By DOUG MIRSKY & BRIAN GONZALEZ

What if digital innovations could be the key to reducing the burden of cancer? CancerX was founded in 2023 as part of the Cancer Moonshot to achieve this goal. By uniting leading minds across industries such as technology, healthcare, science, and government, we are breaking down silos and leveraging digital innovation in the fight against cancer. With ambitious goals to cut the death rate from cancer by at least 50% and to improve the experience of people who are affected by cancer, digital innovation is critical.

As a public-private partnership co-hosted by Moffitt Cancer Center and the Digital Medicine Society, CancerX has created a unique ecosystem and community of public and private innovators. We are focused on fostering innovation and collaboration to accelerate the pace of digital tools to help patients across their entire cancer journey. We unite experts across industries and the government, leveraging the success of the Department for Health and Human Services’ InnovationX model; a public-private partnership approach that has driven breakthroughs in kidney care, Lyme disease and COVID-19. In collaboration with the Office of the National Coordinator for Health Information Technology (ONC) and the Office of the Assistant Secretary for Health (OASH), CancerX is in sync with the US government in our common Cancer Moonshot goals to boost government-wide engagement with industry muscle. This type of multidisciplinary partnership is necessary to change the landscape of cancer treatment and care.

At the one year anniversary of CancerX, we look back on a very fast pace in building up our three pillars of work, demonstrating the ways that digital innovation is contributing to fighting cancer:

1. Pre-Competitive Evidence Generation – A rolling series of multi-stakeholder initiatives to develop evidence, best practices, toolkits, and value models to drive the success of the mission.
2. Demonstration Projects – These implementation projects pilot novel, mission-aligned approaches to demonstrate their value and sustainability for scale to drive broad adoption.

3. Startup Accelerator – This program provides mentorship, education, and exposure to funding and clinical partnership opportunities to a start-up cohort aligned with the mission.

And we are already deeply underway with efforts across each of the three pillars.

With our inaugural effort, a pre-competitive evidence generation project, we initially set out to identify and demonstrate how health systems might derive the most value from digital solutions as part of their oncology strategies to support patients facing financial distress or access issues. In November, 2023 we released: 

• A Core Competencies guide for health system use in designing a digital strategy to improve patient access and reduce patient cost
• A Financial Navigation guide for support service divisions and nurse navigators to use as a guide for intervening along the patient journey with the use of digital health tools to reduce out-of-pocket cost
• A Solutions Catalog showcasing tools available off the shelf to support the implementation of a digital oncology strategy

The final two workstreams currently underway are focused more narrowly on defining and maximizing the benefit of digitally-enabled patient navigation programs for health systems, as well as the patients and care partners they serve. Resources from these workstreams will be released in the summer of 2024.

In our initial demonstration project, the CancerX community sprinted into action to support the collective efforts of the Center for Medicare and Medicaid Innovation (CMMI), the National Cancer Institute (NCI), the US Food and Drug Administration (FDA) and the Office of the National Coordinator for Health Information Technology (ONC) to advance cancer-related data standards.

Specifically, we provided additional support and insights into the ongoing collaboration between the CMMI’s Enhancing Oncology Model (EOM) and the development of ONC’s United States Core Data for Interoperability (USCDI+) – Oncology extension, which aims to support the establishment of domain-specific data element lists as extensions to the existing USCDI.

The CancerX Startup Accelerator is the first-ever innovation accelerator focused on the intersection of digital innovation and cancer. We have brought together champions, innovators, and expert users of oncology digital technology to help boost the development of these promising startups that

have strong potential to solve unmet needs in cancer care.

