Note from Blake: If you want my take on Kaiser-Risant when it was announced, you can read my full deep dive here!
It's official. Today, Kaiser Permanente acquired Geisinger Health, a health system based in Pennsylvania, and folded it into the nonprofit Risant Health. What we know so far is that this is part of an effort to create a company to operate nonprofit community health systems. Kaiser also said that it plans to drop $5 billion into Risant in the next five years, and it's shopping for other health systems to fold into its network.
The New York Times described this move as a reaction to for-profit companies, including health plans, scooping up physician practices and urgent care centers. All of this is driving up consolidation, and the overall cost of health care. Risant, according to Kaiser's CEO Gregory Adams, is investing in prevention to keep patients' on the right track so they don't require as much expensive specialty care.
As I read the press release this morning, I had many more questions than answers about how this model will work in practice. So, I called up the OG in the space - Blake Madden, who runs the newsletter Hospitality - to ask him what he thinks. If you are in the industry and don't read Hospitality, you should subscribe! It's a must read for all of us digital health nerds.
Here's a snapshot of our chat, edited for brevity. I promise we won't be shy about our opinions…
CF: Can you set some context? Why should we care about this deal closing?
BM: Kaiser is looking for a way to expand and continue to grow. Risant is that pathway. Kaiser said they want to onboard 4 to 5 midsize health systems and support them on integrated care delivery. This might be appealing for the health systems if they're not performing optimally or need capital or if there's competitive pressure. For many of them, it will be about survival.
CF: Why Geisinger by the way?
BM: There's a lot of competitive pressures and mergers happening in Pennsylvania and there's the capital lifeline. It's also a response to payer vertical integration, I suspect. Health systems are seeing more Medicare Advantage patients and there are going to be headwinds and pressures there for the next few years. Health systems are rethinking if they should be in network with certain plans as we speak. They could partner with Risant to help them optimize their health plan strategy, which isn't a core competency for a lot of health systems. They know how to put heads in beds, focus on high acuity care, but they're not as savvy on, say, starting a health plan.
CF: This whole model has been called the "East Coast Kaiser" by friends in the industry? From your perspective: Is Kaiser the model to emulate?
BM: The spirit of what Kaiser is trying to do makes so much sense. This is an integrated plan to help manage members, and from what I've heard their satisfaction rates are more than adequate. This model, as rough as this might sound, is like a hospital turning its stomach inside out so that inpatient care is a cost center and everything outside of it is integrated care delivery. That's where the margin is produced.
CF: Are you hearing rumors of other hospitals that Risant is interested in?
BM: I have heard there are ongoing discussions. You can take a guess at about 20 or so health systems that fit the size that they're probably talking to. They are targeting health systems with, say, $3 to $6 billion in revenue with a provider-sponsored health plan or integrated delivery network chassis. I would put money on them closing some of those conversations in the next few years, but we'll see.
CF: Are you more excited about this, or the General Catalyst moves with their acquisition of Summa Health?
BM: I'm observing both because there isn't much tangible, material language being discussed with either. The website for both talks about health system transformation, which I'm all for, but there are nuts and bolts that go into it like physician alignment, change management or just inertia (the fact that health systems have been the way they are for years.) I'm more interested in General Catalyst, if I had to say, just because it's not really been done before. They might break Summa Health or find things to partner on. So, I lean to General Catalyst, the venture firm, but they're both interesting to me for different reasons.
CF: Taking a step back… For many of us, we go to the hospital and a giant bill shows up a few weeks later. Given that health care is so darn expensive, why are so many hospitals in the red?
BM: Post Covid, you have this perfect storm of events with reduced patient volumes, inflation and labor shortages. To put it simply: Everything costs more right now. In the past, when insurers might not have played ball on price and given hospitals the 5-7 percent commercial rate raise, they could make that up with backfill volumes and increase capacity. But because quantities were suppressed, you had this double whammy. Top line was getting suppressed while expenditures were increasing. Inflationary components have also meant that the cost to staff radiologists, hospitalists, and so on, is also raising expenses and also medical supplies. Objectively the past couple of years have been a bad time for most health systems.
CF: But not all. How about the few that are crushing it?
BM: Now, in 2024, this interesting dynamic is going on. I've written about it a few times. It's a bifurcation effect, where I've heard it characterized as health systems that have the right density in markets - like the HCA's of the world - are becoming the so-called "price makers." So, they'll go to a health insurer and say, 'you need to put us in the network with this rate.' And it happens, for the most part. So those folks are doing well. HCA is basically a well-oiled machine and is growing as utilization comes back online and labor somewhat normalizes. But on the flip side, you have a lot of smaller, hospitals and systems with two to three chains that are struggling financially.
Right now, there's a lot of hospitals struggling, a few that are hugely successful and not as many in the middle that are at 'normal' margins.
CF: What themes are you thinking about for your amazing newsletter going into '24?
BM: Definitely the Medicare Advantage headwinds. CMS didn't play ball like the industry was expecting, so there will be short-term ramifications. Payers will toe the line more on prior authorization and utilization management and push back on the commercial rate size, as well. I'll be watching that closely. The second thing is the downstream effects of those changes. How does the Medicare Advantage headwind impact value-based care? Will more health systems go out-of-network with MA plans? I'm also watching for signs of increased utilization for health systems. How does recovery play out? Who is winning? Who's losing? I'll be focusing on cardiology and orthopedics, because those are the two growing specialties with movement outpatient and the highest demand. With all the outpatient migration, health systems are focused on building out new ASCs and other outpatient books of business. They will want to keep these patients within their network and prevent network leakage.
CF: Thoughts on whether it's a crappy time to sell to health systems if you're a digital health startup?
BM: If you have a clear ROI opportunity, whether it's labor or cybersecurity, then I think people will listen. The other thing that health systems want is just one platform for everything, even if some of the pieces are substandard or not the best. Companies like Epic are paying attention to that, particularly as they make moves in AI. The fact that it is all integrated and all in one is more valuable to health systems than anything else.
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