1 September 2017

Dear Interested Readers,


What’s Inside and Getting Ready For What’s To Come

This week’s letter continues the exploration of the question: Are consolidation, competition, and innovation the answer? Last week I suggested that as much hope as we place in innovation, there are many barriers that must be overcome. If you missed that discussion you can catch up quickly by reading the updated piece published on Tuesday on the Strategy Healthcare website.

In the political debate that the ACA has survived so far this year its critics have pointed to the high cost of policies in the individual market on the exchanges as evidence that the ACA has failed and should be abandoned. Its proponents have argued that the ACA is a right start that needs help. Now that immediate repeal is off the table, it is time for our senators to start listening to one another and learning from the myriad of healthcare experts who have been examining for decades the policies that might enable better care for everyone.

For years there have been many CEOs of healthcare systems of various sizes who have argued that if they were allowed to grow by affiliation, merger, or acquisition they could lower their costs, be better innovators, and succeed in their very competitive environment. This week’s letter takes a closer look at that contention. It examines just how it could be true, and why often it is an unfulfilled promise.

In this piece I draw on my own experience to point out some of the barriers and what might improve the track record of consolidation for lowering costs and moving us toward

...Care better than we’ve seen, health better than we’ve ever known, cost we can afford,…for every person, every time,…in settings that support caregiver wellness…

When I began this series a few week’s ago I felt that because Congress would be entering a new phase of the debate over healthcare after Labor Day it was an appropriate time to ask the question whether consolidation, competition, and innovation are likely to lower the cost of care and move us closer to the objectives of the Triple Aim. I hope that we are really entering a new era of bipartisanship in Congress. If an old curmudgeon like Chuck Grassley, who has been a Senator since 1981, thinks that it is time to take a bipartisan look at shoring up the principles established by the ACA, maybe the earth has begun to move.

Before moving into the meat of this week’s letter where we will examine the good, the bad, the potentially ugly, and the possibly beneficial aspects of healthcare consolidation, let’s take a quick look at what we might expect, or hope for, as Congress reconvenes after Labor Day. I think that it remains highly unlikely that there will be dramatically positive landmark healthcare legislation, like the passage of a single payer program of entitlement for all, but the single payer movement is gaining momentum. Responsible people who may be tomorrow’s political leaders like Senator Kamala Harris of California are joining the audacious dream of Bernie Sanders. Some experts are beginning to struggle with how to achieve the goal. California or New York may soon try to enact what Vermont has dared to think about. What is beginning to happen may be less dramatic than a conversation about single payer system, but any potentially positive moves by Congress still make for an interesting discussion. This year’s goals for Congress are lining up to be a little like stabilizing a patient in the emergency room following some horrendous trauma. It is true that as you stand in the aftermath of a positive resuscitation you should be thinking about the course of a full program of recovery, but it is a one step at a time process that must be followed in a logical sequence. The next step is transfer to the ICU, not a health club membership.

Over the next few weeks I will be delighted to listen as Lamar Alexander’s Senate Health, Education, Labor and Pensions Committee takes testimony from several state insurance commissioners, from some governors, and finally from healthcare professionals about how to stabilize the individual insurance market while retaining the benefits of the ACA that the public has come to appreciate. The president and his partners over at HHS are trying to recover from their failed attempts to gut Medicaid. They may in time recover enough face to slink back into a sullen and partial support of the current law. They are opting to significantly reduce the funds available to support the open enrollment period of the exchanges this fall. It was always too much to ask for these agents of a controlling minority to accept the majority opinion of the American people that the ACA was not as bad as they had preached for seven years, but if anything is finally passed the president will need to sign it and claim a victory.

If you play with the interactive graph that can be accessed with the last link, you will see that support for the ACA is strong across all levels of income. Even a majority of higher income responders are positive about the ACA. Sixty percent of people earning less than 40K think the ACA is a good idea, and that must include a lot of low income Trump voters. It is a relief for the moment for the administration to be just sullen, non committal, and act like it is taking action by trimming a lot off the budgets that support the ACA. We must realize that there will be a lot of politics ahead of us this fall and the agenda is being refocused by the disaster relief legislation that will be required to resuscitate Texas and Louisiana after hurricane Harvey. It is hard to predict, but interesting to watch, how the focus on disaster relief will impact the developing bipartisan healthcare efforts.

