Investor’s Business Daily is out with a comprehensive and timely piece on Amazon’s bold moves in healthcare (Amazon’s Health Care Push Could Be Its Next Big Market Disruption). Even though Amazon has been weighing on the fortunes of traditional healthcare players for some time, the recent Amazon pharmacy announcement still shook up the market, driving down the shares of CVS, Rite Aid, etc.
Amazon brings consumer focus, scale, and most importantly –low prices– to healthcare. The potential is dramatic, especially in the COVID-19 era when Amazon is on offense in general.
Amazon probably has the best shot at moving the needle. That’s because of its global, personalized connection to consumers, its high-speed delivery of packages, its powerful cloud computing unit and the wide variety of medical equipment on its e-commerce platform.
“Everyone in health care is scared of Amazon, and rightly so,” said David Williams, president at Health Business Group, a health care consultant. “Amazon is coming at it from all directions and they have the technology, scale and consumer focus needed to succeed.”
“All these companies will have to figure out how they stay alive,” Williams said.
Diabetes is a costly illness that affects tens of millions of Americans. Joslin Diabetes Center is a world renowned specialist located in the heart of Boston’s Longwood Medical Center. It seems like it should be booming, but in fact diabetes treatment is not a great business and Joslin has not had strong financial performance.
Cancer, cardiology and orthopedics –with their invasive procedures– are much better for making money. But good diabetes care means coordinating lots of people to examine and guide the patient. That’s expensive to provide but not well reimbursed.
And standalone specialty hospitals, even prestigious ones, need strong connections to integrated health systems if they want patients.
Drug pricing is the hottest topic in healthcare, and ICER founder Dr. Steve Pearson is the coolest person to discuss it with.
In this episode of the HealthBiz podcast, Steve describes how the Institute for Clinical and Economic Review (ICER) compiles and analyzes clinical evidence to estimate the fair value of treatments for cancer and other serious illnesses. ICER has been especially active during the pandemic, developing a pricing model for remdesivir and other COVID-19 therapies that’s being used in the United States and by health technology assessment agencies around the world.
It’s no surprise why auto insurers like State Farm and Geico are sending rebates to customers this spring and summer. No one’s driving, so accident claims are way down and insurers are paying out very little. No one expects drivers to make up for lost time by crashing their cars more often once they return to the roads. That means a dollar saved now on claims is a dollar saved forever. Insurance companies and state insurance commissioners realize this, too and that’s why the rebates are coming.
But you might be surprised that health insurers, starting with UnitedHealth are beginning to do the same thing. United is offering a 5 to 20 percent credit on June billing statements, which is the same order of magnitude as the auto insurers.
So the questions are:
Aren’t insurers spending a fortune on the surge of COVID-19 patients as they overwhelm the medical system?
What about the coming surge of deferred elective surgeries and the ‘train wrecks’ with acute or chronic conditions that have stayed away from the emergency room and doctor’s office? Won’t insurers need the money to pay for those when they return?
And the answers?
Insurers are spending a lot on some COVID-19 patients. Big bills are rolling in for hospitalized patients, especially those that land in the ICU and are on ventilators for weeks. But even though a lot of people are sick, it’s only the hospitalized patients that incur expenses. With no costly outpatient or drug treatments, overall COVID-19 costs are not so high. Also, many of these patients are older (Medicare) or poorer (Medicaid), not in United’s commercial markets, where the rebates are focused.
Other than COVID-19, the medical system is eerily quiet. Essentially the only other bills are for telemedicine, some cancer treatments, and medications for chronic illness.
We do hear about a coming ‘second wave’ of non-COVID-19 patients later this year as hospitals reschedule elective surgeries, people who have been avoiding the emergency room come back in worse shape, and chronic care patients incur more intensive treatments after declining.
These assumptions are driven by a combination of what seems like common sense, clinician desires to help patients, and wishful thinking by hospital financial chiefs.
But UnitedHealth knows something that others don’t: utilization and costs are not going to rise as fast as people assume. So insurers are getting out ahead of it before regulators, the ACA medical loss ratio requirements, and public opinion force their hand.
They will be in for a rude surprise, however, because many people will continue to stay away. Instead patients will use telemedicine, pursue less aggressive treatments, or just wait for time to heal what ails them. For years, healthcare experts and insurers have known that hospital care is over-utilized and sometimes dangerous. Now COVID-19 has done what co-pays, deductibles and hospital safety reports never could –keep patients away.
It’s no surprise that elective procedures and routine visits have plummeted. After all, hospitals canceled them. Surprisingly, the use of emergency rooms in Boston for strokes, heart attacks and appendicitis has also dropped by half during the emergency. Many emergency patients will return, but those with common issues like back pain and rashes will think twice or three times before coming in. Patients who are due for colonoscopies or mammograms will put them off even longer than usual.
The air ambulance industry has grown steadily in the U.S. from about 1,100 aircraft in 2007 to more than 1,400 in 2018. During that same time, the fleet in Wyoming has grown from three aircraft to 14. [A]n oversupply of helicopters and planes is driving up prices because air bases have high fixed overhead costs. [C]ompanies must pay for aircraft, staffing and technology… before they fly a single patient.
But with the supply of aircraft outpacing demand, each air ambulance is flying fewer patients… So, companies have raised their prices to cover their fixed costs and to seek healthy returns for their investors.
Imagine if there were three gas stations in a town and then there were 14. Would prices go up or down? [Hint: Down.]
But healthcare doesn’t work like that, somehow. Ambulances in general and air ambulances in particular are great examples of why not. In particular, you can’t really refuse to be transported by ambulance and if you have private insurance the ambulance companies can stay out of network and stick you –the consumer– with the bill.
In this case, Wyoming is doing the right thing in trying to socialize the industry by pushing everything into Medicaid. The legislature would be wise to use this as an opportunity to reconsider its opposition to Medicaid expansion, which it has rejected in the past, even it added a hard hearted and counterproductive work requirement.
According to today’s Wall St. Journal, not only are air ambulances liable to crash (a crew member who worked 20 hours/week for 20 years would have a 40% chance of being killed), they are often slower than ground ambulances, and are used to transport patients who aren’t that sick.
Of course, there are situations where air ambulances make sense, such as in rural areas. On the other hand, even speedy air ambulances can’t do much about the 10-20 hours waits I mentioned in yesterday’s post on Mass General.
After 9-year-old Tyler Herman fell and broke his jaw in the wilds of Arizona, doctors at a community hospital decided the boy should fly to Phoenix to undergo plastic surgery for a gash on his face. During the flight he was well enough to sit up and remark on the scenery. Upon arriving in Phoenix, he waited nearly 20 hours to undergo surgery. “We could have driven him there in four hours,” says Sharon Herman, the boy’s mother. Her insurance didn’t cover air transport, leaving the Hermans with a bill for $25,000.
Wyoming is a rural state, and the picture that air ambulances conjure up is people being rescued from car crashes or heart attacks in remote areas. Of course that’s the story the owners of air ambulance services want you to believe. Here’s what the lobbyist in Wyoming says about it:
“How many of these 4,000 people a year [flown by air ambulance] are you willing to tell, ‘Sorry, we decided as a legislature you’re going to have to take ground ambulance?’” Mincer said during a June hearing on the proposal.
Sure enough, in Wyoming the situation now is like it was in Arizona a decade and a half ago. “On-scene trauma responses,” represent just a small portion of the flights. In this case, supply creates its own demand and in many cases a ground ambulance would be a better option.
It’s tempting –but too easy– to place all the blame on private equity investors for the problem. State and federal government, health plans, physicians and even consumers have the power to make it stop.