As hospitals are forced to innovate, anatomic pathologists and medical laboratories will need to adapt to new healthcare delivery locations and billing systems
As new challenges threaten the survival of many hospitals worldwide, medical laboratories may be compelled to adapt to the needs of those transforming organizations. Those challenges confronting hospitals are spelled out in a recent report from management consulting firm McKinsey and Company with the provocative title, “The Hospital Is Dead, Long Live the Hospital!”
A team of analysts led by McKinsey senior partner Penny
Dash, MB BS, MSc, looked at nine trends affecting hospitals in North America,
Europe, Asia, and other regions. These trends, the authors contend, will force
hospitals to adopt innovations in how they are structured and how they deliver
healthcare.
Here are nine challenges hospitals face that have
implications for medical laboratories:
1. Aging Patient Populations
“Patient populations are getting older, and their needs are becoming more complex,” McKinsey reports, and this is imposing higher cost burdens. The US Census Bureau projects that by 2030 approximately 20% of the US population will be 65 or older compared with about 15% in 2016.
The federal Centers for Medicare and Medicaid Services (CMS) reports that this age group accounts for a disproportionate share of healthcare costs. In 2014, CMS states, per-capita healthcare spending was $19,098 for people 65 or older compared with $7,153 for younger adults.
The Census Bureau graphic above illustrates how the age of the US population is changing. People are living longer, and as Dark Daily reported in May, this could present opportunities for medical laboratories and anatomic pathologists, as early detection of chronic diseases affecting older patients could ultimately reduce treatment costs. (Photo copyright: US Census Bureau.)
2. Patients Are Behaving More Like Consumers
“Patients—along with their families and caregivers—expect to
receive more information about their conditions and care, access to the newest
treatments, and better amenities,” McKinsey reports.
Clinical advances are increasing the range of treatments that can be performed in outpatient settings, McKinsey reports. The authors point to multiple studies suggesting that patients can receive better outcomes when more care is delivered outside the hospital. Dark Daily has often reported on the impact of this trend, which has reduced demand for in-hospital laboratory testing while increasing opportunities for outpatient services.
4. Move Toward High-Volume Specialist Providers
Compared with general hospitals, specialized, high-volume “centers
of excellence” can deliver better and more cost-effective care in many
specialties, McKinsey suggests. As evidence, the report points to research
published over the past 12 years in specialist journals.
Some US employers are steering patients to top-ranked providers as part of their efforts to reduce healthcare costs. For example, Walmart (NYSE:WMT) pays travel costs for patients to undergo evaluation and treatment at out-of-state hospitals recognized as centers of excellence, which Dark Daily reported on in July.
UnitedHealthcare’s new preferred lab network also appears to be a nod toward this trend. As The Dark Report revealed in April, the insurer has designated seven laboratories to be part of this network. These labs will offer shorter wait times, lower costs, and higher quality of care compared with UnitedHealthcare’s larger network of legacy labs, the insurer says.
5. Impact of Clinical Advances
Better treatments and greater understanding of disease
causes have led to significantly lower mortality rates for many conditions,
McKinsey reports. But the authors add that high costs for new therapies are
forcing payers to contend with questions about whether to fund them.
As Dark Daily has often reported, new genetic therapies often require companion tests to determine whether patients can benefit from the treatments. And these also face scrutiny from payers. For example, in January 2018, Dark Daily reported that some insurers have refused to cover tests associated with larotrectinib (LOXO-101), a new cancer treatment.
6. Impact of Disruptive Digital Technologies
The McKinsey report identifies five ways in which digital
technologies are having an impact on hospitals:
Automation of manual tasks;
More patient interaction with providers;
Real-time management of resources, such as use of hospital beds;
Real-time clinical decision support to enable more consistency and timeliness of care; and
Use of telemedicine applications to enable care for patients in remote locations.
All have potential consequences for medical laboratories, as Dark Daily has reported. For example, telepathology offers opportunities for pathologists to provide remote interpretation of blood tests from a distance.
7. Workforce Challenges
Many countries are contending with shortages of physicians,
nurses, and allied health professionals, McKinsey reports. The authors add that
the situation is likely to get worse in the coming decades because much of the current
healthcare workforce consists of baby boomers.
