Focus, Economics and Patient Satisfaction…three keys to understanding Ambulatory Surgery Centers

Historically, surgical procedures were performed within the four walls of a hospital.  However, the past decade has seen a dramatic rise in surgery volume being performed in an outpatient setting—largely ambulatory surgery centers (ASCs).  As seen below, the number of U.S. ASCs is approaching 6,000, and overall procedure volume has shifted dramatically from inpatient to an outpatient setting.

Source: VMG Intellimarker 2011 and 2010

ASCs are outpatient facilities at which surgical procedures are performed on patients who do not require an overnight stay.  ASCs were originally established in 1970 and most commonly perform elective procedures with short anesthesia and operating times.  Typical procedures include eye, orthopedic, hand, plastic surgery, pain management, podiatry, ear-nose-and-throat, endoscopy, and laparoscopy at facilities usually ‘free-standing’ (not part of a hospital campus).  ASCs operate within a highly regulated industry with each facility being required to comply with rigorous oversight and certification.  Many of the same standards, constraints and requirements as inpatient hospital operating rooms apply to ASCs.

ASCs receive less of their total payments from Medicare/Medicaid than an average hospital – 37% for ASCs vs 61% for an average hospital which reduces some of the reimbursement pressure.  This makes sense as most of the procedures performed in this setting are elective in nature, which tend to come from the population not utilizing government health benefits.  We’ve assessed three key advantages offered by with the ASC approach to care:

• Compelling economics:  ASCs are able to provide lower-priced procedures because they have a lower cost structure than a traditional hospital setting along with a “focused factory” approach which creates efficiencies.
  • By shifting just half of all eligible outpatient surgeries to the ASC setting, Medicare could save an additional $2.3 billion annually (Ambulatory Surgery Center Advocacy Committee, 2010)
• Consumer appeal:  ASCs are generally free standing and located in the suburbs, which provide patients with better access.  Also, ASC schedules are better maintained because there is no possibility of emergency surgeries preempting a scheduled procedure.
• Focus, specialization and quality:  It’s difficult to track the quality of care provided in ASCs compared to hospitals because ASCs are not yet required to report comparable outcomes data – which will likely change in the near future.  We do know, however, that ASCs focus on a select number of procedures at a high volume, which allows doctors to perfect their craft and deliver high quality results to patients.

The advantages are not only for patients, but also for payers and providers.  Payers are able to negotiate more favorable rates for procedures performed in the ASC which lowers their overall costs of care.  Providers which are part of the ASCs have seen large economic gains as they’re able to take economic stakes in the operations.  Overall, ASCs have grown to become an important part of the care delivery landscape and as the three advantages listed above might dictate, this an area we predict will have an increasing relevance in the healthcare landscape.

Let me know what you think.

Judd Stevens

Judd Stevens is an associate at TripleTree covering the healthcare industry, specializing in the impacts and transformation of health plans in a post-reform world.  Follow Judd on Twitter or e-mail him at jstevens@triple-tree.com.

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Utilization Sits at the Forefront of Recent and Future MCO Performance

As a host of leading managed care organizations (MCOs) roll out their most recent earnings reports, it is important to analyze some of the key drivers of plan performance. A key driver of success for MCOs recently has been low utilization, which has driven earnings that exceed market expectations.

Utilization: As indicated, utilization has been a primary driver of recent MCO performance upside; in addition to the important role it plays in setting future pricing, capitation rates and earnings expectations. So what exactly drives utilization among managed care plans? In short, utilization refers to the use of services by members or the patterns of rates of use of certain services such as hospital care, physician visits and prescription drugs. Utilization has long been viewed to be driven primarily by the economy, which has benefited MCOs in the near-term.  The current economic climate has been beneficial to many of the MCOs in terms of utilization in that people have deferred medical care. For example, given the current economic climate, it is likely that consumers are more than likely to wait it out a few days rather than going to a doctor and incurring a co-pay plus a prescription charge. As people have put off medical care, MCOs have benefited from lower than expected medical expenses. Lower medical expenses relative to premiums collected equal more profitability (all other things like MLR rebates aside).