I was delighted to discover that there is a growing bipartisan conversation evolving over in the House that has published a reasonable set of agreements coupled with personal statements by many of the committee members. Below read excerpts that represent excellent attempts at meeting in the middle. I have bolded important concepts.


Bipartisan Problem Solvers Caucus Proposal to Stabilize the Individual Market

It is clear that the individual health insurance market is deteriorating and we must act quickly to stabilize it. We all agree that the individual market needs restructuring, and we should swiftly implement changes in time to take effect for insurance plans offered for 2018. Committees of jurisdiction should begin to address the issue through regular order.

To stabilize the individual market and provide some immediate relief, we propose exploring the following solutions:

1. Bring cost-sharing reduction (CSR) payments under the Congressional oversight and appropriations process, but ensure they have mandatory funding. CSR payments are an important part of helping households earning between 100% and 250% of the federal poverty level afford to participate in the individual market. Bringing CSR payments under the appropriations process ensures that Congress can provide proper oversight.

2. Create a dedicated stability fund that states can use to reduce premiums and limit losses for providing coverage—especially for those with pre-existing conditions.

3. Adjust the employer mandate by raising the threshold on the requirement for employers to provide insurance under the employer mandate to businesses of 500 employees or more. The current employer mandate places a regulatory burden on smaller employers and acts as adisincentive for many small businesses to grow past 50 employees. Additionally, the definition of “full time” under the employer mandate should indicate that a full-time work week is 40 hours.

4. Repeal the medical device tax. This tax adds a 2.3% sales tax on medical device supplies. The costs of the tax are passed on to consumers and it should be repealed.

5. Provide technical changes and clear guidelines for states that want to innovate on the exchange or enter into regional compacts to improve coverage and create more options for consumers.

● Section 1332 of the ACA allows states to innovate and share in health savings while
offering strong plans with all essential health benefits. Some states have begun to
experiment in this regard, with great potential for success. However, some technical
legislative changes and/or revised HHS guidance may improve attractiveness to
additional states.

● Similarly, Section 1333 of the ACA allows states to enter into Health Care Choice
Compacts, which allow insurers to sell across state lines in participating states. However,
HHS has not yet released regulations on Section 1333. HHS should issue clear guidelines
and work with states to spur innovation and bring more choice and competition to the
market while protecting consumers.

We must continue to explore additional ways to improve patient choice and responsibility, create positive incentives for providers to lower costs, and enhance state flexibility. We believe that this proposal should be paid for. We stand ready to work to find agreeable offsets within federal health care spending. Potential offsets could be:


● Recapture premium tax credit overpayments

● Encourage use of generic drugs in Medicare Part D

● Speed up brand drug discounts in Part D as seniors approach the coverage gap, or “donut hole”

● Create a bundled payment system for post-acute care in Medicare

● Reduce Medicare payment for bad debt

● Accelerate competitive bidding in Medicare Advantage


Most of this program makes sense to me. Sure, it contains a few items items that are perhaps unrealistic, like sale of insurance across state lines, and makes suggestions that I once would have opposed, like changing the employer mandate to require insurance from 50 to 500 employees, but compromise is not about getting it all your own way. It’s about nobody get what they want, and trying to find the “Rolling Stones” solution where everybody gets what they need.

No, you can't always get what you want
You can't always get what you want
You can't always get what you want
But if you try sometime you find
You get what you need

In the last section of the letter I am not sure that I have gotten everything I wanted from summer this year, but everything I got did go a long way toward meeting my need to realize at least one more time the joys of the season.


Are Consolidation, Competition, and Innovation the Answer? Part 3: A Closer Look at Consolidation

Early in my late career career as a healthcare CEO I was on a pretty steep learning curve. That process was accelerated by my organization’s participation in a learning collaborative sponsored by Massachusetts Blue Cross. In those meetings I developed a great respect for the managerial knowledge of Paul Levy who had led the recovery of the Beth Israel Medical Center form near death following the merger of Beth Israel Hospital with the New England Deaconess Hospital. Both Institutions had been significantly disadvantaged by the monopolistic practices of Partners Healthcare, itself the product of a different and more advantageously managed faux merger of 1994. I say “faux” because the most obviously merged elements were finance and contracting. Both the Brigham and the MGH have continued to function without much difference in the integration of their services. About the only things the “BI” and the “Deaconess” had shared before their difficult union began was geographical proximity, a teaching relationship with Harvard Medical School, faith based origins, and collateral damage from the financial success of Partners.

