Would it blow your mind if only five startup health plans interested in Medicare Advantage (MA) have collectively raised over $3.9 billion in private funding to-date? Well, readers, that is the reality. Now I know there are some skeptics out in the healthcare ecosystem, so I’m here to break down some of the investment thesis. Not going to necessarily defend, but explain some reasons why you should love and hate these investments. Let’s start with who raised these mind-boggling sums of money. The five startups are Oscar Health, Bright Health, Clover Health, Devoted Health, and Alignment Healthcare.
Oscar Health has raised $1.3 billion
Bright Health has raised $1.1 billion
Clover Health has raised $925 million
Devoted Health has raised $362 million
Alignment Healthcare has raised $240 million
I think it’s safe to say that the MA insurance market (also known as Medicare Part C) has captured the imagination of the venture capital and private equity community. The changing demographic trends of an aging baby boomer population, the increased selection of MA plans versus traditional Medicare fee-for-service (FFS), and the opportunity of technology-first MA startup plans to better reduce administrative fees (“Administrative Loss Ratio” or “ALR”) and control medical spend (“Medical Loss Ratio” or “MLR”) seems too good to pass up. If you were going to start a health plan, of all the lines of business you could be focused on, MA has highest profit margins, growing population, and better potential to impact patient spend and manage chronic diseases. It is certainly harder than writing the previous statement, but there are some real benefits versus the traditional commercial or Medicaid managed care.
Vivek Garipalli, CEO and Co-Founder of Clover Health initially set out trying to create a high-tech healthcare company aimed at improving clinical decision making, while leveraging the best of tech and data science in the process. Sounds about right for a guy who previously founded a health system (CarePoint Health), so…how did he end up with a high-tech Medicare Advantage plan instead? Isn’t clinical disruption hard enough? In this very candid chat about the larger issues thwarting tech and the healthcare business model, Vivek explains how he HAD to turn Clover into a health plan in order to get “reliable access” to the longitudinal set of information that would truly help patients and providers achieve better health outcomes. Can this kind of thinking ever be applied to the under 65 market? How does Clover perpetuate this model? Founded in 2012, this late-stage startup has big plans for scaling up and they’re centered on winning over physicians.
Filmed at the HIMSS Health 2.0 Conference in Santa Clara, CA in September 2019.
Today on Health in 2 Point 00, it’s IPO day! On Episode 89, Jess asks me about the recent IPOs, Oscar Health getting into Medicare Advantage, and Fitbit accuracy in people of color. Jess asks me to weigh in on whether Livongo’s IPO was better than we expected and it’s safe to say that they are growing fast. On the flip side, the “silent” IPO that no one seems to be talking about is Health Catalyst, which is also doing quite well with a $1.6 billion valuation although they are not growing as fast as Livongo is. Next, Oscar Health decided to enter into Medicare Advantage, which is not surprising because that’s where the real money is in the insurance side. Finally, Fitbits and other wearables may not be tracking heart rates accurately in people of color, so what does this mean for the wearables industry—and their potential use for medical purposes? —Matthew Holt
Today THCB is spotlighting Lumeris which creates a platform to help set-up and develop health plans and manage care delivery for patients. Working with its associated medical group Essence, Lumeris has been creating actionable steps to reduce Medical Cost Rates (MCRs) and is now taking that process to other health systems that want to set up Medicare Advantage plans. Lumeris is working with 12 health systems and is growing rapidly. Recently, Lumeris partnered with Cerner to bring their product to market.
Matthew Holt interviewed Matt Cox, Chief Marketing Officer at Lumeris to find out the details.
