Podcast - Value-Based Care as a Long-Term Investment
In this episode of Counsel That Cares, healthcare attorney Daniel Patten continues his series of ongoing conversations about the state of value-based care and payment systems with Drew Braucht, the director of healthcare investment banking at Ziegler. Throughout the episode, Mr. Braucht discusses trends in value-based transactions and investments, providing examples of transactions he has taken part in during 2023. They also discuss the different ways primary care and specialty care providers can participate in value-based risk and the important roles that partnerships and enablers play in the space.
Morgan Ribeiro: Welcome to Counsel That Cares. This is Morgan Ribeiro, the host of the podcast and a director in the firm's Healthcare Section. Today, we are continuing our value-based care series with partner Daniel Patten. Joining us today is Drew Braucht, a director at Ziegler. Drew and Daniel, welcome to the show.
Drew Braucht: Thank you for having me.
Daniel Patten: Thanks, Morgan.
Morgan Ribeiro: Great. So Drew, as our guest today, we'd love to just start with you and get more background on yourself and your firm.
Drew Braucht: I would be happy to. So I have been with Ziegler now for about five years. I have been an investment banker myself in M&A advisory for about a decade now. I started my career at Evercore in New York, which is a boutique M&A investment bank, and I came over and joined the healthcare services advisory team at Ziegler and I sit in our New York office.
In the past five years here, I have spent, really, the vast majority of my time working with and advising physician groups as a part of the physician services and physician practice management multi-site provider healthcare world. And so for us that has been everything from single specialty models, and over the course of the past few years, a lot of my time has been spent in the primary care world with multi-specialty models and all of the different ways that these provider groups are attacking and executing on value-based care and risk-based strategies and moving from the hospital-dominated inpatient fee-for-service view of the world, and moving volume and procedures into the lower cost, lower acuity setting, as well as the ability to truly manage a patient holistically throughout the care continuum.
Morgan Ribeiro: Great. Thank you. And Daniel, anything you want to provide about your practice and, in particular, your focus on value-based care regulatory matters?
Daniel Patten: Yeah. So, especially over the past few years, my practice has focused more and more on the value-based space. Originally with providers, and single specialty groups, it's expanded to multi-specialty, primary care. I've enjoyed the space. It's really been a creative space as we're looking to push new models, new programs, new pilots with the Medicare Advantage plans, commercial and even ACOs. So we work with all different types there. And expanding beyond healthcare, there's enablers, there's tech wearables, the AI, the VR style, ancillary providers that really kind of help push patient experience and outcome. It's been a big part of my practice, and I imagine it's going to be a substantial part moving forward.
Morgan Ribeiro: Definitely so. I mean, it's an exciting time in healthcare, I feel like, between what's finally happening around value-based care and risk-based models and all that's happening around AI and digital health, and I feel like all of these things really do sort of complement one another. There are no shortage of topics I feel like we could cover in this conversation, but really to just jump right in…
As we near the end of 2023 and we're looking ahead to 2024, it really feels like the appropriate time for us to be having a high-level conversation on the activity that we've seen over the last 12 months or so as it relates to value-based care and where we go from here. And Drew, I know you've represented. several organizations in the last couple years, several primary care practices. Can you tell us more about these transactions and what your clients end goals were and how these transactions are indicative of a trend across the market?
Drew Braucht: Yeah, so we've had the good fortune of spending a lot of time in various models of delivery of care around risk-based physician groups, primary care providers, IPA networks, multi-specialty providers and really across the country.
There's lots of ways to participate in risk, and one example is we worked with a group in southern California called Pearlman Clinic and their business model was, really, a 50-50 between doing commercial fee-for-service across a young patient population and a large clinic network, and then entering into risk-based contracts to manage Medicare Advantage seniors. And their ability to really balance the books of business, execute on a real de novo model and move into the care management strategies that allow them to grow a fast-growing and high-population Medicare Advantage senior market and providing the care management tools around them to perform profitably both at the professional risk level and participate in institutional savings.
We've also worked with a group in southern California called TriValley Medical Group. They also are a Medicare Advantage senior-focused model with strong ability to manage costs, built-out specialty care network and significant ability to provide the holistic care to seniors, deliver them at the highest quality, along with the ability to drive profitability through cost savings to the system. We've also done work on the other side of the spectrum with very high-quality multi-specialty provider groups who look at their ability to manage a primary care physician and surround them with a network of specialists. And therefore, providing in-house a full care continuum to that commercial patient or to that Medicare senior patient.