A few months into our new relationship through the collaborative process sponsored by Blue Cross, I began to talk about an idea with Paul that had been growing in my head for several years. As we shared ideas we began to imagine that a closer relationship between our organizations that might make both of them stronger. We had talked briefly several years earlier when both organizations were burning furniture to make it through a long, cold financial winter. The conversations were unproductive at the time, but in my imagination I kept coming back to the sense that a closer relationship with the BIDMC might be a good idea at the right time.

As a neophyte CEO, I spent a lot of time looking at spreadsheets prepared by more business savvy members of our executive team. It was interesting to me that the numbers told a story that my business colleagues did not have the “on the ground experience” to fully appreciate. If you sorted our expense by outside provider, we had enough “accidental” usage of the BIDMC that occurred primarily when the Brigham, was “on diversion” to do an analysis of our differential experience between the two. The numbers enabled us to appreciate that we were saving 15-25% for services of equivalent quality and perhaps higher patient satisfaction when our patients got their care at the BIDMC. As we looked down the road as it appeared ahead of us in those days of “Romneycare,” even before there was certainty about whether we would ever have an ACA, it just did not make sense to talk about an effort to lower the cost of care while continuing to pay premium prices for care that by any objective measurement was no better than was provided by another institution less than 500 yards down the road.

I was not a neophyte in the world of affiliations, acquisitions, and mergers. As a member of the boards and physician organizations of Harvard Community Health Plan, Harvard Pilgrim Health Care, Harvard Vanguard Medical Associates and Atrius Health, I had already seen the good, bad and ugly of the whole range of the experience of acquiring a new dance partner. I had already had multiple experiences with market prompted or market driven consolidation going back to the 1985 acquisition of Multi Group Health Plan by Harvard Community Health Plan, and was familiar with the chore of creating affiliations between the practices of the two legacy organizations.

As our conversations became more focused, Paul invited me to join him at a meeting of healthcare CEOs in New York. The meeting was a reoccurring day long quarterly event that was an interface between institutions like UPenn, Johns Hopkins, the BIDMC, and Geisinger with venture capitalists in healthcare, medical device manufacturers, and big pharma. For a whole day we would share experiences, discuss evolving legislation, and share an in depth discussion of a specific problem or opportunity facing one of the participants. The highlight of each meeting was a guest presenter of national prominence who would not only make a presentation of general interest, but would usually hang around to participate in some of the activities of the day.

The “guest presenter” of the late February 2010 meeting was the well known, perhaps famous, even if only in healthcare circles, the late Larry Lewin. The healthcare firm, The Lewin Group, that he established in the early seventies remains a source of understanding and strategic direction, long after he retired and even now more than five years after his death. I was excited about the opportunity to hear what he had to say, given what we were thinking about and facing at the time. The legislation that would become the ACA had not yet cleared the hurdles that the death of Ted Kennedy and the election of a Republican, Scott Brown, to replace him, had thrown in the pathway. It was the first of the many ACA “near death” experiences.

The core of what Lewin said on that cold and not so optimistic day in February 2010 about the future of healthcare remains true today. His topic was “The Post Reform World; Preparing for Deeper Alliances and Strategic Partnerships.” His discussion was a road map through uncertainty, and I returned to his PowerPoint presentation that I carried away that day on many occasions over the next four years. If he were still alive today, I have no doubt about how he would answer the question, “Are consolidation, competition, and innovation the answer [to the high costs of healthcare]?” The answer would be, “Maybe, it depends on why and how you do it.”

In the discussion Lewin emphasized several points that are still true and need to be echoed today.

• With or without reform tectonic forces for restructuring [healthcare] are at work
  
• The goal should be a system that proactively and efficiently manages HEALTH
  
• With reform, the restructuring process will accelerate
  
• Universal access produces net savings over time
  
• [There will be] Accelerated adoption of innovative payment systems that shift risk and reward VALUE not volume
  
• [More than ever, there is a need for] requirements for data standards, collection, protected sharing and use
  

He then made a critical statement that remains almost as true today as it was seven years ago: Few systems are significantly integrated to respond [to the challenges]. Then as now most healthcare organizations are under increasing external financial pressure and are “price takers,” living on what the market gives them. He went further to say that within organizations there was diffuse accountability (often no accountability) for both economic and health outcomes. He diagnosed that this was true in part because of dysfunctional incentives. By that I think he meant that when the system needed to produce value it was paid, and then in turn paid employees, for volume.