Out of more than 100 startups, 16 were competitively selected for this first CancerX Startup Accelerator cohort. These startups are focused on one of five aspects of oncology: clinical research, screening and diagnosis, treatment and management, clinical operations, and patient/survivor/caregiver experience. They include:

• The Blue Box
• C the Signs
• Cancer Insights
• Curiva
• EnteroTrack
• GesundAI
• GrayOS
• Lind AI
• Mika Health
• Navya
• Oatmeal Health
• Orbit Genomics
• Realyze Intelligence
• Reimagine Care
• SurvivorPlan
• XanthosHealth

By the end of the cohort, these startups will have received in-person and online mentorship from experienced innovators, insights from subject matter experts, connections with potential investors, and networking with other oncology digital technology startups, giving them a jumpstart on bringing their products and services into the lives of those who are fighting cancer.

Doug Mirsky, PhD is Vice President of the Digital Medicine Society. Brian D. Gonzalez MD is the Associate Center Director of the Moffitt Cancer Center.

By MIKE MAGEE

In his book, “The Age of Diminished Expectations” (MIT Press/1994), Nobel Prize winner, Paul Krugman, famously wrote, “Productivity isn’t everything, but in the long run it is almost everything.”

A year earlier, psychologist Karl E. Weich from the University of Michigan penned the term “sensemaking” based on his belief that the human mind was in fact the engine of productivity, and functioned like a biological computer which “receives input, processes the information, and delivers an output.”

But comparing the human brain to a computer was not exactly a complement back then. For example, 1n 1994, Krugman’s MIT colleague, economist Erik Brynjolfsson coined the term “Productivity Paradox” stating “An important question that has been debated for almost a decade is whether computers contribute to productivity growth.”

Now three decades later, both Krugman (via MIT to Princeton to CCNY) and Brynjolfsson (via Harvard to MIT to Stanford Institute for Human-Centered AI) remain in the center of the generative AI debate, as they serve together as research associates at the National Bureau of Economic Research (NBER) and attempt to “make sense” of our most recent scientific and technologic breakthroughs.

Not surprisingly, Medical AI (mAI), has been front and center. In November, 2023, Brynjolfsson teamed up with fellow West Coaster, Robert M. Wachter, on a JAMA Opinion piece titled “Will Generative Artificial Intelligence Deliver on Its Promise in Health Care?”

Dr. Wachter, the Chair of Medicine at UC San Francisco, coined his own ground-breaking term in 1996 – “hospitalist.” Considered the father of the field, he has long had an interest in the interface between computers and institutions of health care. 

In his 2014 New York Times bestseller, “The Digital Doctor: Hope, Hype, and Harm at the Dawn of Medicine’s Computer Age” he wrote, “We need to recognize that computers in healthcare don’t simply replace my doctor’s scrawl with Helvetica 12. Instead, they transform the work, the people who do it, and their relationships with each other and with patients.”

What Brynjolfsson and Wachter share in common is a sense of humility and realism when it comes to the history of systemic underperformance at the intersection of technology and health care.

They begin their 2023 JAMA commentary this way, “History has shown that general purpose technologies often fail to deliver their promised benefits for many years (‘the productivity paradox of information technology’). Health care has several attributes that make the successful deployment of new technologies even more difficult than in other industries; these have challenged prior efforts to implement AI and electronic health records.”

And yet, they are optimistic this time around.

Why? Primarily because of the speed and self-corrective capabilities of generative AI. As they conclude, “genAI is capable of delivering meaningful improvements in health care more rapidly than was the case with previous technologies.”

Still the “productivity paradox” is a steep hill to climb. Historically it is a byproduct of flaws in early version new technology, and status quo resistance embedded in “processes, structure, and culture” of corporate hierarchy. When it comes to preserving both power and profit, change is a threat.

As Brynjolfsson and Wachter put it diplomatically, “Humans, unfortunately, are generally unable to appreciate or implement the profound changes in organizational structure, leadership, workforce, and workflow needed to take full advantage of new technologies…overcoming the productivity paradox requires complementary innovations in the way work is performed, sometimes referred to as ‘reimagining the work.’”

How far and how fast could mAI push health care transformation in America? Three factors that favor rapid transformation this time around are improved readiness, ease of use, and opportunity for out-performance.

