Gregory, I found myself better understanding the challenges these consumer companies are up against as they seek to move beyond their core base.  In offering financial incentives, they must spark interest without destroying intrinsic motivation. Framing financial incentives in term of ‘rewards’ and ‘discounts’ helps, but the real goal is to wean users off of them.

Cash, Friends, and Coaching: A Pipe Dream?

Several academic studies have shown that a combination of financial incentives, social support, and coaching from a trusted ally, produced significant behavior change, at least in the short term.

I can imagine a day when I seamlessly upload exercise and diet related data into a CarePass-type platform, where:

  • my insurance carrier’s app notices that I have been working out, maintaining my BMI, and applies discounts to my premium.
  • my doctor’s app (motivated by value-based reimbursement), suggests that I keep my maximum heart rate below 160 BPM
  • I display achievement badges to my friends, and make my data available to health companies in order to receive discounts/free samples

Hmmm, what is that distant feeling of unease, the feeling like I am a pawn in someone else’s Grand Plan?  It might have something to do with the complete loss of privacy around my data.  However, if those premium discounts are steep enough, I can live with that.

Whether we get people sharing their health data or tempt them with financial incentives for weight loss, the systematic nature of the obesity problem remains a force to contend with. In the end it will be up to all of us to push back against the institutions that make us fat. Seeking out motivational consumer solutions is a low cost place to start.

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