An investigation published in JAMA in May indicated that, in the US, the number of active pathologists decreased from 15,568 to 12,839 between 2007 and 2017. In January, Dark Daily reported that clinical laboratories are also dealing with a generational shift involving medical technologists and lab managers, as experienced baby boomers who work in clinical laboratories are retiring.
8. Financial Challenges
In the United States and other countries, growth in
healthcare spending will outpace the gross domestic product, the McKinsey
report states, placing pressure on hospitals to operate more efficiently.
9. More Reliance on Quality Metrics
McKinsey cites regulations in Canada, Scandinavia, and the UK that require hospitals to publish quality measurements such as mortality, readmittance, and infection rates. These metrics are sometimes linked to pay-for-performance programs, the report states. In the United States, Medicare regularly uses quality-of-care metrics to determine reimbursement, and as Dark Daily reported in July, a new Humana program for oncology care includes measurements for medical laboratories and anatomic pathology groups.
The McKinsey report reveals that several trends in
healthcare are forcing healthcare leaders to adopt new strategies for success.
The report’s authors state that their “results show that contemporary
healthcare providers around the world are facing several urgent imperatives: to
strengthen clinical quality; increase the delivery of personalized,
patient-centered care; improve the patient experience; and enhance their
efficiency and productivity.”
These pressures on hospitals typically also require
appropriate responses from clinical laboratories and anatomic pathology groups
as well.
First used to track cryptocurrencies such as Bitcoin, blockchain is finding its way into tracking and quality control systems in healthcare, including clinical laboratories and big pharma
Four companies were selected by the US Food and Drug Administration (FDA) to participate in a pilot program that will utilize blockchain technology to create a real-time monitoring network for pharmaceutical products. The companies selected by the FDA include: IBM (NYSE:IBM), Merck (NYSE:MRK), Walmart (NYSE:WMT), and KPMG, an international accounting firm. Each company will bring its own distinct expertise to the venture.
This important project to utilize blockchain technologies in
the pharmaceutical distribution chain is another example of prominent
healthcare organizations looking to benefit from blockchain technology.
Clinical laboratories and health insurers also are collaborating on blockchain projects. A recent intelligence briefing from The Dark Report, the sister publication of Dark Daily, describes collaborations between multiple health insurers and Quest Diagnostics to improve their provider directories using blockchain. (See, “Four Insurers, Quest Developing Blockchain,” July 1, 2019.)
Improving Traceability and Security in Healthcare
Blockchain continues to intrigue federal officials, health network administrators, and health information technology (HIT) developers looking for ways to accurately and efficiently track inventory, improve information access and retrieval, and increase the accuracy of collected and stored patient data.
In the FDA’s February press release announcing the pilot program, Scott Gottlieb, MD, who resigned as the FDA’s Commissioner in April, stated, “We’re invested in exploring new ways to improve traceability, in some cases using the same technologies that can enhance drug supply chain security, like the use of blockchain.”
Congress created this latest program, which is part of the federal US Drug Supply Chain Security Act (DSCSA) enacted in 2013, to identify and track certain prescription medications as they are disseminated nationwide. However, once fully tested, similar blockchain systems could be employed in all aspects of healthcare, including clinical laboratories, where critical supplies, fragile specimens, timing, and quality control are all present.
The FDA hopes the electronic framework being tested during
the pilot will help protect consumers from counterfeit, stolen, contaminated, or
harmful drugs, as well as:
reduce the time needed to track and trace
product inventory;
enable timely retrieval of accurate distribution
information;
increase the accuracy of data shared among the
network members; and
help maintain the integrity of products in the
distribution chain, including ensuring products are stored at the correct
temperature.
In the FDA’s February announcement, Scott Gottlieb, MD (above), the FDA Commissioner at that time, said, “For the drug track-and-trace system, our goals are to fully secure electronic product tracing, which provides a step-by-step account of where a drug product has been located and who has handled it, [and] establish a more robust product verification to ensure that a drug product is legitimate and unaltered.” It’s not hard to imagine how such a tracking system would be equally beneficial in clinical laboratories and hospital pathology departments. (Photo copyright: FDA.)
Companies in the FDA’s Blockchain Pilot
IBM, a leading blockchain provider, will serve as the
technology partner on the project. The tech giant has implemented and provided
blockchain applications to clients for years. Its cloud-based platform provides
customers with end-to-end capabilities that enable them to develop, maintain,
and secure their networks.