And in some of these models, they're a fully fee-for-service reimbursement model, and they have the ability to look out into the next three, four, and five years and look to move into risk. And there's lots of ways to do that. They can participate in ACOs. Candidly, in certain markets in this country, much of Medicare Advantage is still fee-for-service. And so where that risk pool or capitated dollar has not yet been properly structured in the capitated environment, there's the opportunity to go to payers with a very high-functioning care model and full management of the patient and start to prove and build out the risk contracts and value-based care arrangements that allow you to participate, not just in the fee-for-service, volume-driven practice model, but really to incentivize growth, through the ability to manage the risk rule dollar and drive cost savings to the system and to your physicians through that.
Morgan Ribeiro: So, Drew, I want to piggyback on something you said, and I want to come back to the various different specialties where we're seeing activity in this space, but just continuing along on primary care.
There's no shortage of news out there, and this has been sort of a trending topic for a while, that primary care in the U.S. is struggling. We obviously have a shortage of physicians, and those who are practicing, especially since the pandemic, have high levels of stress and burnout. And from the patient's perspective, we're definitely falling behind as well on measures, including access and quality and continuity of care. Now, we look at the way that we're paying for these services and using that as a means to improve some of these issues, both from the physician and the patient perspective. From a value-based payments perspective, I think that could be anything from managing total cost of care, reductions in disparity for specific types of care…
You've mentioned some examples, but I'm curious if you have others. How this is specifically playing out? Have we seen improvements in these areas through value-based care and some of the arrangements that you've been a part of?
Drew Braucht: Yeah, I think the crux of the issue is when you're a primary care physician and you are basically living and dying on the next per-click visit and next patient that comes in the door and you're an entirely volume-driven, short visit, low care coordination, basically per-click fee-for-service model, the only lever you can pull is working longer hours and seeing more patients and everything else that's needed for a holistic continuum of care and care management capabilities that actually drive better quality of care to the patients and ultimately drive the downstream cost savings. You don't have time or energy, or most importantly, incentive to do those things.
And ultimately, as we know, physicians love practicing medicine and love seeing patients and taking care of patients. And so, this ability in the investment world today, and the well-run physician practice businesses, and the ability to move into risk, you've got to give the physician, one, the ability to spend all of their time taking care of patients. You've got to give them the incentives to, frankly, spend more time with patients, balancing that patient panel size. It's a cycle that feeds itself. The more time you're able to take care of patients and treat them and manage them all the way through the care continuum and from a holistic perspective, you obviously enjoy that more. And that is obviously what drives the care coordination management that produces better outcomes, reduces lower readmissions of the hospital. And so that's the challenge we face.
So when you move into reimbursement models or value-based care arrangements or risk structures that allow you to have either upfront investment or you're incentivized to drive those savings over the course of time, that allows you to put the energy and effort into practicing patient care in that manner.
Morgan Ribeiro: So you've hit on this point too here where, you know, you mentioned this kind of upfront investment. I was reading a study recently that was done by the Commonwealth Fund International Health Policy. It was a survey they did of primary care physicians in 2022, and it said that 71 percent of respondents reported that their practices were receiving any kind of fee-for-service payments, while fewer than half reported receiving any value-based payments. So, I'm curious, one of the things in there was saying, why is this? Why does fee-for-service continue to dominate primary care? It does seem that a lot of it is that kind of upfront investment that's required. Do you find that to be the case? What are other reasons why we're still seeing that be the dominant player here?
Drew Braucht: The reality is sometimes and often there is a J curve to moving into risk-based arrangements and moving into performance under risk. Whether it's early primary care models or early adopters of capitated Medicare Advantage fee structures, or looking at the ways that other single specialties that are high-cost spend for seniors and for patients are looking to find ways to drive profitability in a capitated environment. It does require upfront investment, right?
Sometimes if the first performance year, the first measurement year, or even the second, doesn't necessarily drive shared savings or drive profitability, that doesn't mean the investments aren't working or that the J curve is going to pay off. Some of these large, scaled, formerly public players have been very highly valued because the most valuable component of that model is the relationship between the primary care provider and the high-cost, Medicare Advantage senior. And that relationship, and the closer you are to that connection, as opposed to being layers or facilities between you, that's what's driving this excitement and driving these valuations while they're still proving out the execution and profitability of that model at the market level and at the clinic level.