One of the big questions right now surrounding MCOs has to do with what future utilization will look like.  MCOs have benefited greatly from the recent 3-year cycle of lowered utilization rates starting in 2009. Perhaps the biggest question is whether the broader implications of this trend should be accounted for in setting future plan pricing or earning expectations. Is the trend of lowered utilization correlated to the recession, unemployment and economic concerns or is there a fundamental change in how people look at medical care, especially related to consumer-directed health, higher deductible plans and the cost shift to the consumer?

Given the current economic impasse in the United States and abroad, one would expect that trend is expected to continue driving continued earnings upside among MCOs. However, this has not been the case in the guidance provided by many leading MCOs. Several MCOs are predicting higher utilization for 2012. This higher utilization will have a direct impact on the earnings performance among these plans and have been a key topic among analysts and industry commentators. These recent utilization suggestions have been supported by analyst estimates that utilization rates will increase by up to 50-150 basis points in the near-term. As analysts are just now updating their 2012 models to reflect increased utilization, it is likely that model updates will lead to lowered 2012 analyst earnings forecasts and related price downgrades in the MCO sector. The analyst community generally has taken a hard stance on MCO utilization and it is likely that we will witness several MCO downgrades in the near term as analyst work to assess the impact of increased 2012 utilization assumption.

Several counter viewpoints exist that utilization rates will not move increase as much as the carriers are suggesting. The prevailing viewpoint from this camp is that although there might be marginal utilization increases this year, the profit spread will remain as pricing increases will exceed the expected increases in medical cost spending as a result of increased utilization. This stance prevailed in 2011 as utilization last year was below expectations, leading to overall MCO sector public market performance that exceeded other healthcare sectors.

While low healthcare utilization is generally beneficial to MCOs, it generally has the opposite effect on other healthcare sectors, including hospitals and healthcare IT and services companies. These groups generally benefit from the consumption of services, which was the focus of the most recent HCA earnings release. During this release, HCA cited a rise in same-facility admissions to be a key driver of their earnings increase despite a decline in domestic surgery admissions and revenue-per-equivalent admission fell amid Medicaid reduction.

However, it is important to note that role that several other factors play in formulating earnings expectations and guidance. Almost equally important to some MCOs as utilization (particularly those with Medicare enrollment) are factors related to new member enrollment and Medicare Advantage conversion rates. In addition, several MCOs face huge earnings upside related to expansion of Medicare / Medicaid dual eligible enrollment as well.

It appears that the uncertainty that plagued MCOs following PPACA’s passage has been pushed to the back burner as most MCOs have generally benefitted from the legislation. While there is still some fine-tuning on the edges of reform that still present an overhang for MCOs (namely, MLR limitations, administrative cost constraints), that is a topic for another day as the current focus appears to be squarely on near-term medical cost expenses and new opportunity capture (courtesy of dual eligible expansion, state Medicaid RFPs and commercial market pricing pressure).

Let us know what you think.

Joe Long

Joe Long is a Senior Analyst at TripleTree covering the healthcare industry, covering payer-focused healthcare software and service providers. You can email him at jlong@triple-tree.com.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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Humana Bolsters Care Management Capabilities with Acquisition of SeniorBridge

Humana announced an agreement this past week to acquire SeniorBridge, a New York-based provider of in-home care services to the chronic care and senior populations. The acquisition marks the latest example of Humana’s attempt to position itself as a more retail-focused company through a series of acquisitions and strategic initiatives.