Readiness comes in the form of knowledge gained from the mistakes and corrective steps associated with EHR over the past two decades. A scaffolding infrastructure already exists, along with a level of adoption by physicians and nurses and patients, and the institutions where they congregate.

Ease of use is primarily a function of mAI being localized to software rather than requiring expensive, regulatory laden hardware devices. The new tools are “remarkably easy to use,” “require relatively little expertise,” and are “dispassionate and self-correcting” in near real-time when they err.

Opportunity to out-perform in a system that is remarkably inefficient, inequitable, often inaccessible and ineffective, has been obvious for some time. Minorities, women, infants, rural populations, the uninsured and under-insured, and the poor and disabled are all glaringly under-served.

Unlike the power elite of America’s Medical Industrial Complex, mAI is open-minded and not inherently resistant to change.

Multimodal, large language, self learning mAI is limited by only one thing – data. And we are literally the source of that data. Access to us – each of us and all of us – is what is missing.

What would you, as one of the 333 million U.S. citizens in the U.S., expect to offer in return for universal health insurance and reliable access to high quality basic health care services?

Would you be willing to provide full and complete de-identified access to all of your vital signs, lab results, diagnoses, external and internal images, treatment schedules, follow-up exams, clinical notes, and genomics?

Here’s what mAI might conclude in response to our collective data:

1. It is far less expensive to pay for universal coverage than pay for the emergent care of the uninsured.
2. Prior algorithms have been riddled with bias and inequity.
3. Unacceptable variance in outcomes, especially for women and infants, plague some geographic regions of the nation.
4. The manning table for non-clinical healthcare workers is unnecessarily large, and could easily be cut in half by simplifying and automating customer service interfaces and billing standards.
5. Direct to Consumer marketing of pharmaceuticals and medical devices is wasteful, confusing, and no longer necessary or beneficial.
6. Most health prevention and maintenance may now be personalized, community-based, and home-centered.
7. Abundant new discoveries, and their value to society, will largely be able to be validated as worthy of investment (or not) in real time.
8. Fraudulent and ineffective practices and therapies, and opaque profit sharing and kickbacks, are now able to be exposed and addressed.
9. Medical education will now be continuous and require increasingly curious and nimble leaders comfortable with machine learning techniques.
10. U.S. performance by multiple measures, against other developed nations, will be visible in real time to all.

The collective impact on the nation’s economy will be positive and measurable. As Paul Krugman wrote thirty years ago, “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

As it turns out, health data for health coverage makes “good sense” and would be a pretty good bargain for all Americans.

Mike Magee MD is a Medical Historian and regular contributor to THCB. He is the author of CODE BLUE: Inside America’s Medical Industrial Complex (Grove/2020).

By MATTHEW HOLT

I am dipping into two rumbling controversies that probably only data nerds and chronic care management nerds care about, but as ever they reveal quite a bit about who has power and how the truth can get obfuscated in American health care. 

This piece is about the data nerds but hopefully will help non-nerds understand why this matters. (You’ll have to wait for the one about diabetes & chronic care).

Think about data as a precious resource that drives economies, and then you’ll understand why there’s conflict.

A little history. Back in 1996 a law was passed that was supposed to make it easy to move your health insurance from employer to employer. It was called HIPAA (the first 3 letters stand for Health Insurance Portability–you didn’t know that, did you!). And no it didn’t help make insurance portable.

The “Accountability” (the 1st A, the second one stands for “Act”) part was basically a bunch of admin simplification standards for electronic forms insurers had been asking for. A bunch of privacy legislation got jammed in there too. One part of the “privacy” idea was that you, the patient, were supposed to be able to get a copy of your health data when you asked. As Regina Holliday pointed out in her art and story (73 cents), decades later you couldn’t.