Morgan Ribeiro: Daniel, anything you'd add to this conversation about primary care, the evolution towards value-based payments?
Daniel Patten: No, I think everything Drew said is spot on. It's exciting to hear, from my perspective, as an attorney, I get all the time, how do I flip the switch into risk-based, you know, value-based, right? As if it's something that's done overnight. Hearing Drew's examples of these West Coast groups, prepping, even saying a fee-for-services, they see that ramp up into risk three, four, five years, as Drew mentioned, that's exciting. I think seeing others go through that process is just going to bring more along, right? A lot of times now you see joining these large aggregators and enablers, the Agilons, the Aledades that have these pre-built networks, or tapping into a geographical region and those provider groups. And really you can see these individual large primary care groups doing it themselves and as more and more groups go through successful transitions, I think it's just going to snowball. So, exciting to hear that.
We've got the tech and the interoperability. We've got EHR that's pushing, as Drew mentioned, this coordination of care and helping with patient access. This is not the HMOs of the 90s. This is a whole new world, and it's exciting to see this evolution play out.
Morgan Ribeiro: I know we've spent the bulk of our conversation so far looking at primary care, but it also seems that there are several specialties that are ripe for this opportunity with more of the risk-based models: nephrology, cardiology, oncology, just to name a few. Drew, do you want to speak to that and where you're seeing a lot of activity right now as it relates to specific specialties?
Drew Braucht: Yeah, I think you're exactly right. Let's kind of talk through all of the unique ways and opportunities across these specialties, where really innovative entrants, innovative players and innovative practices and physician groups are the ones who are really the first movers and they're really driving the landscape forward.
Let's just take nephrology, for example. CMMI and Medicare have certainly made a significant investment and effort into carving out a risk pool for nephrologists to participate in managing the chronic kidney disease and dialysis patients who are significantly high-cost to Medicare and high-cost across the healthcare system. You know, in this space, you've got the Kidney Care First model, you've got certain partner enablement-type groups, like in Evergreen, for example, who are participating and partnering with high-performing and high-quality nephrology practices. And so what you're doing here is you're taking a nephrologist who, similar to legacy primary care models, where you know not super high reimbursed volume-based fee-for-service reimbursement model. Now the opportunity to participate in a risk pool and truly apply chronic care management and holistic care of the patients, participate in a risk pool, bring on shared services, or bring on new patient care coordinators or mid-levels, or investments to, again, drive savings and profitability through that risk pool, and therefore open up, frankly, new economies of scale, new levers of growth and new profitability at the practice level, and significantly better outcomes for patients and significant savings over time to Medicare.
In the cardiology space, one example comes to mind at the very least, right, CVAUSA is the Webster platform, and they did a pretty innovative partnership strategy with InnovaCare. It was a very high-quality, risk-based, DVC primary care platform. And what those two players are doing together is, again, they're bringing best in class practices, best in class clinical care in a geography to a network of patients who can now get coordinated primary care services and basically virtually integrated coordinated cardiology and CV services. And integrating those to the primary care management and then the care coordination and efficient high-quality care across cardiovascular, therefore bringing down overall costs.
I think orthopedics and MSKs is a space that we spend a lot of time in. That's one where it certainly takes a little bit more creativity, a little bit of innovation. But you've got players out there like HOPCo, for example, who are being very innovative at the forefront and going to payers and kicking on the management and full risk management of their MSK spend in certain geographic markets with certain payers and really just taking that Medicare Advantage risk for high-cost MSK services off their books and giving both players the ability to participate in higher quality of care and shared savings.
We spend time in oncology. We've got CMMI also very invested there. The oncology care model is now morphed into an adapted enhancing oncology model for the next five years. You've got public and sponsored back players there who are looking to, again, manage a very complex disease state, apply more coordinated care across specialists, capitated reimbursement models to drive shared savings.
The last one I'll mention is what I actually think is a very under-invested space: pediatrics. I think that's a space where, honestly, the opportunity here really is continuing to scale some of these players because pediatrics and primary care for a zero to 18-year-old is not the same risk pool dollars of a Medicare Advantage senior. But there are a lot of high-quality practices who either are fee-for-service driven today or, given the pediatrics environment, are managing patients under capitated arrangements with Medicaid payers. And the ability to put scale and practices and physicians together and build the risk pool, and actually move into more innovative or more sort of professional risk arrangements, instead of being limited by a PCP type capitated arrangement, presents a real opportunity to, again, drive high-quality coordinated care and cost savings to the system while also incentivizing the physicians and pediatric space to advance care models.