Over the past eleven years, SeniorBridge has established itself as a leader in managing complex chronic conditions for seniors in the self-pay (or private-pay) market. Through the acquisition, Humana will be presented with a host of opportunities to leverage SeniorBridge’s model across a broader market base:

• Medicare – upon receipt of Medicare certification, Humana will be able to leverage SeniorBridge’s suite of care management capabilities across its nearly 2 million Medicare plan members.
• Humana Cares – SeniorBridge bolsters the Humana Cares segment of the company, which provides on-the-ground care management services to over 185,000 chronically ill plan members. The Humana Cares segment of the company has been vital to Humana’s emergence as a leader in the Medicare Advantage Special Needs Plan (MA-SNP) market.
• Other Payer Groups – several reform related initiatives, such as reimbursement reform and medical loss ratios, have positioned in-home care to be a large growth area for SeniorBridge given its significance to payers as a cost-saving tool (managed care has traditionally only contributed to a small portion of SeniorBridge’s overall business).

Humana has been among the most progressive payers in promoting member self-management and wellness through a number of initiatives, including:

• Humana Guidance Centers – “store-front” hubs located in select cities provide members with access to a suite of wellness and self-management products.
• Remote Medical Monitoring – provides real-time condition monitoring solutions to help address member health challenges in real-time.
• Humana Center for Health & Well-being – Humana’s LifeSynch subsidiary provides face-to-face health coaching resources to plan members. In addition, the Company has established a partnership with MinuteClinic to provide quick-access to routine treatments.

In addition, Humana’s recent acquisition of Concentra, along with several urgent care clinics from NextCare, signaled their entrance into the provider marketplace. These strategic moves have provided Humana with a mechanism to execute on their strategy to become more consumer-facing and the flexibility to adapt to some of the new realities established through health reform as they are implemented over the next few years.

Other recent investment activity in the payer marketplace signals that Humana might not be alone in their efforts to diversify and establish an “on-the-ground” presence (for example, UnitedHealth’s purchase of Inspiris, BlueCross Blue Shield of Florida’s investment in CareCentrix).  Payers appear to have realized the disconnect that has existed historically between themselves and their customer base. Given the “bets” that payers have made across the landscape, it is clear that payers are seeking to re-orient themselves around the consumer and provide consumers with an opportunity to take a greater role in controlling their healthcare. While a variety of strategies are being used, payers have been prioritizing investments and services around the “consumer experience” to increase overall access and transparency.

Let us know what you think.

Joe Long

Joe Long is an analyst at TripleTree covering the healthcare sector, with a focus on the approaches and technologies surrounding health insurance exchanges.  You can email him at jlong@triple-tree.com.

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Steward Takes On Insurer Role in Agreement with Tufts

Cerebrus-backed hospital operator Steward Health Care System (Steward) made news last week by launching an insurance product. This announcement marks one of the most dramatic attempts by a provider to position themselves to profit from system wide efforts to better control care delivery and distribution.

Dubbed Steward Community Choice, this new plan will see all routine care provided through Steward-affiliated doctors and facilities (although certain exceptions apply).  Despite potential access limitations, the plan is designed to appeal to small businesses as it will be priced as much as 15% to 30% below comparable products and calls for Steward to bear all the financial risk for patients’ care. Tufts Health Plan of Massachusetts will provide administrative services (running call centers staffing, card issuance, etc).

This announcement is the latest example of providers financially aligning themselves with the care they provide.  Similar models have been introduced throughout the country as well:

• Carilion Clinic through a partnership with Aetna in Virginia
• Sutter Health through a partnership with Health Net in northern California

The broader implication of this risk transfer to the provider is how the consumer has been thrust to the center of healthcare delivery and decision making processes, which is forcing payers (and providers) to re-think their distribution and retention strategies and focus on consumers.

Cost is the driver.  Employers are actively seeking solutions to better control healthcare-related costs and as they continue to shift towards high-deductible coverage (which send a significant percentage of healthcare costs towards the consumer) products like Steward’s where costs can be controlled.

Payers view this as another method to introduce performance-based risk contracting and better track the experience of a patient’s care. Several of the larger payers are trying to control the distribution of care by investing in providers as seen by Optum’s acquisition of Monarch and Humana’s acquisition of Concentra.

Providers view the potential additional revenue as a benefit too.  Given declining reimbursement rates and the increasing administrative burdens that accompany care distribution; these types of arrangements can increase revenues, cover costs and apply a stronger focus on the provision of care.