Meanwhile, over the last 30 years America’s venerable community and parochial hospitals merged into large health systems, mostly to be able to stick it to insurers and employers on price. Blake Madden put out a chart of 91 health systems with more than $1bn in revenue this week and there are about 22 with over $10bn in revenue and a bunch more above $5bn. You don’t need me to remind you that many of those systems are guilty with extreme prejudice of monopolistic price gouging, screwing over their clinicians, suing poor people, managing huge hedge funds, and paying dozens of executives like they’re playing for the soon to be ex-Oakland A’s. A few got LA Dodgers’ style money. More than 15 years since Regina picked up her paintbrush to complain about her husband Fred’s treatment and the lack of access to his records, suffice it to say that many big health systems don’t engender much in the way of trust. 

Meanwhile almost all of those systems, which already get 55-65% of their revenue from the taxpayer, received additional huge public subsidies to install electronic medical records which both pissed off their physicians and made several EMR vendors rich. One vendor, Epic Systems, became so wealthy that it has an office complex modeled after a theme park, including an 11,000 seat underground theater that looks like something from a 70’s sci-fi movie. Epic has also been criticized for monopolistic practices and related behavior, in particular limiting what its ex-employees could do and what its users could publicly complain about. Fortune’s Seth Joseph has been hammering away at them, to little avail as its software now manages 45%+ of all encounters with that number still increasing. (Northwell, Intermountain & UPMC are three huge health systems that recently tossed previous vendors to get on Epic).

Meanwhile some regulations did get passed about what was required from those who got those huge public subsidies and they have actually had some effect. The money from the 2009 HITECH act was spent mostly in the 2011-14 period and by the mid teens most hospitals and doctors had EMRs. There was a lot of talk about data exchange between providers but not much action. However, there were three major national networks set up, one mostly working with Epic and its clients called Carequality. Epic meanwhile had pretty successfully set up a client to client exchange called Care Everywhere (remember that).

Then, mostly driven by Joe Biden when he was VP, in 2016 Congress passed the 21st Century Cures Act which among many other things basically said that providers had to make data available in a modern format (i.e. via API). ONC, the bit of HHS that manages this stuff, eventually came up with some regulations and by the early 2020’s data access became real across a series of national networks. However, the access was restricted to data needed for “treatment” even though the law promised several other reasons to get health data.

As you might guess, a bunch of things then happened. First a series of VC-backed tech companies got created that basically extract data from hospital APIs in part via those national networks. These are commonly called “on-ramp” companies. Second, a bunch of companies started trying to use that data for a number of purposes, most ostensibly to deliver services to patients and play with their data outside those 91 big hospital systems.

Which brings us to the last couple of weeks. It became publicly known among the health data nerd crowd that one of the onramp companies, Particle Health, had been cut off from the Carequality Network and thus couldn’t provide its clients with data.

The supposed reason was that they were getting data without a “treatment” reason.

Now if you really want to understand all this in detail, go read Brendan Keeler’s excellent piece “Epic v Particle”. Basically Particle cried foul and unusually both Michael Marchant, a UC Davis Health employee & the Chair of the big health systems on the ”Care Everywhere Committee” (remember that from earlier?) and then Epic itself responded. Particle’s founder Troy Bannister in a linkedin post and an official release from Particle said that they had not received notice or any evidence of what they’d done wrong. Michael said they had. I started quoting the Dire Straits line “two men say they’re Jesus, one of them must be wrong.” (FD. Troy was briefly an intern at Health 2.0 long, long ago).

Then Epic publicly released a letter to its clients explaining that, contrary to what Troy & Particle said, it had been discussing this with Particle for months and had had several meetings before and after it cut them off. So unless Particle’s legal counsel was parsing its words very very carefully, they knew Epic and its clients were unhappy, and it was unlikely Troy was Jesus. Michael might still be, of course. (Update: as of 4/15/23 Particle says only some feeds were cut off not all of them as Epic suggested)

In the letter Epic named 4 companies who were using Particle’s data in a way it didn’t like– Reveleer and MDPortals (who are one not two companies as they merged in 2023 before this issue started), Novellia and Integritort. 