“Blockchain could provide an important new approach to further improving trust in the biopharmaceutical supply chain,” said Mark Treshock, Global Blockchain Solutions Leader for Healthcare and Life Sciences at IBM, in a news release. “We believe this is an ideal use for the technology because it can not only provide an audit trail that tracks drugs within the supply chain; it can track who has shared data and with whom, without revealing the data itself. Blockchain has the potential to transform how pharmaceutical data is controlled, managed, shared and acted upon throughout the lifetime history of a drug.”
Merck, known as MSD outside of the US and Canada, is
a global pharmaceutical company that researches and develops medications and
vaccines for both human and animal diseases. Merck delivers health solutions to
customers in more than 140 countries across the globe.
“Our supply chain strategy, planning and logistics are built around the customers and patients we serve,” said Craig Kennedy, Senior Vice President, Global Supply Chain Management at Merck, in the IBM news release. “Reliable and verifiable supply helps improve confidence among all the stakeholders—especially patients—while also strengthening the foundation of our business.”
Kennedy added that transparency is one of Merck’s primary
goals in participating in this blockchain project. “If you evaluate today’s
pharmaceutical supply chain system in the US, it’s really a series of handoffs
that are opaque to each other and owned by an individual party,” he said,
adding, “There is no transparency that provides end-to-end capabilities. This
hampers the ability for tracking and tracing within the supply chain.”
Walmart, the world’s largest company by revenue, will
be distributing drugs through their pharmacies and care clinics for the
project. Walmart has successfully experimented using blockchain technology with
other products. It hopes this new collaboration will benefit their customers,
as well.
“With successful blockchain pilots in pork, mangoes, and leafy greens that provide enhanced traceability, we are looking forward to the same success and transparency in the biopharmaceutical supply chain,” said Karim Bennis, Vice President of Strategic Planning of Health and Wellness at Walmart, in the IBM news release. “We believe we have to go further than offering great products that help our customers live better at everyday low prices. Our customers also need to know they can trust us to help ensure products are safe. This pilot, and US Drug Supply Chain Security Act requirements, will help us do just that.”
KPMG, a multi-national professional services network
based in the Netherlands, will be providing knowledge regarding compliance
issues to the venture.
“Blockchain’s innate ability within a private, permissioned
network to provide an ‘immutable record’ makes it a logical tool to deploy to
help address DSCSA compliance requirements,” said Arun Ghosh, US Blockchain
Leader at KPMG, in the IBM news release. “The ability to leverage existing
cloud infrastructure is making enterprise blockchain increasingly affordable
and adaptable, helping drug manufacturers, distributors, and dispensers meet
their patient safety and supply chain integrity goals.”
The FDA’s blockchain project is scheduled to be completed in
the fourth quarter of 2019, with the end results being published in a DSCSA
report. The participating organizations will evaluate the need for and plan any
future steps at that time.
Blockchain is a new and relatively untested technology
within the healthcare industry. However, projects like those supported by the
FDA may bring this technology to the forefront for healthcare organizations,
including clinical laboratories and pathology groups. Once proven, blockchain
technology could have significant benefits for patient data accuracy and
security.
While clinical laboratories may not be directly affected by copay accumulators, anything that affects patients’ ability to pay for healthcare will likely impact lab revenues as well
Here’s a new term and strategy that some big employers are
deploying in an attempt to control the choice of health benefits provided to
their employees. The term is “copay accumulator” and it is intended to offset
efforts by pharmaceutical companies to minimize what consumers must pay
out-of-pocket for expensive prescription drugs.
Clinical laboratory managers and pathologists will have a front row seat to watch this next round in the struggle between industry giants for control over how patients pay for drugs and treatment regimes.
Pharmaceutical companies on one side and health insurers and employers on the other side have played brinksmanship over medication copays for years. Now at the center of this struggle are copay accumulators, a relatively new feature of plans from insurers and pharmacy benefit managers (PBMs) on behalf of the large employers they serve.
More than 41-million Americans use copay accumulators, and about nine million use similar though limited copay maximizer programs, Zitter Health Insights, a New Jersey-based pharma and managed care consultancy firm, told Reuters.
