Welcome back! Thanks for joining us for another week’s news and analysis. Please feel free to forward this blog to friends and colleagues, and encourage them to subscribe as well.
In the News
What happened in healthcare recently—and what we think about it.
- Novo Nordisk trial finds Ozempic slows chronic kidney disease progression. Late last week, the results of a years-long clinical trial showing that Novo Nordisk’s diabetes medication Ozempic cuts the risk of kidney disease-related events in patients with Type 2 diabetes by 24 percent were presented at a medical conference in Stockholm and published in the New England Journal of Medicine. Consistent with other studies of semaglutide, the FLOW trial also found that the drug lowered participants’ risk of a major heart problem by 18 percent and risk of death by any cause by 20 percent. The success of this trial has been anticipated since last October, when Novo Nordisk announced that interim analysis had demonstrated efficacy and that the trial could be concluded. When the drugmaker announced headline trial results in March, it said it planned to file for regulatory approvals of a label expansion for Ozempic in the US and EU this year.
- The Gist: Given that chronic kidney disease treatment currently accounts for more than 24 percent of total Medicare spending, Ozempic seems poised to reshape treatment strategies for the disease. Novo Nordisk’s announcement of this trial’s preliminary success last October sent the stocks of major dialysis providers tumbling, as investors questioned the future demand for dialysis. The official trial results add to an increasing body of evidence of how GLP-1 diabetes and weight-loss medications can improve many other areas of patients’ health.
- FDA advisory panel recommends approval of blood-based colon cancer test. The Molecular and Clinical Genetics Panel of the US Food and Drug Administration (FDA)’s Medical Devices Advisory Committee voted late last week to recommend approval of Guardant Health’s Shield test, a blood test for colorectal cancer screening. The panel endorsed the test’s safety, efficacy, and likelihood of benefit over risk, but was more divided over whether the test should be considered a first-line or second-line screening option, which determines if patients can only receive it after refusing other screening methods. Results from Guardant’s ECLIPSE trial showed the test was very effective at detecting colorectal cancers at stage 2 or later, but that it struggled with reliability for stage 1 cancers, for which survival rates are significantly greater. The FDA is expected to follow the panel’s endorsement and approve the test, and the Centers for Medicare and Medicaid Services (CMS) has said that it will cover FDA-authorized colon cancer blood tests if they meet defined sensitivity and specificity levels, which the Shield test has demonstrated.
- The Gist: Amid rising rates of colorectal cancer incidence and mortality in younger Americans, the potential approval of this blood-based colon cancer test could improve access to screening by providing a more convenient option to patients. However, given the importance of early-stage cancer detection—which this test does not help with—it should be seen as a complement to, not a replacement for, standard-of-care colorectal cancer screenings, especially colonoscopies.Providers will play a key role in communicating with patients about the utility of a cancer screening blood test, as well as the risks of false positives and false negatives.
- Nursing home trade groups sue over staffing mandate. The American Health Care Association (AHCA), which is the largest trade group for post-acute providers, and the Texas Health Care Association have filed a lawsuit in a US District Court in Texas against the Biden administration’s recently finalized rule to establish new staffing minimums at long-term care facilities. The suit alleges that the Centers for Medicare and Medicaid Services (CMS) and the Department of Health and Human Services (HHS) lack the authority to impose these staffing standards, which include having 24/7 coverage from a registered nurse and 3.48 hours of nursing care per resident per day. The plaintiffs claim that “Congress has never delegated to CMS the authority to impose such onerous and unachievable mandates….” and that many nursing homes would face closure should the rule be implemented. According to an HHS spokesperson, HHS and CMS will defend the rule, justifying the policy by pointing to a status quo in nursing homes that “unacceptably endangers residents and drives workers into other professions.”
- The Gist: It’s no surprise that nursing home trade groups are fighting the implementation of this rule, given that less than 20 percent of nursing homes currently meet the required staffing levels. The AHCA estimates that full compliance from all existing US nursing homes would require an additional 102K hires, costing $6.5B annually, and that many facilities would close rather than comply, exacerbating long-term care shortages. For hospitals,the staffing mandate—should it proceed—may increase both competition for nursing talent and patient discharge delays.
Plus—what we’ve been reading.
