A Year of Uncertainty: Healthcare in Flux

MattFisher-whiteBy Matt Fisher, Esq
Twitter: @matt_r_fisher
Host of Healthcare de Jure#HCdeJure

Healthcare experienced a large degree of uncertainty and fluctuation in 2017. Almost no day passed without news of action or activity impacting the industry. All of the back and forth left healthcare buffeted and ready for a rest. Unfortunately, that rest is unlikely to come in 2018. Before considering what could be on tap for 2018 though, it is important to review some of the major issues that impact healthcare in 2017.

Data breaches remain a top issue for which healthcare does not have an answer. Both the number of breaches that occurred and the number of records impacted climbed for another year. At this point, it almost feels as though there is no patient left in the country whose medical information has not been breached at some point, which assessment is most likely an exaggeration though not as big as would previously have been contemplated. The past year also saw two causes of the data breaches separate from the pack: (i) cyberattacks through vehicles such as ransomware, malware or phishing and (ii) insider threats. Earlier in the year, the pace of attacks equaled more than a breach per day, which the end of year data should hold true. As more and more data become exposed, the question of whether healthcare can be trusted actually maintain the privacy and security of data is a valid one to ask.

The difficulty arises from the number of systems connected within even one healthcare facility’s ecosystem as well as the inability to update some connected devices. As such, the number of avenues for an attack is numerous and sometimes without even the possibility of implementing a defensive mechanism. Such considerations also do not touch upon the insider risk, which can circumvent most security measures since the breach is caused by an individual with permissible access to the system. Overall, cyber risk and attacks left many in healthcare wondering when their organization would make a headline.

The transition to value-based care challenged the healthcare industry, whether providers or insurers, for many reasons. First, moving from a system based upon volume to value requires a major realignment of systems, objectives, and goals. The realignment has required a significant investment of time and resources to fundamentally modify operations. Many compared the move to value-based care as a retread of the failed movement to managed care in the 1990s. Unlike the 1990s though, the new move to value-based care included Medicare. As a result of the Affordable Care Act, Medicare began experimenting with accountable care organizations, bundled payments, and other innovation initiatives to bolster payment for quality. Many states also began to follow suit with Medicaid and introduce more aspects of managed care. The involvement of the major government payors arguably provided cover for private payors to engage in similar efforts.

While those efforts had been proceeding steadily albeit slowly through the end of 2016, the process hit a potential roadblock in 2017. Mixed signals and deliberate retrenchment from the Centers for Medicare and Medicaid Services left no clear answer as to whether Medicare will continue really driving value-based care initiatives. The focus of Medicare’s pullback was on the bundled payment or comprehensive care initiatives, whether cutting contemplated programs or not continuing to push the envelope with existing programs. While the end of the year potentially brought another shift in position, there is no clear answer. The shifting ground for value-based care opens the door to the question of whether investments have been for naught or changes will proceed without Medicare. The hope is value-based care will continue since maintaining the prior system was clearly not sustainable.

Consolidation, whether successful or thwarted, was the third major issue that cast a shadow over healthcare in 2017. The failed mergers of four of the largest insurers garnered a significant amount of attention. Providers feared the mergers would have curtailed the ability to negotiate “better” prices and consumers were uncertain as to what fewer insurance companies would mean in terms of plan options. While those fears were debated, they were not tested since court challenges by antitrust enforcers defeated both proposed transactions. The failed mergers actually resulted in one of the bigger surprises toward the end of the year, namely the merger of CVS and Aetna (not closed yet, but moving quickly). Instead of Aetna becoming an even larger insurance company, it will now team up with one of the largest pharmacy chains in the country and attempt to revolutionize the access to and delivery of care. While much speculation abounds as to what the combined CVS and Aetna will do, expect at least one unexpected action to occur.

While the insurance companies were playing games, providers (whether physicians or hospitals) also continued. The unstopped consolidation leaves small, independent practices a growing rarity, at least in some parts of the country. The consolidation also sparked a few analyses suggesting that the accumulation of small deals that could fly under the antitrust radar was resulting in market-dominant groups that should be subject to oversight. At the same time, the justification that consolidation is necessary for value-based care was often trotted out. Those assertions largely remain unproven, partially for some of the reasons discussed above that value-based care is not actually the primary means of reimbursement for pretty much all providers. Following both the failed and successful mergers, the question became who would be next and could the next deal make it through.

The final issue, at least for purposes of this article, generating uncertainty in healthcare is the increasing interest and activity of private equity (PE) or venture capital (VC) money in healthcare. Investors coming in through these means often expect a good return on the money put in with an eye toward selling the investment in a 3-5 year time period. Accordingly, PE and VC investors can seek to alter major portions of operations and shift the focus of an organization. Such changes can be jarring to previous owners who were used to operating in a certain manner and not used to others expecting to get a big return. The other impact of a PE or VC invest is that previous owners are also expected to remain involved, oftentimes with a decent sized investment, which binds the previous owner and subjects the previous owner to driving goals set by others.

At the same time, the PE or VC investors may also be new to healthcare and not fully cognizant of regulatory or other requirements. Getting up to speed on these issues can complicate transactions and operations post-closing. The feeling out period for both sides may generate impaired operations that impact unanticipated areas of an organization.

As highlighted by the issues discussed in this article, a lot happened in healthcare in 2017. The year was tumultuous with a lot of ups and downs. No area of the industry was immune. Only one thing can be said for certain, much of what happened could not be predicted at the beginning of the year, but the industry made it through. That is always the key, while uncertainty may remain, everyone must do the best that they can and remain focused on providing good care and keeping individuals in good health.

This article was originally published on Mirick O’Connell’s Health Law Blog and is republished here with permission.