So what do they do with the data. Reveleer says that “leveraging our AI-enabled platform with NLP and MDPortals’ sophisticated interoperability allows us to deliver providers a pre-encounter clinical summary of patients within their EHR workflow at the point of care.” Sounds like treatment to me. But Reveleer also does analysis for health plans. You can see why hospitals might not like them.

Novellia is a PHR company, presumably using “treatment” to enable consumers to access their data to manage their own care. This was EXACTLY what Joe Biden wanted the 21st  Century Cures Act to give patients the right to do and what Epic CEO Judy Faulkner told him he shouldn’t want (depending exactly who you believe about that conversation). But it’s probably not a particular “treatment” under HIPAA, because who believes patients can treat themselves or need to know about their own data anyway? (I’ll just lock you all in a room with Dave deBronkart, Susannah Fox and Regina Holliday if you want the real answer). This is apparently the line where ONC folded in its ruling to the vested interests that providers (and their EMR vendors) didn’t have to provide data to patient requests.

Finally, Integritort does sound like it’s looking for records so it (or its law firm customers) can sue someone for bad treatment (or as it turns out defend them for it). Is that “treatment” under the HIPAA definition?  Almost certainly not. On the other hand, do the providers cutting them off have a vested interest in making sure no outside expert can review what they’ve been up to? I think we all know the answer to that question. 

But anyway it looks like Particle switched off Integritort’s access to Carequality on March 22nd before Particle was entirely switched off by Carequality sometime around April 1.

What is not answered in the letter is why, if Carequality can identify who these records are going to, it needed to switch all Particle’s access off. Additionally, you would think that Particle’s path of least resistance would be to cut off the named clients Epic/Carequality was concerned about and try to sort through things while keeping its system running–which it seems it did with Integritort. Whatever happened, instead of this negotiation continuing behind the scenes, we all got to witness a major power play–with clearly Epic & its big customers winning for now.

I think most people who are interested in getting access to data for patients are all agreed on the need for new “paths” which were already defined in the regulations but not implemented, and also presumably for agreed standards (with associated liability) of “know your customer laws” for the onramps like Particle to make sure that the clients using them are doing the right things vis a vis confirming patient identity et al. 

Slight digression: I am confused about why identity proofing is such a big deal. In recent weeks I have had to prove my identity for the IRS, for a credit union, and for the TSA. Not to mention for lots of other websites. There are companies like IDme, Clear and many others that do exactly this. I don’t see anything so specific about health care that is different from credit cards, bank accounts, airport safety, etc. Why can those agencies/organizations access all that data online but for some reason it’s a bridge too far for health care?

However you can see where the fault lines are being drawn. There are a lot of organizations, many backed by rich VCs or huge quasi-tech corporations, that think they can do a much better job of caring for Americans than the current incumbents do. (Whether they can or not is another matter, but remember we are spending 18% of GDP when everyone else spends 10-12%). Those organizations, which include huge health plans, tech cos, retail clinics, startup virtual care clinics, and a whole lot more, need data. Not everything they or the intermediaries they do will fit the “treatment” definition the current holders of that data want to use. On the other hand, the current incumbents and their vendors are extremely uninterested in any changes to their business model.

Data may be the new oil but, like oil, data needs refining to power economies and power health care services. We spent much of the last century fighting about access to oil, and we’re going to spend a lot of this one fighting about data. Health care will be no exception.

Matthew Holt is the publisher of The Health Care Blog

By KMI BELLARD

I’ve been thinking a lot about infrastructure. In particular, what to do when it fails.

There was, of course, the tragic collapse of Baltimore’s Francis Scott Key Bridge. Watching the video – and, honestly, what were the odds there’d be video? — is like watching a disaster movie, the bridge crumbling slowly but unstoppably. The bridge had been around for almost fifty years, withstanding over 11 million vehicles crossing it each year. All it took to knock it down was one container ship.