- Using AI to generate a “digital twin” for medical testing. Published earlier this month in the Wall Street Journal, this article previews how computational models of a patient’s organs—for example their heart or uterus—could be created to test that patient’s response to a given treatment before they undergo it and without harming them, almost “like a crash-test dummy.” Researchers are using artificial intelligence (AI) to stitch together information from patients’ medical exams and records, as well as personal health data from wearables, to do things like simulate the effects of various medication regimens, map out the best locations for targeted surgeries, or predict the course of a pregnancy and its complications. The current global healthcare market for digital twins, which was valued at $1.6B in 2023, is generating significant investor interest and could increase to $21.1B by 2028, but the technology is currently still in the development and trial stage.
- The Gist: Although we’re a long way off from widespread adoption of digital twins, this focus area appears to be a promising avenue for AI’s future impact on medicine. These computational models may eventually allow providers to administer better care, at lower costs and more safely, by assessing the appropriateness of certain medical interventions for specific patients through less trial and error. However, the usual concerns around AI-enabled care innovations still apply: the large quantity of health data required to create digital twins presents significant privacy concerns, and existing biases in the training sets for these programs can unintentionally influence the results.
Graphic of the Week
A key insight illustrated in infographic form.
Medicare physician payment not keeping up
Following the US Senate Finance Committee’s recent white paper on Medicare physician payment reform, the graphic below shows how Medicare payments to physicians have not kept pace with inflation. The Medicare physician fee schedule conversion factor, which is used to assign dollar amounts to relative value units, decreased by eight percent between 2000 and 2024. Over the same period, the Medicare Economic Index (MEI), which measures practice cost inflation, and Consumer Price Index rose 57 percent and 83 percent, respectively. Reductions to the conversion factor contributed to a 20 percent decline in Medicare physician pay relative to practice cost inflation from 2000 to 2021. Physician practice margins in general have also worsened since COVID, not just due to Medicare payments. Although net revenue per physician at system-affiliated clinics increased about 10 percent from 2020 to 2023,total expenses per physician rose about 27 percent, driven by a per physician clinical staffing expense increase of nearly the same amount. Both the Senate Finance Committee’s white paper and a recently introduced House bill suggest tying the Medicare physician fee schedule conversion factor updates to the MEI, either partially or fully, but immediate legislative action in an election year appears unlikely. In the meantime, physician practices continue to face a difficult operating environment with costs rising faster than revenues.
On the Road
What we learned from our work in the real world. This week from Kris Blohm, Managing Director, at Kaufman Hall.
Private equity as a potential health system partner?
“Our market’s seeing an uptick in PE activity,” a health system CEO shared with me during a recent check-in. “They’re backing the largest ortho group in town, and I just found out one of our regional cardiology groups is trying to partner with a PE company to open an ASC. How should we be defending our turf to limit PE activity in our market?”
Clearly this CEO saw private equity (PE) firms as a disruptive market entrant, and one with incompatible values. We discussed that, although the traditional build-and-sell playbook of PE firms can indeed be seen as incongruous with the ethos of health systems as committed community partners, not all PE firms are working with traditional healthcare provider organizations in the same way. Some are instead trying to assemble care platforms that deliver long-term value to both patients and their partners, whether physician groups or even health systems in some cases. Health systems could benefit from being open to having conversations with various kinds of investor groups, at the very least just to learn more about their interest in the market and their longer-term value proposition to their partners and the community. While some of these conversations may not end up amounting to much, some systems may identify potential partnership opportunities, especially concerning parts of their service portfolio that are financially challenging but mission critical. Assessing a partnership or joint venture opportunity in a service line like behavioral health or hospice, for example, may bring needed access to the market on a much shorter timeline, as well as reduce upfront capital requirements for a system. If you’re interested in learning more about the ways other health systems are beginning to evaluate PE as a potential partner, I’m happy to share more.
On Our Podcast
Gist Healthcare Daily—all the headlines in healthcare policy, business, and more, in ten minutes or less every weekday morning.
In addition to the news discussed above, our Gist Healthcare Daily podcast covered many of the week’s other big stories, including Louisiana classifies abortion pills as controlled substances, stroke rates are rising in the US, and weight-loss drug Wegovy is linked to lower risk of alcohol use disorder.
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We’ll be back with more next Friday but, in the meantime, please visit our archive if you’d like to peruse past editions of the Gist Weekly.
Best regards,
The Gist Weekly team at Kaufman Hall