Perhaps the most affected will be consumers, who have increased demands for greater transparency, access and information to control their overall healthcare spending.  Historical efforts to introduce similar products have failed because consumers viewed them as restrictive and of poor quality, but trends around health reform are changing the playing field.

As healthcare costs continue to shift towards the consumer, these restrictive arrangements are likely to persist as the “closed” nature of provider networks offer cost relief by limiting access to certain doctors and hospitals.

Let us know what you think.

Joe Long

Joe Long is an analyst at TripleTree covering the healthcare sector, with a focus on the approaches and technologies surrounding health insurance exchanges.  You can email him at jlong@triple-tree.com.

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Successful M&A Exits in the Consumer Healthcare Device Market

Consumer healthcare devices are everywhere. They help people track physical activity, measure caloric intake, and play a vital role in personal health and wellness achievements.  Driven by consumer engagement, technology proliferation and a billion dollar-plus market opportunity – investors are pouring millions of dollars into this market with the hopes of a big return (see examples below).  Public exits (IPOs) are tough, so the path to liquidity for many of these firms will be acquisition.

• $70 million raised by Bluetooth headset maker to enter health monitoring market.
• $50 million raised by mobile consumer focused diabetes management system.
• Best Buy invests in mobile fitness ear bud technology.

Few companies have yet reached a size and adoption threshold to be deemed a success, but as the winners emerge product design, value proposition, access to customers, defensible intellectual properly and ability to integrate will factor into their strategic paths. Here is a check list for the CEOs who are considering an exit in the next 8-10 quarters:

• Competition – Separating from the pack of consumer health device companies is difficult.  There are dozens of credible companies and scores of wannabes (100+ according to our market definition).  While most of companies in this category are below $15 million in annual revenue, the strongest players have venture backing, cash reserves and relevant consumer and healthcare experience sitting on their Board.

• Customer Adoption – Consumers are tough critics and prone to device abandonment.  Winners in this category with figure out how to provide a consumer health device that is easy to use, convenient, and effective.  Also, given that consumer health devices today attract a narrow user based, successful vendors will figure out a way to expand adoption and find a broader audience of which to market and sell its product.

• Distribution – Signing a big distribution deal can be the best way to gain quick, sustainable market exposure. For these vendors it can be a great way to develop a strong, sustainable partnership that could lead to M&A down the road if the partnership is successful. Especially in the consumer market these major distribution channels can make or break a business in the early innings.  Acquirers will look for devices that can be sold effectively through multiple channels. Winners will maintain a broader sales strategy and not become dependent on a single distributor, which makes the business susceptible to channel risk and unattractive for a premium M&A event.

• Finding the Right Business Model – This is the biggest stumbling block for most consumer healthcare device companies.   In most cases, larger companies are less acquisitive when a business cannot demonstrate a scaleable business model.  Many vendors in this space simply want to achieve user adoption at the expense of a longer-term revenue plan, when they should be thinking about keeping customers over a five year (or longer) period.

• Recurring R&D costs – Companies in this market must continuously re-invent themselves with smaller, sleeker devices.  This can be the most taxing aspect of the market and certainly hurts a company’s chances of becoming highly profitable, especially when they are investing in growth.  Manageable cost structures, vertically integrated manufacturing models, web-based user interfaces and other features are all relevant to a complete product experience.

TripleTree has monitored the consumer health devices space for years and we’re bullish about the prospects for continued innovation and growth.  We’re watching the emerging companies address consumerism in thoughtful and innovative ways and look forward to watching the evolving strategic relationships between these innovators and global players.

Let us know if you have additional thoughts on this market or a different perspective.

Michael Boardman

Michael Boardman is an associate at TripleTree covering the healthcare and technology industries, specializing in clinical software solutions.  Follow Michael on Twitter or e-mail him at mboardman@triple-tree.com.

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If you Google ‘health’; you will no longer find Google Health

In a culmination of a yearlong rumor mill, Google finally came clean in its announcement  late last week that it would discontinue its personal health record (PHR) program, Google Health.