Container ships passed under it every day of its existence; the Port of Baltimore is one of the busiest in the country. In retrospect, it seems almost inevitable that the bridge would collapse; certainly one of those ships had to hit it eventually. The thing is, it wasn’t inevitable; it was a reflection of the fact that the world the bridge was designed for is not our world.

Transportation Secretary Pete Buttigieg noted: “What we do know is a bridge like this one, completed in the 1970s, was simply not made to withstand a direct impact on a critical support pier from a vessel that weighs about 200 million pounds—orders of magnitude bigger than cargo ships that were in service in that region at the time that the bridge was first built,” 

When the bridge was designed in the early 1970’s, container ships had a capacity of around 3000 TEUs (20-foot equivalent foot units, a measure of shipping containers). The ship that hit the bridge was carrying nearly three times that amount – and there are container ships that can carry over 20,000 TEUs. The New York Times estimated that the force of the ship hitting the bridge was equivalent to a rocket launch.

“It’s at a scale of more energy than you can really get your mind around,” Ben Schafer, a professor of civil and systems engineering at Johns Hopkins, told NYT.

Nii Attoh-Okine, a professor of engineering at the University of Maryland, added: “Depending on the size of the container ship, the bridge doesn’t have any chance,” but Sherif El-Tawil, an engineering professor at the University of Michigan, disagreed, claiming: “If this bridge had been designed to current standards, it would have survived.” The key feature missing were protective systems built around the bases of the bridge, as have been installed on some other bridges.

We shouldn’t expect that this was a freak occurrence, unlikely to be repeated. An analysis by The Wall Street Journal identified at least eight similar bridges also at risk, but pointed out what is always the problem with infrastructure: “The upgrades are expensive.”

Lest anyone forget, America’s latest infrastructure report card rated our overall infrastructure a “C-,” with bridges getting a “C” (in other words, other infrastructure is even worse).

What’s the plan?

——–

Then here’s an infrastructure story that threw me even more.

The New York Times profiled the vulnerability of our satellite-based GPS system, upon which much of our modern society depends. NYT warned: “But those services are increasingly vulnerable as space is rapidly militarized and satellite signals are attacked on Earth. Yet, unlike China, the United States does not have a Plan B for civilians should those signals get knocked out in space or on land.”

Huh?

At least in Baltimore drivers can take another bridge or container ships can use another port, but if cyberattacks or satellite killers took out our GPS capabilities, well, I know many people who couldn’t get home from work. “It’s like oxygen, you don’t know that you have it until it’s gone,” Adm. Thad W. Allen, who leads a national advisory board for space-based positioning, navigation and timing, said last year.

“The Chinese did what we in America said we would do,” Dana Goward, the president of the Resilient Navigation and Timing Foundation in Virginia, told NYT. “They are resolutely on a path to be independent of space.” Still, NYT reports: “Despite recognizing the risks, the United States is years from having a reliable alternative source for time and navigation for civilian use if GPS signals are out or interrupted.”

The economic and societal impacts of such a loss are almost unfathomable.

———

And, if you assume, well, the odds of satellite killers taking out all of the GPS satellites is unlikely – Elon can just send more up! – then think about the underseas cables that carry most of the world’s internet traffic. According to Robin Chataut, writing in The Conversation, there are some 485 such cables, with over 900,000 miles of cable, and they carry 95% of internet data.

What you don’t realize, though, as Professor Cataut points out, is: “Each year, an estimated 100 to 150 undersea cables are cut, primarily accidentally by fishing equipment or anchors. However, the potential for sabotage, particularly by nation-states, is a growing concern.”

The cables, he notes, “often lie in isolated but publicly known locations, making them easy targets for hostile actions.” He recommends more use of satellites, so I guess he’s not as worried about satellite killers. 

