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?

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

Deriving Value from Enterprise Systems

clinicalCompMuch consternation has been expressed over the years regarding massive enterprise software roll-outs. There are numerous examples in virtually any industry sector one cares to look at.

Years ago, when I was working as an analyst in the manufacturing vertical, the stories were legendary of ERP deployments gone awry and countless examples of cost overruns. In fact, it was nearly impossible to find an enterprise deployment that stayed within budget.

Is it any surprise then that the healthcare sector has suffered its own share of enterprise software (EHR) woes? Hardly not.

But that is not to say let’s pull up the stakes and forget about digitizing health and revert back to clipboards and row upon row of filing cabinets – we are far beyond that now. The healthcare sector will become, like countless others, digitally-driven. The challenge for the senior leadership at healthcare organizations (HCOs) is to derive value from these deployments, value that requires investment well-beyond the install of that bright and shiny new EHR.

Unfortunately, for many HCOs, insufficient forethought was given to what they hoped to accomplish, what value they hoped to derive (beyond MU compliance) in adopting that new EHR. I have yet to see an enterprise-wide deployment go well, or meet objectives if the organization did not adequately prepare at all levels. The most overlooked aspect is sufficient attention to workflow design and training end users to facilitate adoption and efficient use of a new system.

But there is value in these systems if done right and with the accelerated migration to value-based care (VBC) and associated reimbursement, this will only increase.

At this year’s HIMSS conference, the best presentation I sat in on was by Steve Allegretto of the Yale New Haven Health System. His talk was on their organization’s effort to get a true understanding of costs of delivered care and optimizing for outcomes. He presented some very compelling evidence on how they reviewed their various clinical pathways, supply chain, procedures to uncover unwarranted variabilities to rectify. The result was not only an ability to decrease the cost of care delivered, but in doing so they improved their quality scores. Truly a win-win. When I asked Steve during the Q&A as to what role their EHR had in this analysis – he was adamant: “We simply could not have done this without an enterprise-wide EHR across all of our hospitals to understand variances and then modify them with consistent, clinical pathways across the institution.”

More recently when I was in Colorado for the World Cup Finals, I met a geriatric physician on the lift up the mountain. Our conversation quickly turned to healthcare, the massive transformation that is ongoing and how he, as a physician, was coping with it all. Being in his mid-forties he’s seen quite a bit of change in his career. What I was most struck by though was his enthusiasm for being a physician – he truly loves what he does and secondly, his enthusiasm for his EHR.

As a geriatric physician, virtually all of his reimbursement comes from CMS, which has placed an increasing emphasis on quality reporting. His organization takes part in CMS’s MSSP (Medicare Shared Savings Program).  The physician has a scribe that does all the EHR data entry for him while he interacts with the patient. The EHR tracks and reports the various quality metrics CMS is looking for and his organization has been getting quality bonuses ever since, more than paying for the scribe, and he finds he has more time for his patients.

Adopting a new enterprise software system is not for the feint-of-heart, but if done with sufficient forethought and a clear understanding that the investment doesn’t stop upon deployment, but much like raising a child requires a long-term investment, the benefits are very real and sustainable.

Take-aways:

  1. You cannot over-invest in end user training.
  2. Involve end users early and often to ensure workflow is reflective of best practices.
  3. Leverage enterprise-wide capabilities to drive out variance to improve quality and cost structure.
  4. Scribes can, if effectively used, go a long way to improve clinician satisfaction, which will likely also improve patient satisfaction.

 

Valued-Based Payments Leading to Value-Based Supplier Pricing?

Costs & Value

Healthcare organizations (HCOs) are undergoing strategic shifts as they move from volume to value-based reimbursement models. Not only do they have to think about different metrics on how they track their own revenue and finances but also on how they negotiate prices with their various suppliers including the possibility of some value-based pricing arrangements from health IT vendors.

While HCOs are undertaking value-based pricing agreements with other HCO suppliers including pharma/biotech firms and medical device manufacturers, it is still a foreign concept to HCOs and health IT vendors with the exception of one vendor we spoke to. Instead, HCOs are taking a ‘staged deployment’ approach and instead of engaging in actual value-based pricing agreements are limiting their upfront financial exposure by enrolling select patient populations and often deploying a minimal set of solutions from a health IT vendor. If the HCO is achieving acceptable results, they will look to add additional lives, payer types, and deploy additional IT solutions/modules over time.

Public payers who are looking to add ‘accountable care’ elements and expand beyond traditional payer-led population health efforts are not looking to enter into value-based pricing agreements either for the solutions themselves. Instead, public payers are also looking to limit their initial financial exposure by demonstrating a ‘proof of concept’ with improved outcomes upfront over a certain trial period. If the outcomes are acceptable, the public payer will increase both the population covered under the arrangement and expanded additional solution deployment.

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