In many ways it’s a shame that Google has pulled out of evangelizing the PHR.  We have long been vocal that healthcare would benefit from non-traditional players entering the market with tech based solutions despite our skepticism on PHR adoption trends; that an outsider like Google tried to use its vast resources to innovate the healthcare market was inspiring.

Ideally, Google would have brought fresh ideas and tried-and-tested approaches from other industries (financial services, e-commerce) to tackle issues like collaboration, workflow integration, and data silos – all bugaboos for healthcare which other industries have solved.

Our top five reasons why Google Health failed:

• Lacked executive support within Google
• Lacked an elegant user interface
• Never deployed a scalable business/revenue model
• Failed to capture physician support
• Lacked Integration capabilities to healthcare information sources

Perhaps if Google Health was more Google-like (social, able to leverage advertising or other information monetization models, always connected to underlying information sources, and much more consumer friendly), adoption would have been better.

It’s likely however, that Google Health was doomed from the start.

Outside of tech geeks and fitness enthusiasts, PHRs simply have not seen wide market adoption as the most patients haven’t aligned around a paradigm of managing their health information 24×7.  Google created an engagement tool without a strategy to “engage the unengaged” and bet on the come that user adoption would materialize around the strength of Google’s brand.

Over the past several months we have increasingly talked and written about a healthcare market where consumers want to and in fact are becoming more engaged in their health. The problem is that consumers don’t know how to engage in their own health, and physicians don’t offer the necessary catalyst to make it happen.

Tools (like Google Health) are not enough.  Healthcare organizations need to put entire programs in place to engage a consumer with clearly articulated benefits (incentives, cost savings, better access to care, better care, etc.).  Once in place, more effective consumer targeting and engagement will follow.

In the coming weeks, we will be publishing research on consumer engagement platforms in healthcare and where innovative technologies will attempt to “engage the unengaged”.

Until then, let us know what you think.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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Perpetuating the Increased Quality of Care Cycle through Value-Based Purchasing

With the majority of talk about healthcare reform centered on the individual / consumer mandate and universal coverage, many are missing another positive change proposed by CMS: value-based purchasing.

Value-based purchasing (VBP) has underlying implications on five themes:

• Measuring the patient experience
• Measuring clinical quality
• Market pricing, especially local market pricing
• Executive and clinician compensation
• The changing role of technology and technological requirements

The essence of VBP is that buyers of healthcare (including individuals and plans) should hold providers accountable for the quality of care provided.  Much like consumer satisfaction and pay-for-performance in other industries, healthcare providers are now being held accountable for not only providing the required care, but providing a quality product.  However, the question of rating the quality of care is a bit more difficult than showing compliance with a “Six Sigma” type of program.  By bringing together outcomes-based data with cost data, it is possible to show an improvement ratio such that increasingly positive outcomes are equated with reduced or targeted spending – below are a few considerations:

• Linking patient satisfaction and quality: Measuring the patient experience is trending toward monitoring key outcomes in 17 clinical measures (including patients’ views on communication with staff and doctors, cleanliness and quietness of the hospital and pain management) across five healthcare categories, including acute myocardial infarction, heart failure, pneumonia, healthcare associated infections and surgical care improvement.  Based on a hospital’s score across these measures and categories, this will impact diagnostics-related group (DRG) payments as soon as 2013.  By 2014, mortality outcome measures for additional health conditions and hospital-acquired conditions will be included.
• Clinical quality – another important VBP benchmark:   As providers are measured and compensated accordingly, top tier providers will begin to quickly separate from the pack.  However, critical access hospitals will need to remain accessible, regardless of their quality measurement.
• Market pricing and VBP:  With provider compensation schedules initially being implemented as a penalty rather than a bonus, areas with poor outcome metrics will see the cost of providing care rise. Additionally adding to the skewing of local market pricing, an incentives algorithm will be implemented, meaning high performing hospitals will continue to perform better than those being penalized, due to the financial incentives providing new resources for a high performing hospital.