We’ve recently seen suspicious outages in West Africa and in the Baltic Sea, and cables near Taiwan have been cut 27 times in the last five years, “which is considered a lot by global standards,” according to ABC Pacific; accordingly, “it has been happening so frequently that authorities in Taiwan have started war-gaming what it would look like to lose their communications with the outside world altogether and what it would mean for domestic security and national defence systems.”

It’s not just Taiwan that should be war-gaming about infrastructure failures.

————–

If all this seems far afield from healthcare, I have two words for you: Change Healthcare.

Until six weeks ago, most of us had never heard of Change Healthcare, and even among those who had, few realized just how much the U.S. healthcare system relied on its claims clearinghouses. With those frozen due to a cyberattack, physician practices, pharmacies, even hospitals weren’t getting paid, creating a huge crisis.

Infrastructure matters.

Think what would happen if, say, Epic went off-line everywhere.  Or have we forgotten one of the key lessons of 2020, when we realized that over half of our prescription drugs (or their active pharmaceutical ingredients – APIs) are imported?   

Healthcare, like every industry, relies on infrastructure.

Infrastructure is one of the many things Americans like to avoid thinking about, like climate change, the national deficit, or healthcare’s insane costs. I understand that we can’t fix everything at once, nor anything quickly, but at the very least we should be coming up with Plan Bs for when critical infrastructure does finally fail.

Kim is a former emarketing exec at a major Blues plan, editor of the late & lamented Tincture.io, and now regular THCB contributor

By JEFF GOLDSMITH

Years ago, the largest living thing in the world was thought to be the blue whale. Then someone discovered that the largest living thing in the world was actually the 106 acre, 47 thousand tree Pando aspen grove in central Utah, which genetic testing revealed to be a single organism. With its enormous network of underground roots and symbiotic relationship with a vast ecosystem of fungi, that aspen grove is a great metaphor for UnitedHealth Group. United, whose revenues amount to more than 8% of the US health system, is the largest healthcare enterprise in the world. The root system of UHG is a vast and poorly understood subsidiary called Optum.

At $226 billion annual revenues, Optum is the largest healthcare business in the US that no-one knows anything about. Optum by itself has revenues that are a little less than 5% of total US healthcare spending. An ill-starred Optum subsidiary, Change Healthcare, which suffered a catastrophic $100 billion cyberattack on February 21, 2024 that put most of the US health system on life support, put its parent company Optum in the headlines.

But Change Healthcare is a tiny (less than 2%) piece of this vast new (less than twenty years old) healthcare enterprise. If it were freestanding, Optum would be the 12^th largest company in the US: identical in size to Costco and slightly larger than Microsoft. Optum’s topline revenues are almost four times larger than HCA, the nation’s largest hospital company, one third larger than the entirety of Elevance, United’s most significant health plan competitor, and more than double the size of Kaiser Permanente.

If there really were economies of scale in healthcare, they would mean that care was of demonstrably better value provided by vast enterprises like Optum/United than in more fragmented, smaller, or less integrated alternatives. It is not clear that it is. If value does not reach patients and physicians in ways that matter to them—in better, less expensive, and more responsive care, in improved health or in a less hassled and more fulfilling practice—ultimately the care system as well as United will suffer.

What is Optum?

Optum is a diversified health services, financing and business intelligence subsidiary of aptly named UnitedHealth Group. It provides health services, purchases drugs on behalf of United’s health plan, and provides consulting, logistical support (e.g. claims management and IT enablement) and business intelligence services to United’s health plan business, as well as to United’s competitors.

Of Optum’s $226 billion topline, $136.4 billion (or 60% of its total revenues) represent clinical and business services provided to United’s Health Insurance business. Corporate UnitedHealth Group, Optum included, generated $29 billion in cashflow in 23, and $118.3 billion since 2019. United channeled almost $52 billion of that cash into buying health-related businesses, nearly all of which end up housed inside Optum.

