By Gregg A. Masters, MPH
There are parallels worth considering!
But first for those who’s event horizons’ don’t reach back to the Healtheon era (mid to late 1990’s) a little history may help with the construction of this narrative. Perhaps the dots are optimally connected by the talented and best selling author Michael Lewis in his book ‘The New, New Thing‘ (a reader’s digest version of Jim Clark’s impact is here) wherein Lewis profiles Silicon Valley culture and the ‘pre-mature’ rise of an ambitious company who intended to ‘fix healthcare’ via technology – Healtheon (the vestiges of which exist today as WebMD and Emdeon). And for those of you history buffs, who want a deeper dive into the story, see ‘What The Heck Is Healtheon?‘
Both Evolent Health and Healtheon are (or were) ‘transformation plays’ with an ‘on the come‘ revenue upside tied to the expected (almost inevitable) market restructuring from fee-for-services medicine to an expanding book of ‘alternative payment arrangements’, i.e., capitated or fixed price healthcare (‘generation 1.0’ of bundled payment via case rates, DRGs, global or service tiered per diems, etc., as the concept of ‘valued based’ care had yet to penetrate popular healthcare lexicon).
In sum, the rather over-simplified claim for Healtheon’s upside to Wall Street is paraphrased as follows:
‘[Healtheon] would use the power of computing and the Internet to revolutionize the health-care industry, stripping away its inefficiencies and inequities and streamlining it for the new millennium.’
Here’s the company description lifted from Healtheon’s registration statement in 1995:
Fast forward some 19+/- years later, according to Evolent Health’s S1 filing here’s their story:
We are a market leader and a pioneer in the new era of healthcare delivery and payment, in which leading health systems and physician organizations, which we refer to as providers, are taking on increasing clinical and financial responsibility for the populations they serve. Our purpose-built platform, powered by our technology, proprietary processes and integrated services, enables providers to migrate their economic orientation from fee-for-service, or FFS, reimbursement to payment models that reward high-quality and cost-effective care, or value-based payment models. By partnering with providers to accelerate their path to value-based care, we enable our provider partners to expand their market opportunity, diversify their revenue streams, grow market share and improve the quality of the care they provide.
We consider value-based care to be the necessary convergence of healthcare payment and delivery. We believe the pace of this convergence is accelerating, driven by price pressure in traditional FFS healthcare, a regulatory environment that is incentivizing value-based care models, a rapid expansion of retail insurance driven by the emergence of the health insurance exchanges and innovation in data and technology. We believe providers are positioned to lead this transition to value-based care because of their control over large portions of healthcare delivery costs, their primary position with consumers and their strong local brand.
Today, increasing numbers of providers are adopting value-based strategies, including contracting for capitated arrangements with existing insurance companies, governmental payers or large self-funded employers and managing their own captive health plans. Through value-based care, providers are in the early stages of transforming their role in healthcare as they attempt to defend their existing position and capture a greater portion of the more than $2 trillion in annual health insurance expenditures. While approximately 10% of healthcare payments are paid through value-based care programs today, including through models created by systems like UPMC, Kaiser Permanente and Intermountain Healthcare, it is estimated that this number will grow to over 50% by 2020. There were 120 provider-owned health plans as of 2010 and this number continues to grow. The number of ACOs constructed to manage capitated or value-based arrangements with existing insurance companies or government payers grew to 742 by the end of 2014.
We believe the transformation of the provider business model will require a set of core capabilities, including the ability to aggregate and understand disparate clinical and financial data, standardize and integrate technology into care processes, manage population health and build a financial and administrative infrastructure that capitalizes on the clinical and financial value it delivers. We provide an end-to-end, built-for-purpose, technology-enabled services platform for providers to transition their organization and business model to succeed in value-based payment models. The core elements of our platform include:
• Identifi®, our technology platform;
• an integrated technology, proprietary process and clinical services model;
• long-term, embedded and aligned partnerships with health systems;
So the mission’s of both were similar if not identical in terms of the re-structuring upside. They vision a disruptive technology play layering efficiencies into (if not picking off the low hanging fruit) of a change resistant confederation of legacy healthcare interests inclined towards internecine warfare (dis-organized medicine writ large, but primary care v. specialty care in particular and the grand canyon divide between payors and providers to get beyond the simple calculus of ‘your revenues are my expenses’).
What’s different today?
Times have indeed changed, AND the stakes have risen considerably. From a macro-economic perspective the ‘cost shifting’ shell game is officially over as today it’s about ‘total costs of care’ (the triple aim and the new focus at the level of population health) and not shifting liabilities from ‘my P&L to yours’.
Yet, the fundamental problem of a healthcare non-system incentivized by a ‘do more, earn more’ payment model continues to consume a dis-proportionate share of the national economy despite both public and private sector efforts to restrain its appetite. Yet, I see at least four underlying market considerations belying this otherwise ‘deja vu’ insight.
- The presumptive value prop of technology (and its enabling infrastructure) is more prevalent, powerful and affordable today than it was in the 90s.
- The share of GDP the healthcare spend accounts for in the 90s hovered in the 9-10% range, whereas today that share is closer to 18% where nearly 1 in 5 dollars spent in the U.S is parked inside a seemingly insatiable healthcare appetite.
- The healthcare reform or health system re-design imperative, once contained behind the closed doors of health systems, risk bearing physician entities, corporate board rooms of purchasers or their health plan proxies and even the halls of both State and Federal Government is now ‘out of the barn’.
- Anticipating the trend growth (i.e., the impending bankruptcy of the U.S Treasury) in Medicare and Medicaid spending CMS has upped the ante in the value based payment glidepath by targeting 50% of their spend to be channeled via value based payments year end 2018; see: ‘Better Care. Smarter Spending. Healthier People: Paying Providers for Value, Not Volume‘.
This change if not re-invention mandate is a national if not global conversation and quest. In other words, the healthcare spend will sink not just companies, but countries if we do not find a satisfactory path to a sustainable healthcare ecosystem.
So maybe this time things are different (those above and perhaps many others) to make this reach and business model both practical and scalable for at times ‘impatient’ investors.
So ‘Ladies and Gentlemen, start you engines’. And by all means do buckle in, this ride will no doubt be a fun one!