The link between quality of care, the provider’s income statement, and executive and clinician compensation also becomes much more clear and real. As the provider receives additional incentives for increased quality of care, the employees of the provider will likely see performance compensation tied to the quality of care metrics for the hospital. A higher performing provider will attract higher paid experts with better backgrounds, perpetuating the increased quality of care cycle.

Underpinning all of this is the increasing role that technology will play in the healthcare system. In order to document the quality of care metrics, a clear link to data will need to be established at the point of care. This means that data warehousing and analytics will be paramount. Sophisticated pricing and measurements of quality and satisfaction will be derived from the data and technology in use.

Value-based purchasing has the potential to radically alter how both providers and patients view healthcare.  Our team is actively advising business leaders and investors with some thinking about how healthcare will cease to be an intangible product that is provided at any cost, focusing instead on how to plan the market dynamics or “rankings” and “customer service”.

Have a great week.

Adam Link

Adam Link is an analyst at TripleTree covering healthcare delivery models, specializing in software and wireless health.  Follow Adam on Twitter at AdamJLink or email him at alink@triple-tree.com.

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Closing the Chasm between Cost and Quality in Healthcare

Consumer directed health has long been viewed as an initiative finding its way into products like High-Deductible Health Plans (HDHPs), Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs).  It’s not surprising that adoption of these programs has historically underperformed against expectations and in light of economic turmoil and pending reform, these products will be altered as cost burdens for healthcare shifts to the consumer.

With consumers now tuned into costs, they are not surprisingly focused on making better informed decisions.  Just like buying any other consumer product or service – the informed consumer is the empowered consumer.  This was a key point of discussion in a recent web cast we facilitated on the topic of specialty benefit management – find a summary and replay of that web cast here.

The net result to all of this change is that consumers are starting to “shop” for better, affordable healthcare from providers.   Similar to the phenomenon over a decade ago that accompanied the rise of eCommerce (an increased reliance on direct marketing, price matching and an intense focus on customer service) hospitals, clinics and physicians are going to need to focus on ways to retain and attract patients through providing greater value – a previously foreign concept.  While value is a subjective label, a formula including many elements of cost, outcomes, and patient satisfaction need to be assembled to help healthcare providers as they rapidly adjust their business models to meet marketplace changes and cater to a new breed of healthcare consumer.

TripleTree believes that information will be a key driver in this new era of retail-based healthcare. We are seeing many companies attempt to provide consumers with the necessary healthcare information-centric tools to support informed decisions about matching the right providers to the quality and cost of care being sought.  Many of these vendors could learn a thing or two from CRM vendors, where features like enterprise feedback management and unstructured data analysis have proven adoption.   As a result, we’re seeing both vertical and horizontal players get a seat at the table where healthcare needs and retail delivery are coming together.  A few examples:

• Wide ranging consumer portals like WebMD, Angie’s List, HealthGrades and The Leapfrog Group are providing comparative tools that allow patients to evaluate doctors, hospitals, cost, outcomes, and quality.
• The federal government offers solutions that aren’t as user friendly, via the Centers for Medicare & Medicaid Services (CMS) and companies that seek to demystify this data such as Healthcare Reviews and MyHealthCompare.  Each are striving to provide consumers with survey driven information on patient experience (i.e. customer satisfaction) based on cost and quality of care (Note:  Much of the data reported in CMS is dated, sometimes by as much as a year).

Healthcare provider comparative analysis tools are still in the early innings of relevance because they lack depth of information and a broad suite of capabilities.  However, we are confident that a lot of innovation and investment will occur in this space and are watching the likes Castlight Health (a consumer health comparative shopping engine weighing service, location, cost, quality and convenience) prove that the delta between cost and quality is starting to close.

Let us know what you think and have a great week.

Jamie Lockhart

Jamie Lockhart is a Vice President with TripleTree covering healthcare software and service providers with a focus on consumer directed healthcare.  You can contact him at jlockhart@triple-tree.com

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