Perhaps it was too easy for him to blame the dysfunction on a lack of managerial skill and a failure to effectively use information to manage risks. He went deeper and identified what we all know, many of our healthcare systems have low levels of cooperation between management and professional (physician) staffs. At the heart of it all we often find poor governance and organizational confusion with a variety of ownership and partnership models loosely knitted together to attempt to provide care for a community, or compete for the opportunity to provide care in a community with multiple medical providers. That picture in early 2010 is still a very common reality across the country today. Couple such a system of care with social disparities, and many citizens without access to care, and you can begin to understand our current problem with the cost of care.

Lewin did suggest that “Deeper Alliances and Strategic Partnerships” could be beneficial, but he had some critical concerns and advice to offer based on his years of experience. He had been a participant consultant in the failed merger of the Stanford and UCSF systems, and in the very rocky BI/Deaconess marriage. Failures offer learning opportunities. Lewin distilled his experience about mergers, alliances and partnerships into three succinct slides that can be further condensed to two bullet points.

• Can it [the venture] be truly strategic?
  
• Can it be be a workable partnership?
  

He then offered a piece of sidebar advice: “Remember, there is no deal that isn’t easier not to do!”

Expanding the first point on strategy:

• Has a compelling case been agreed on by the leadership and key constituents?
  
• Will it strengthen the sense of “brand” (differentiation, indispensability, barriers to entry)?
  
• Will it increase market strength with respect to control over price, volume, terms of trade?
  
• Will it produce a substantial net increase in capital available to the enterprise?
  
• Will it have the potential to really improve the efficiency of the production function (economies of scale, coordination of care, new products)?
  
• Will it add to the ability to proactively manage health?
  
• Can goals be realized at acceptable levels of risk?
  

The last four points are the ones that stuck with me. I conflated them into one question. Will this “deal” promote our intent of reaching the Triple Aim? Creating capital or real value that can be leveraged for the Triple Aim should be the goal of all consolidations. Staying in business to stay in business is not a very interesting challenge, and decisions made for survival without purpose are not very interesting to me.

The final slide asked questions that all require an affirmative answer if plans, schemes and dreams of success through mergers, alliances and strategic partnerships are to ever become positive realities.

• Has due diligence been thorough enough to eliminate any unpleasant surprises? (c.f. UCSF-Stanford)
  
• Are governance, executive leadership, and succession clearly specified and agreed on? Are incentives of governance and leadership aligned?
  
• Is it clear that cultural differences will be accommodated, not glossed over, and is there an ongoing commitment to maintaining faithfulness with key constituencies, especially if they are faith based? (Louisville Jewish-Alliant; Medco-Accredo)
  
• Is it clear how, at least in the short run, important differences in the future will be resolved?
  
• Is there an agreement on how to “unwind,” if necessary?
  
• Have efforts been made to establish and sustain TRUST?
  

I have verified every point Lewin made, the hard way, through personal experience. I have participated in the development and execution of several successful consolidations, and some that did not ever create value or failed to get off the ground for one or more of the reasons Lewin named. Perhaps the most significant observation I can make is that I have worked in an organization that was disadvantaged by a monopolistic outside merger. The hill we had to climb because of their market advantage seemed unfair. It was unnecessarily high because the merger was too successful as a vehicle for strengthen the sense of “brand”, increasing market strength with respect to control over price, volume, terms of trade, and producing a substantial net increase in capital available to one enterprise at the expense of others whose activity was equally necessary to cover the needs of the community.

As affiliations and mergers continue, as they surely will as financial pressures continue, we will always be told that the motivation is for the public good. It is difficult to know the intent in the heart of others. Good intentions frequently do not materialize for many of the reasons Lewin outlined. We will need to develop better tools to evaluate the likelihood that the outcome of any venture will be in the best interest of the public. Specifically, we need diligence about the impact of the new larger organization on the cost of care in the community. We must be sure that “improvements in delivery and innovations” are likely to materialize as an outcome of any merger that is approved..