Morgan Ribeiro: And Daniel, I know we've done a podcast specifically on oncology, but anything that you would want to add about that sector or any of the others that Drew mentioned?
Daniel Patten: Well said by Drew. Common characteristic among all of those, MSK, the chronic kidney disease, all that, those are the highest spends on payers, right? So the more cost savings is usually going to attract those acute specific issues. And I'm glad Drew brought up pediatrics. I think that's very interesting. You're all seeing a rise in behavioral health, right? And those are hard to quantify. We talk about a value-based 2.0. It's seeing more of these specialist providers providing a population level or picking a true holistic patient experience for the total cost of care. As models develop and coordination develops, you're just going to see more and more. So I'm glad we talked about pediatrics there.
Morgan Ribeiro: I've mentioned this briefly, but in particular, it seems like 2023 has really resulted in a lot of activity in the enabler space, as we call it. Would love to hear more from both of you on that topic and on that theme. Who they are, what they do, and some examples of how that's playing out right now and why we're seeing so much activity in the enabler space.
Daniel Patten: Personally, I believe it's an easier transition for groups. Drew mentioned the preparation, having a team around you to understand what that shift to value-based care looks like. The enablers or aggregators represent a framework and a structure in place that someone can essentially join, right? A large physician group in a geographical area with contracts already with payers in a population they're serving can be attributed into a risk-based contract. And using some of the tech platforms and processes that these enablers like the Agilons of the world, the Allidades, Pearl, Vytalize, Wellvanas, you already have the proof of concept in several other markets, right? Once you get these large groups, Law of Averages, right? They're virtually guaranteed for some of these groups.
Drew Braucht: That's enticing some physician practices that just want to join an established model. Exactly as you said, Daniel.
I would probably add to that, the path to risk can take a lot of different steps. There's a lot of different strategies, and that's why so many players are trying to attack this market from different angles. And there's every flavor of Enabler from bringing on capabilities that a practice needs, bringing on contracting expertise. I think there are a lot of investment firms out there who see themselves as having these capabilities in house and want to bring them to bear with their partner practices. And therefore the physician and the investor can participate together in the growth that they drive.
I think if you're a fee-for-service-oriented physician practice today, the ability to find the right partners and find the right investments and find the right growth strategies allow you to move along this continuum to risk and execute on value-based care. And there's a real opportunity to find the right partners today and drive the growth of your business and find the right points in the future to either bring on investment, bring on new partners, and really drive along this continuum and enhancing what is, again, the growth of your business, as well as the potential levers for valuation that come hand in hand.
Morgan Ribeiro: The other kind of segment that we've not discussed much as the retail players, like Amazon and the role that they play and value-based care and sort of our advancements happening in this space. There is a role for them to play. I think there's been some question around that, some pushback and maybe even some failures in the beginning. But they continue to show that they are invested in their role in healthcare. So I don't know, Daniel or Drew, if you have thoughts on what we can expect to see moving forward.
Drew Braucht: My short answer is going to be it's a lot of wait and see. The insider answer is they're still integrating and figuring that out. And so I think the data points are going to come strategically over the next six, 12, 18 months.
Daniel Patten: I think it's indicative of the state of the current healthcare system, right? So, Amazon Care was that employee-sponsored, health plan-focused initiative that Amazon scrapped last year, right? This big jump into the healthcare space. You know, you see Amazon pull back from products and they don't touch it again. Well, they jump back in. Announced this month, $9 a month, Prime members now essentially have access to the entire One Medical network of physicians. So to me, that signals major players understand that the system's broken. There needs to be innovation. Drew's talking about that patient experience and focus, and that's really what's driving it. Amazon's new One Medical, right? Nine dollars extra a month on your app, you can visit with the primary care provider. It's easy, right? That access and ability to jump into the system. Right now might just be, I'm going to head to the ER. How else do I really enter the system, right?
The Pearlman Clinic has the PocketDoc, which is a similar idea. It's an app where you can schedule, meet, talk with providers. It's this idea of bringing healthcare halfway to the patient and vice versa, really connecting and the access and communication platform. So, if there's a trend from the major public players down to the smaller regional physician practice groups, it's that, right? It's coming closer to the patient and it's patient-centered and focused and meeting the patient where they are, which is oftentimes on their phone. That's where a lot of interactions begin, right? If anything, I think you're going to see more and more of it from just a high level, just cultural state of patients and state of interactions with vendors, medical providers or whoever.