Now, big employers are getting in on the game. Walmart
(NYSE:WMT) and Home Depot (NYSE:HD) are among a growing number of companies using
copay accumulators and copay maximizers to keep their healthcare costs down and
encourage employees to seek lower-cost alternatives to expensive brand
prescriptions (generic drugs).
About 25% of employers currently use such programs, and 50% of employers are anticipated to be doing so in just two more years, the National Business Group on Health told Reuters.
What Are Copay
Accumulators and How Do They Work?
In response to popular drug company discount cards,
insurance companies developed the “copay accumulator.” Here’s how it works.
Typically, patients’ insurance plan deductibles can be thousands
of dollars. Thus, even after plan discounts, patients often pay hundreds, even
thousands of dollars each month for prescribed medications. Insurance companies
see a beneficial side to this, stating the cost encourages patients to be aware
of their medications and motivates them to try lower-cost non-branded
alternatives (generic drugs), all of which saves insurance plans money.
However, many patients with high-deductibles balk at paying
the high cost. They opt to not fill prescriptions, which costs pharmaceutical
companies money.
To encourage patients to fill prescriptions, drug companies
provide discount cards to help defray the cost of the drugs. The difference
between the discounted payment and the full price of the drug is paid by the
pharmaceutical company. But these discount cards interfere with insurance
companies’ ability to effectively track their enrollees’ drug usage, which
impacts the payers’ bottom lines.
When a patient uses a drug discount card at the point-of-sale, the sale is noted by the patient’s health insurer and the insurer’s copay accumulator program kicks in. It caps the total accumulated discount an enrollee can take for that medication and prevents any patient payments to apply toward the plan’s deductible. Once the drug company’s discount card threshold is reached, the patient bears the full cost of the drug, a ZS Associates Active Ingredient blog post explained.
Critics of copay accumulators point out that patients could
end up paying full price for extremely expensive prescriptions they previously
accessed with discount cards, while simultaneously making no progress toward
fulfilling their insurance deductibles. Or, they will simply stop taking their
medications altogether.
“A medication which previously cost $7 may suddenly cost hundreds or even thousands of dollars because the maximum amount of copay assistance from the [drug] manufacturer was reached,” noted Ken Majkowski, Pharm.D, Chief Pharmacy Officer at FamilyWize (a company that offers its own prescription savings programs), in a blog post. “Since the health plan will no longer allow the copay amounts to contribute to the patient’s deductible, the cost of the medication remains very high.”
Major Employers Implement
Their Own Copay Accumulator Programs
Enter the next goliath into the fray—the large employer. Executives
at Walmart and Home Depot say discount drug coupons drive up healthcare costs
and give their employees and their family members no incentive to explore lower
cost alternatives, Reuters reported.
Walmart’s pharmacy benefits are managed by Express Scripts, a prescription benefit plan provider that fills millions of prescriptions annually, according to the company’s website. Meanwhile, Home Depot’s pharmacy benefits are operated by CVSHealth, which focuses on therapies for cystic fibrosis, hepatitis C, cancer, HIV, psoriasis, pulmonary arterial hypertension, and hyperlipidemia, Reuters noted.
Insurance Associations
Weigh-In
Health insurance company representatives say the need for copay accumulators begins with the high price of pharmaceuticals. Insurers are not the only ones concerned about these costs. The American Hospital Association (AHA), the Federation of American Hospitals (FAH), and the American Society of Health-System Pharmacists (ASHP) recently released a report showing total drug spending per hospital admission increased by 18% between 2015 and 2017, and some drug categories rose more than 80%.
“The bigger question is why do we need copay coupons at all? It’s very important to recognize the problem starts with the [drug] price. This is the real underlying problem,” Cathryn Donaldson, Director of Communications, America’s Health Insurance Plans (AHIP), told the Los Angeles Times.
In their blog post, ZS Associates advised drug companies to
“push-back” on the copay accumulators. The Evanston, Ill.-based consultancy
firm recommends pharma executives change the way they run the discount cards—such
as paying rebates directly to patients instead of working through pharmacies.
Medical laboratory leaders need to be aware of programs,
such as copay accumulators, and the associated issues that affect patients’
ability to pay for their healthcare. Because large numbers of patients struggle
to pay these high deductibles, it means clinical laboratories will be competing
more frequently with hospitals, physicians, imaging providers, and others to
get patients to pay their lab test bills.