As healthcare gradually tilts from volume to value, physicians and hospitals fear the instability of straddling “two canoes.” Value-based contracts demand very different business practices and clinical habits from those which maximize fee-for-service revenue, but with most income still anchored on volume, providers often cannot afford a wholesale pivot towards cost-conscious care. That financial pressure shapes investment and procurement budgets, creating a downstream version of the two-canoe problem for digital health products geared toward outcomes or efficiency. Value-based care is still the much smaller canoe, so buyers de-prioritize these tools, or expect slim returns on such investment. That, in turn, creates an odd disconnect. Frustrated clinicians struggle to implement new care models while wrestling with outdated technology and processes built to capture codes and boost fee-for-service revenue. Meanwhile, products focused on cost-effectiveness and quality face unexpectedly weak demand and protracted sales cycles. That can short-circuit further investment and ultimately slow the transition to value.
To skirt these shoals, most successful innovators have clustered around three primary strategies. Each aims to establish a foothold in a predominantly fee-for-service ecosystem, while building technology and services suited for value-based care, as the latter expands. A better understanding of these models – and how they address different payment incentives – could help clinicians shape implementation priorities within their organizations, and guide new ventures trying to craft a viable commercial strategy.
The toxic polarization of Washington politics might lead even the most stubborn optimist to abandon any hope for bipartisanship on healthcare. Despite endemic pessimism, the flagging efforts to forge a Republican consensus on “repeal and replace” might set the stage for overdue efforts at compromise. Congress will be tempted to move on to more promising areas such as tax reform and infrastructure funding. That temptation should be resisted. The threat to the nation posed by the current state of American healthcare calls for Congress to resurrect the long lost spirit of bold bipartisanship.
Before considering opportunities for compromise, the obstacles confronting the GOP reform efforts are worth considering. Republicans face the same stubborn reality that confronted the framers of the Affordable Care Act (ACA): Expensive services cannot be covered by cheap insurance. The cost of U.S. healthcare has simply priced low income and even middle income individuals out of health insurance. Without subsides, they get left behind. The Congressional Budget Office’s estimated that the Ryan plan would result in 24 million losing coverage underscored the political divide: Confronted with unmanageable healthcare costs, most Republicans would opt to reduce public expense whereas Democrats plus a handful of Republican moderates prefer more extensive coverage. The effort of the GOP leadership to split the difference by preserving some residual subsidies and the structures supporting them—“Obamacare light”—remains unacceptable to many on the right. No clear middle ground has yet emerged.
A number of pundits are citing the systemic failure of ACOs, after additional Pioneer ACOs announced withdrawal from the program – Where do you weigh in on the prognosis for Medicare and Commercial ACOs over the next several years?”
Peter R. Kongstvedt
Whoever thought that by themselves, ACOs would successfully address the problem(s) of [cost] [care coordination] [outcomes] [scurvy] [Sonny Crockett’s mullet in Miami Vice Season 4]? The entire history of managed health care is a long parade of innovations that were going to be “the answer” to at least the first four choices above (Vitamin C can cure #5 but sadly there is no cure for #6). Highly praised by pundits who jump in front of the parade and declare themselves to be leaders, each ends up having a place, but only a place, in addressing our problematic health system.
The reasons that each new innovative “fix” end up helping a little but not occupying the center vary, but the one thing they all have in common is that the new thing must still compete with the old thing, and the old thing is there because we want it there, or at least some of us do. The old thing in the case of ACOs is the existing payment system in Medicare and by extension, our healthcare system overall because for all the organizational requirements, ACOs are a payment methodology.
Despite the political angst, the doomsday predictions and a very rocky launch, the Affordable Care Act has enabled more than 8 million Americans to acquire insurance coverage through the public exchanges.
Health insurance increases the probability that patients will access the medical care they need. And my colleagues at Kaiser Permanente are already seeing some positive stories emerging as a result.
They’ve shared dozens of stories with me about patients with undiagnosed medical problems who are now receiving treatment. In particular, I enjoyed hearing about two new patients in Northern California who’ve benefited from being insured.
They came in with life-threatening cancer: One, a mother with a uterine malignancy, and the other, a young man with a testicular mass. Both had gone years without medical care because they were unable to afford it. And now – thanks to medical coverage, early diagnosis and successful treatment – both will live.
But expanding access to health insurance is only the first step. Improving health care delivery is the next step in this journey.With all the acrimony in our nation’s capital, bipartisan agreements are few and far between.