In Boston, New York, Washington, San Francisco and in any large metropolitan area with multiple providers competing with one another, it may be increasingly difficult to be sure that more consolidation will not deter the effort to lower the cost of care. In these markets it is possible that we should be unwinding some of the huge consolidations that have occurred. Bell Telephone became many companies. The benefits of consolidation may reach a peak far below the size of many of our existing systems. Conversely consolidations and public-private efforts to promote more effective affiliations in rural communities and small cities may be in our best interest if the Triple Aim is our goal. Perhaps population health considerations and not financial distress should be the driver of the consolidations of the future.

Finally, I would add from my experience that creating the deal, getting regulatory approval, signing all the final papers, and having the party to celebrate it all is just the beginning. The real work is putting the pieces together into something that creates “capital” in all of its financial and clinical dimensions. I look back on two of the affiliations Atrius Health created with a smile, knowing that real value for patients and providers was created. The alliance between BIDMC and Atrius was not a “merger.” It was a partnership in care that benefited both organizations and the community in many ways. The acquisition of VNA Care Network and Hospice by Atrius was also an amazingly beneficial move that strengthened both organizations and added continuing value for patients and the community. In retrospect, success depended on a shared sense of mission in both cases and the work was facilitated by using Lean methodology to work through many of the issues Lewin so effectively identified. Lean will discount his humorous advice to “Remember, there is no deal that isn’t easier not to do!”


Looking Beyond Labor Day

I spent last weekend in Miami enjoying being an observer of my daughter-in-law’s installation as a new judge on the Third District Court of Appeals. We are quite proud of her. Her success is the outcome of hard work and the support of her husband, daughter, and the many many friends she has made as she diligently filled all the different positions on the ladder up the Florida court system that she has held since deciding to pursue a career on the bench more than a dozen years ago. The next court up from her is the Florida Supreme Court. The ceremony, celebration, and seeing my Florida family were the good parts.

The weather was a downer. It’s the rainy season in South Florida. The rain was nothing compared to the weekend in Texas, but there were downpours every afternoon. In between soakings it was like a sauna. I did not complain about the chill in the air when my wife and I got back to New Hampshire late Sunday evening. On Tuesday it was so chilly that I wore a wetsuit while taking my daily swim. The vegetation I see along the side of the road when I walk is looking a little tired and wilted, except for the golden rod. There are school buses on the roads. It is hard to escape the reality that we will not have many more days when the temperature cracks the eighties, although it may get there on Labor Day if the current forecast holds.

On Saturday the University of South Carolina Gamecocks will open their season in Charlotte against the North Carolina State Wolfpack, and next Thursday night the Patriots will start their season against Kansas City. If they’re playing football, it must surely be fall, but I am nervous about the next three games this weekend against the Yankees. Last week I was full of Red Sox pride and confidence and then they lost four in a row!

We are into to that time of year when we are lucky if summer keeps coming back for an encore. If we are not so lucky, a hurricane comes up the coast. My advice is to accept the reality that change is inevitable, and take advantage of whatever comes your way as an opportunity to be outside this weekend. As you can see by the picture in the header, Wednesday was a gorgeous, almost summer day, in Northern New England and my buddies and I headed up near the origin of the Connecticut River to catch some trout. If we are lucky, we will get in one more fall trip and then it will be “wait till next year!”

The change of seasons (even if it will technically be summer until September 20) is a good time to look back and forward. I have mentioned before the poem “Loveliest of trees, the cherry now” by A. E. Housman. In the poem he lamented that he probably had only fifty more springs to enjoy. I imagine that he harbored the same feelings as summer turned to fall.

Now of my threescore years and ten,
Twenty will not come again,
And take from seventy springs a score,
It leaves me fifty more.

Housman actually had more time than he thought. He lived to be 77. I can count. I know that the number of my future summers is in the low double digits, if not single numbers. The coming of fall and all that it brings as we put aside the summer is a reminder of the fact that the future is about the continuing cycle of the seasons which we can not freeze or put on hold for satisfaction at a later time. I hope that you will be out and about drinking in all you can of the last drops of summer with family and friends this weekend. We have an interesting road ahead this fall. Fill your tanks with as much joy as possible now!

Be well, take care of yourself, stay in touch, and don’t let anything keep you from making the choice to do the good that you can do every day,

Gene