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Consumerism's Impact on Health System Acquisition Strategy
The document discusses the rise of consumerism in healthcare and its implications for health system acquisition strategies. It emphasizes the importance of price transparency, patient engagement, and tailored care, especially among younger and aging patients with different needs. Additionally, it highlights the competitive landscape, legal challenges, and the growing influence of digital health innovations and partnerships on consumer-driven healthcare strategies.
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Consumerism's Impact on Health System Acquisition Strategy
- 1. Consumerism’s Impact onHealth System Acquisition Strategy R. Michael Barry Partner Arnall Golden Gregory Michael G. Ramey Principal PYA
- 2. Objectives What is“consumerism,” and how are health systems adopting to meet consumer demand Escalating requirements for price transparency Types of market transactions that enable a consumer-driver strategy Competition to health systems pursuing consumer-driven strategies Legal challenges in advising health systems on consumer-driven investments 1 2 3 4 5
- 3. The Rise ofConsumerism Consumerism Defined
- 4. Importance of CustomerExperience High Quality Lower Cost and Transparency High Patient Engagement / Tailored Care Accessibility / Convenience
- 5. Importance of CustomerExperience Source: Consumerism: How Steady Is Your Consumer-Based Platform (PYA) No More “Blanket” Strategy Younger Patients Place greater emphasis on accessibility and convenience More comfortable with technology May seek treatment for minor injuries, acute illnesses, and urgent care needs Aging Patients Place greater emphasis on established patient-physician relationships Prefer face-to-face communication May need more services for chronic care management Focused-approach for younger patients: • Use of smartphone applications • Video conferencing • Online scheduling Focused-approach for Medicare patients: • Navigation services • Personalized care plans for chronic disease • Easy-to-understand billing
- 6. Weakening of physician recommendations The Riseof Consumerism Sources: 2019 Health Care Industry Trends (Advisory Board) Emergence of meaningful alternatives Consumers adopt greater financial responsibility Requirements for greater transparency Applicability of Consumerism to Healthcare
- 7. The Rise ofConsumerism Sources: Playbook for the Consumer-Focused Health System (Advisory Board), Competing on Consumer Experience (Advisory Board), Impacts of Consumerism in the Payments Industry (HIMSS) Building a Value Culture of Health: The Value Proposition of Retail Clinics (Robert Wood Johnson Foundation and Manatt Health) 38.7% of consumers used a retail clinic because the costs were lower Without knowing visit price, 74% of patients would rather pay $50 out- of-pocket >21.8 million U.S. citizens have high- deductible health plans with HSAs Consumers adopt greater financial responsibility
- 8. The Rise ofConsumerism Source: American Journal of Managed Care, Enrollment in High-Deductible Health Plans Continues to Grow, August 2018 Consumers adopt greater financial responsibility 2007 2017 4.2% 10.6% 24.5% 18.9%HDHPs w/ HSA HDHPs w/o HSA Employer-Based Health Coverage Plans for Adults 18-64 Plan Type
- 9. The Rise ofConsumerism New primary care options with enhanced accessibility More steerage of provider referrals Increase in self-referrals Source: Market Innovation Center and What Dives Consumer Loyalty to a Primary Care Physician (Advisory Board) Weakening of physician recommendations Nearly 80% of consumers visited multiple systems over the last 5 years Contributing Factors: Definitely follow PCP if moved to a new practice Confident will not switch PCPs in next year Highly likely to recommend PCP to friends or family 9% 53% 36%
- 10. Ambulatory strategies needed to meet consumer demand The Riseof Consumerism Emergence of meaningful alternatives
- 11. Relevant Market Transactions Ambulatory SurgeryCenters Retail Clinics and Pharmacies Home Health Urgent Care Platforms Telehealth Platforms Healthcare Technology Investments
- 12. Relevant Market Transactions Emergenceof Partnerships to Effect Consumer Strategy Home Health Urgent Care Retail Pharmacy Ambulatory Surgery Imaging Healthcare Providers Professional Operators Increase in partnerships between providers and managers
- 13. Relevant Market Transactions Consumerfocus not just on the individual High Quality Low Cost Direct Employer Contracting Commercial Payer Risk- Based Arrangements Medicare Advantage
- 14. Disruptors and Driversof Change Employer-formed narrow networks Vertical integration “By delivering the combined capabilities of our two leading organizations, we will transform the consumer health experience and build healthier communities through a new innovative health care model that is local, easier to use, less expensive and puts consumers at the center of their care.” – CVS President & CEO Larry Merlo “We want to change the way people experience healthcare so that it is simpler, better, and lower cost.” – Haven CEO Dr. Atul Gawande
- 15. Competition for Consumer- DrivenAssets Prevalence of Private Equity Investments in Healthcare of the healthcare deal value was in the provider sector, totaling $18.9B ~44% 2017 healthcare private equity deals (29% increase from 2016) 265 Sources: Bain & Company: Global Healthcare Private Equity and Corporate M&A Report 2018; Modern Healthcare, Healthcare Organizations Turned to Unexpected Partners in 2018, December 2018. Venture capital funding for digital health startups (230% increase over 5 years) $6.9B Number of healthcare private equity deals forecast for 2019 750