While consolidation is a common trend across many sectors—including anatomic pathology groups and hospital systems—UnitedHealth Group is the latest example of the payer-provider consolidation trend impacting medical laboratories nationwide
Pending the successful completion of a $4.9-billion acquisition of DaVita Medical Group, UnitedHealth Group (UNH) will be poised to become the largest single employer of doctors in the U.S., according to numbers reported by leading sources.
Clinical laboratories, anatomic pathology groups, and other service providers that service those doctors should already be taking a serious look at their revenue flows and efficiencies to maintain margins and weather the shift into a model of value-based reimbursement.
Controlling Costs with Direct Care
According to a press release, UnitedHealth Group’s (NYSE:UNH) direct-to-patient healthcare subsidiary, OptumCare, currently employs or is affiliated with 30,000 physicians. And, DaVita Medical Group, a subsidiary of DaVita Inc. (NYSA:DVA), lists 13,000 affiliated physicians on their website. Should acquisition of DaVita Medical Group go forward, OptumCare would have approximately 43,000 affiliated or employed physicians—roughly 5,000 more physicians than HCA Healthcare and nearly double Kaiser Permanente’s 22,080 physicians—thus, making OptumCare’s parent company UNH the largest individual employer of physicians in the U.S. The acquisition is reportedly to reinforce UNH’s ability to control costs and manage the care experience by acquiring office-based physicians to provide services.
OptumCare has seen significant growth over the past decade. OptumHealth, one of three segments of UNH’s overall Optum healthcare subsidiary, includes OptumCare medical groups and IPAs, MedExpress urgent care, Surgical Care Affiliates ambulatory surgery centers, HouseCalls home visits, behavioral health, care management, and Rally Health wellness and digital consumer engagement.
“We have been slowly, steadily, methodically aligning and partnering with phenomenal medical groups who choose to join us,” Andrew Hayek, CEO of OptumHealth (above), told Bloomberg. “The shift towards value-based care and enabling medical groups to make that transition to value-based care is an important trend.” (Photo copyright: Becker’s ASC Review.)
Acquisitions of Doctors on the Rise; Clinical Lab Revenues Threatened
Independent physicians and practices have been a hot commodity in recent years. A March 2018 study from Avalere Health in collaboration with the Physicians Advocacy Institute (PAI) showed that the number of physicians employed by hospitals rose from 26% in July 2012 to 42% in 2016—a rise of 16% over four years.
By acquiring physicians of their own, insurance companies like UnitedHealth Group believe they can offset the cost and shifts in service of these prior trends. “We’re in an arms race with hospital systems,” John Gorman of Gorman Health Group told Bloomberg. “The goal is to better control the means of production in their key markets.”
According to Modern Healthcare, the acquisition of DaVita Medical Group is UnitedHealth’s third such acquisition in 2017. Other acquisitions include:
Advisory Board, a healthcare consulting firm, for $2.3-billion in November.
Along with Surgical Care Affiliates came a chain of surgery centers that, according to The New York Times (NYT), OptumCare plans to use to perform approximately one million surgeries and other outpatient procedures this year alone, while reducing expenses for outpatient surgeries by more than 50%.
NYT also noted that acquisition of DaVita Medical Group doesn’t bring just physicians under the OptumCare umbrella, but also nearly 250 MedExpress urgent care locations across the country.
By having physicians, clinical laboratories, outpatient surgery centers, and urgent care centers within their own networks, insurance providers then can steer patients toward the lowest-cost options within their networks and away from more expensive hospitals. This could mean less demand on independent clinical laboratories and hospitals and, with that, reduced cash flows.
According to NYT, Optum currently works with more than 80 health plans. However, mergers such these—including those between CVS Health (NYSE:CVS) and Aetna (NYSE:AET), and the proposed agreement between Humana (NYSE:HUM) and Walmart (NYSE:WMT) to deliver healthcare in the retailers’ stores—indicate that insurers are seeking ways to offer care in locations consumers find most accessible, while also working to exert influence on who patients seek out, to generate cost advantages for the insurers.
This consolidation should concern hospitals as payers increasingly draw physicians from them, potentially also taking away their patients. The impact, however, may also reach independent medical laboratories, medical imaging centers, anatomic pathology groups, and other healthcare service providers that provide diagnoses and treatments in today’s complex healthcare system.