Drew Braucht: I think you're exactly right, Daniel, in the fact that it certainly underscores the continued move in consumerization of healthcare. And frankly, what it reflects is the fact that the bar in healthcare continues to be raised. The ability to, as Daniel was saying, meet patients in a convenient fashion, but to provide that, their requirements for quality, for convenience, and cost are only continuing to frankly propel the industry forward. And large players who have these channels, who have these consumer retail brands and have these models that allow better access to care, that's going to continue to proliferate over the course of the rest of time, within the next few years, and really. That's the cost of entry. And so the ability to attract and service and care for patients from a convenient and a highest quality of care setting is what's going to drive physician practices forward. And truly allow them to move into the ability to manage risk in a coordinated environment.
Morgan Ribeiro: To wrap things up here, as I mentioned in my intro, we're, you know, doing a wrap-up of 2023, looking ahead to 2024, I would love for you to each get out your crystal ball and tell us what we expect to see in 2024.
Drew Braucht: I remain very excited about the pace of innovation in this value-based care space. I think what has started with very high-performing and high-quality primary care models continues to drive forward many opportunities across the country for these models to continue to expand and continue to move further along the risk spectrum.
I think the ability for multi-specialty models to also drive that coordinated care and expand to manage patients and manage patients better. All of the different flavors of single specialty models who are carving out their strategy and their component of a risk pool and population health management is ultimately going to drive continued investment, continued excitement, continued innovation in the space. You know, I think the reality is the more partnerships that continue to come together to drive forward the solution together is ultimately what's going to be able to execute best on the opportunity to drive cost savings and to drive change.
I think the other piece of it to think about is the national healthcare market is very fragmented. From metropolitan markets to suburban markets to rural markets, every state kind of looks and feels different in this kind of national objectives transition to value-based care and risk. But at a state-by-state level, there's varying levels of adoption. And so some of the more mature markets who have more structured capitation in place at the PCP level, that continues to create opportunity, but many markets and many payers in select markets who are still very heavy fee-for-service, it creates a real first mover advantage.
And so if you're the physician group with the right partners and the right care model, or you're a primary care group, the multi-specialty group, or you're a single specialty group trying to say, we can manage a patient and we can manage a risk pool. The first mover advantage to go and set up and negotiate contracts that allow you to incentivize your ability to manage costs and manage patients, and do it in a capitated way. That's a real opportunity to focus time and energy on.
Daniel Patten: That's well said, Drew. And I liked what you said, there's partnerships, and my crystal ball thinks there's going to be more and more partnerships. Looking back, even outside of healthcare, 2023 is all about, you know, data what's your data set more and more ability to crunch data and be predictive.
Looking at that really in the healthcare side, we talked about nephrology, someone with CKD stage three B it's, we're reacting to a disease. The legacy spend on an individual like that, but additional cost saving or really beyond that is what happens if it's preventative medicine, right? What I'm predicting and starting to see is players that you wouldn't consider in the healthcare space. What are the data points that we can get in with tech wearable, for instance, or working with a life coach on the mental health side? If you're fighting obesity, is that a mental health issue that can be addressed there? Is it a dietician? Do you need to see a bariatric surgeon? What is it? It's working together across all these different mediums, but also bringing in different ways to interact with the patient, probably more akin to the retail space, right? Sign up for this health plan, wear a Fitbit and get 10 bucks off of your premium for the month, right? And so seeing that data and seeing what really pushes the needle, because this is a collaborative effort, not just between providers, but also with patients. It's easier to see more and more folks enter the space and blur the line between retail and medical.
Morgan Ribeiro: Yeah, like I said earlier, there's so much activity. The industry is so ripe for opportunity and for change. But I think we've been talking as an industry for so long about value-based care, about the opportunity, and I feel like in the last year or so, it's finally really gotten to a place, into a pace, I would say, where we're really seeing the ROI on a lot of these investments that are taking place.
So it's truly an exciting time for patients, for physicians, for all the various players in the industry. So appreciate your time today, Drew and Daniel. I look forward to chatting again soon.
Drew Braucht: Thank you very much. Talk to you both soon.
Daniel Patten: Thank you. Thanks, Drew.