- 16. Valuation Considerations • Arm’s-lengthtransaction in an open and unrestricted market • Bona fide bargaining • Neither is under compulsion to buy or sell • Reasonable knowledge of relevant facts by both parties • Healthcare: Does not take into account the volume or value of anticipated or actual referrals See Treas. Reg. § 20.2031-1(b) (2005); Rev. Rul. 59-60, 1959-1 C.B.237; 42 C.F.R. § 411.351 (2011). $ Willing Seller Willing Buyer $ Fair Market Value (FMV) “Ground Rules”
- 17. IRS Definition1 • Fairmarket value (“FMV”) is defined as the price at which the property or service would change hands between a willing buyer and a willing seller, neither being under a compulsion to buy or sell and both having reasonable knowledge of the relevant facts” OIG/Stark Definitions2 • Fair Market Value: the value in arm’s-length transactions, consistent with the general market value • General Market Value: the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well- informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals Valuation Considerations
- 18. Valuation Considerations Hospital/Health System Considerations: •Regulations • Market comparisons • Transaction prices without the ability to refer Referral Source Physician OwnerPrivate Equity
- 19. HHS has interpreted “commercially reasonable” Stark IIPhase II also suggests Additionally, OIG has stated “An arrangement that appears to be a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals” 63 Fed. Reg. 1700 (Jan. 9, 1998) “An arrangement will be considered ‘commercially reasonable’ in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty, even if there were no potential DHS referrals” 69 Fed. Reg. 16093 (March 26, 2004) In order to meet the threshold of commercial reasonableness, compensation arrangements with physicians should be “reasonable and necessary” OIG Advisory Opinion No. 07-10 (Sept. 20, 2007) Commercial Reasonableness Considerations
- 20. Commercial Reasonableness Considerations Hospital/Health System Accessto capital Ability to scale platforms Core to mission Meeting community needs Short-term losses Private Equity
- 21. Does Consumerism Relateto Value? Organizational Strength Often Driven by Patient Experience: – Clinical quality – Availability of complex care – Access – Pricing certainty To what extent does “consumerism” in healthcare translate to value? Does a focus on the “patient experience” replace M&A? How is “patient experience” impactful in the M&A context? Relevant Questions
- 22. Transparency in Healthcare Sources:Playbook for the Consumer-Focused Health System (Advisory Board), Competing on Consumer Experience (Advisory Board) 65% of consumers are aware of online physician rating sites 36% of consumers have used a rating site at least once Online Rating Sites Price Estimator Tools 56% of consumers have tried to find their out-of- pocket costs before receiving care Requirements for greater transparency
- 23. Transparency in Healthcare Generateprice quotes for patients during scheduling Monitor patient satisfaction and follow-up Implement programs to improve outcomes Track internal and external quality measures Strategies to Enhance Transparency: Source: Consumerism: How Steady Is Your Consumer-Based Platform (PYA) Requirements for Greater Transparency
- 24. Objectives Regulatory Responses toConsumerism Results Improve patient access to relevant information Enable patients to compare charges for similar services, across hospitals Lower healthcare costs by encouraging price transparency and competition Federally mandated transparency in hospital pricing (January 1, 2019)
- 25. Obligation Regulatory Responses toConsumerism Achievement? List of standard charges, via the internet, in a machine readable format, updated at least annually The information is often confusing Pricing does not reflect financial assistance, charity care Pricing may vary by patient and facility Who pays “sticker price”
- 26. Regulatory Responses toConsumerism Other considerations: Payer-Specific Information Shifting Focus to Payer Obligations Pricing Education Customized Tools Out-of-pocket costs Out-of-network expectations
- 27. State Responses toConsumerism Florida has established a Website that enables consumers to obtain data on hospitals' charges and readmission rates (http://www.floridahealthfinder.gov/CompareCare/SelectChoic e.aspx). Oregon’s website "Oregon Pricepoint," is sponsored and maintained by the Oregon Association of Hospitals and Health Systems and allows healthcare consumers to receive basic, facility-specific information about services and charges. New Jersey launched www.njhospitalpricecompare.com to help consumers make informed choices regarding price and quality of hospital services in New Jersey. Examples of State Health Price Information Disclosure Websites
- 28. Does Consumerism Relateto Value? More than just patients walking in the door: - Virtual visits - Extended hours - Text messaging / email with providers - Same-day appointments - Online patient portals
- 29. Attention to ConsumerExpectations Becomes Harder with Consolidation Facilities need to do more than what is required by CMS in order to address increased patient consumerism focus Issues: - Facility–to–facility prices vary - Within a facility, the acquired practices each have their own payer contracts and fee schedules
- 30. Risk Management Consumer-driven carerequires nimble regulatory attention Multi-state/Cross-border transactions Telemedicine/Teledentistry Telepharmacy Medical Tourism Inter-specialty provider consultations Intellectual Property; Licensing Privacy (State and Federal) Fraud and Abuse
- 31. Risk Management Driven bytechnology, patient data risk will remain a key hurdle Ongoing reps and warranties obtained from outside vendors Development Due Diligence Ongoing reps and warranties provided by the provider
- 32. Questions? ? R. Michael Barry Partner ArnallGolden Gregory michael.barry@agg.com (404) 873-8698 Michael G. Ramey Principal PYA mramey@pyapc.com (865) 684-2709