Deep Payer Pockets Mean Fewer Patients for Clinical Labs and Medical Groups
As this trend continues, it could gain momentum and potentially funnel more patients toward similar setups. Major corporations have deeper pockets to advertise their physicians, medical laboratories, and other service providers—or to raise public awareness and improve reputations. Such support might be harder to justify for independent healthcare providers and medical facilities with shrinking budgets and margins in the face of healthcare reform.
Shawn Purifoy, MD, a family medicine practitioner in Malvern, Ark., expressed his concern succinctly in The New York Times. “I can’t advertise on NBC [but] CVS can,” he noted.
While further consolidation within independent clinical laboratories and hospitals might help to fend off this latest trend, it remains essential that medical laboratories and other service providers continue to optimize efficiency and educate both physicians and payers on the value of their services—particularly those services offered at higher margins or common to menus across a range of service providers.
As healthcare continues to expand outside of traditional environments, clinical laboratories must adapt to providers’ changing needs
Healthcare settings continue to pop up in non-traditional locations. For years, clinical laboratories and anatomic pathology groups have had to adopt to a changing healthcare landscape, such as the trend to move care out of hospitals and doctor’s offices to lower costs and improve access.
It’s a win-win for healthcare organizations and patients alike that shows no sign of slowing down. Thus, it should come as no shock that retail giant Walmart (NYSE:WMT) would want to remain competitive in this high-value consumer market.
Walmart Continues Expansion into Healthcare Market
Walmart Care Clinics, which are primarily staffed by certified nurse practitioners, are currently operating in Georgia, South Carolina, and Texas, according to Healthcare Finance. Caregivers in those clinics are trained to diagnose and treat a wide variety of basic medical conditions, including:
Managing chronic conditions;
Performing lab tests;
Administering vaccinations;
Making referrals; and,
Prescribing medications.
Now, possibly in a bid to compete with CVS and Walgreens, Walmart has announced plans to allocate part of an $11-billion remodeling project to include private consultation rooms in hundreds of its store pharmacies. These rooms will allow customers to have confidential discussions about their medications and healthcare with pharmacists and other pharmacy staff members.
The majority of the store renovations will occur in Florida and Texas where the company has allotted $477 million to remodel 82 stores and add 14 new stores.
Walmart Health App and Wellness Days
Another step Walmart is taking to compete in the healthcare space involves mobile software. In May, Walmart announced it was partnering with digital health company Sharecare to provide employees and community members with access to the Sharecare mobile healthcare app. The app enables users to complete personalized health profiles and track their health.
Walmart Wellness Days are a quarterly in-store event designed to educate community members on ways to make positive changes in their health. Might clinical laboratories one day be performing medical laboratory and pathology testing ordered by physicians and nurse practitioners located in retail Walmart pharmacies? (Photo copyright: Walmart.)
“Walmart is committed to helping our associates, their families, and communities to improve their overall wellbeing through wellness programs,” Jacqui Canney, Executive Vice President and Chief People Officer at Walmart, stated in a press release. “Partnering with Sharecare will provide our associates additional tools to inspire them on their wellness journey, help our programs continue to grow, and be a force for change in the communities we serve.”
Sharecare sees this relationship as both disruptive and transformative, not just for a company’s employees and customers, but for the entire nation.
“As we have learned from our research through the Gallup-Sharecare Well-Being Index, a person’s holistic wellbeing is defined by five essential elements—purpose, social, financial, community, and physical—and when those elements are in alignment, individuals and places exhibit greater adaptability to change, resiliency, and productivity in the workplace, among other benefits,” noted Dan Witters, Research Director for the Gallup-Sharecare Well-Being Index, in the press release. “As the nation’s single largest employer with more than 1.5 million associates, Walmart and Sharecare have the potential to disrupt the status quo of workplace wellness and transform the health not only of the communities in which Walmart operates, but also, ultimately, our country.”
Lofty expectations, to be sure. Nevertheless, for clinical laboratories to remain competitive, they must be prepared to adapt and serve healthcare providers in any location. Increasingly, these caregivers are finding themselves treating patients outside of traditional healthcare environments in locations convenient to healthcare consumers, such as retail environments.