Medicare Advantage may be the one platform on which both parties can stand. Examining this program and why it has proven so successful offers us insights into where we as a nation might choose to go.
Medicare Advantage: A History Born from Necessity
Since the Medicare program was created in 1965, the federal government has been insuring citizens over the age of 65.
This original form of Medicare, called traditional Medicare, was and remains a “fee-for-service” program. That means the Centers for Medicare and Medicaid Services (CMS) – the agency that administers the Medicare program – pays individual physicians for the services they provide to Medicare beneficiaries.
Think of a service as an office visit, a test or a procedure. The price for those services is determined by the agency’s Physician Fee Schedule.
Beginning in 1978, Medicare beneficiaries had a second option. They could enroll in private Health Maintenance Organizations (HMOs) under a “risk contract” between CMS and the HMOs.
Late last Friday after the financial markets closed, the Centers for Medicare and Medicaid Services (CMS) issued its annual notice of 2015 payments to private insurers who sell Medicare Advantage plans to seniors. Its determination that a 3.55% cut is in order was spelled out in a complicated 148-page explanation of its methodology.
The net impact of changes to “coding intensity” adjusted for geographic variation essentially means insurance companies would see a 1.9% cut in their payments per Avalere’s calculations.
But there’s more to the story than the Medicare Advantage payment adjustment. The difference between last year’s Round One rate negotiation and this year’s Round Two is significant.
Medicare Advantage (MA) plans enroll 28% of seniors. It is popular: enrollment increased from 5.3 million in 20104 to 16 million today—a 9% increase last year alone. MA plans are required to offer a benefit “package” at least equal to Medicare’s covering everything Medicare allows, but not necessarily in the same way.
After half a lifetime of following the Medicare program, on October 1, 2013, I became a Medicare beneficiary. I turned 65 on October 31. I’m part of the leading edge of baby boomers joining the program, ten thousand a day. We’re going to change this program, both by how we use it and what we expect its keepers in Washington to do to improve it.
Here are some reflections upon joining Medicare.
1-Don’t Refer to Me as “Retired”, Please. I’m still working (hard) and paying Medicare as well as income taxes taxes every month. Like most of my fellow boomers, I lack the financial cushion I want in order to stop working. Additionally, for what it’s worth, like all too many boomers, I don’t know how not to work. So my main goal, which is closely aligned with the country’s, is to stay healthy enough to keep working long enough to be able to retire comfortably when I wish to do so.
I plan on staying a long way away from the expensive parts of our healthcare system, if only to avoid being inadvertently harmed. Rest assured that if I know I’m dying, you won’t find me in a hospital if I have any say in the matter.
I don’t consider myself “entitled” to Medicare, or to subsidies from younger people. I’m paying more than $400 a month in Part B fees and the special assessment on Part D that got tacked on in the Affordable Care Act. After what I’ve already paid in, that’s not exactly a flaming bargain. I’ve paid Medicare enough over my working lifetime to buy a house, and will pay more Medicare taxes for years to come for each month that I work. Nothing makes me angrier than the suggestion that I’m somehow sponging off my kids by participating in Medicare.
2- The Regular Medicare Program is a Relic. There is a lot of political fog enshrouding Medicare. Personally, I could care less about the politics of this program. The big choice was fairly cut and dried: either regular Medicare plus a supplemental plan or Medicare Advantage. After logging onto Medicare.gov, I found the regular Medicare benefit completely incomprehensible- chopped up into Parts that may have made legislative sense in the 1960’s. If you included the supplemental coverage, there were just too many moving parts that didn’t seem to fit together into a unified benefit.
So I chose Medicare Advantage. It’s simple to understand and user-friendly, and looks a lot like my previous coverage. My doctor is a participating physician as is my beloved community hospital, Martha Jefferson. And the price is right: zero dollars after my Part B premium. More than 40% of boomers are picking Medicare Advantage, largely because it’s easy to use and remains a bargain. It will eventually be half the program.