For most of the past decade, Optum has been driving force of incremental profit growth for United. Optum’s operating profits grew from $6.7 billion in 2017 (34% of UHG total) to $15.9 billion in 2023 (55% of total). However, the two most profitable pieces of Optum by operating margin—Optum Health and Optum Insight—have seen their operating margins fall by one third in just four years. The slowing of Optum’s profitability is a huge challenge for United.

Gaul Had Three Parts, So Does Optum

The largest and least profitable (by percent margin) piece of Optum is its giant Pharmacy Benefit Manager, Optum Rx, the third largest PBM in the US.

Optum Rx is more than half of Optum by revenue ($116.1 billion) but less than a third of its profits. The core of its profit comes from rebates from drug companies for featuring their drugs on OptumRx’s formulary- which governs which drugs United Healthcare subscribers get access to and how much they pay for them. Optum Rx derives almost 62% of its revenues from managing pharmaceutical spending for United’s health plan, but the remainder for servicing both health plan competitors of United and self-funded employers. It is the most “vertical” piece of Optum—in that it has the highest share of its revenues coming from United out of all of Optum’s major segments.

The accounting for these rebates is, to put it gently, less than transparent. Some of these rebates are returned to UHG customers (such as self-funded employers). Some are returned to insurers other than United for which Optum Rx processes pharmaceutical claims. And some are kept as profit inside either Optum Rx or United’s health insurance business. Optum Rx does not disclose the ultimate destination of many billions in rebates.

This lack of transparency is, understandably, a subject of political controversy. Congress is considering tightening PBM disclosures and possibly redirecting the flow of rebates back to health-plan customers and, gasp, potentially to patients themselves. Given the widening political controversy about whether PBMs actually save consumers money, Optum Rx’s business model is a major strategic vulnerability for UHG.

The second major piece of Optum, OptumInsight, has been in the glare of public controversy since its Change Healthcare subsidiary was hacked by the mysterious Russian hacker collective BlackCat in February. Its main business lines are: business intelligence, consulting, IT enablement, and business process outsourcing to non-UHG health enterprises. OptumInsight is the smallest of Optum’s three pieces at $18.9 billion, but the most profitable—22.5% profit margin—$4.3 billion in operating earnings. I have written extensively about OptumInsight, almost 42% of whose revenues derive from servicing United’s other businesses, but will not repeat that analysis here.

Optum Health

The piece we want to focus on here is the largest generator of profits for Optum, Optum Health, a diversified healthcare services enterprise. Optum Health is a $95.3 billion business, which makes it the second largest care enterprise in the US after Kaiser Permanente. It generates nearly $6.6 billion in operating profit for United. However, Optum Health’s profit margin declined from more than 10% in 2018 to about 6.6% in the third quarter of 2023. If not turned around, Optum Health’s declining profitability is a threat to United’s enterprise valuation and reputation. This is why when Optum reported disappointing 3Q23 earnings, United’s Chairman Steven Hemsley cleaned house at Optum Health, installing new leadership.

Since United is not required to disclose acquisitions that are not “material”, there is no way of knowing what United has actually bought and what it presently owns. But Optum Health is home to an enormous collection of physician groups, surgicenters, a large urgent care network, and two of the largest home health agencies in the US. It is a sprawling nationwide roll-up of healthcare assets.

Optum claims 90 thousand physicians in its networks but is cagey on how many are actually employed by Optum and how many are independent physicians in Independent Practice Associations that wrap around the employed groups and are common in the West and Southwest. An educated guess would be that Optum employs from 45 to 60 thousand physicians. If true, this would still be between double and triple the size of Permanente Medical Groups. Optum’s profitability dwarfs that of Kaiser (see below), perhaps a function of Kaiser operating 39 hospitals and Optum not operating a single one.

Optum Health receives $57.7 billion (or 60% of its total revenues) from United’s health plan—the vertical part. But it also claims $21.8 billion in premium income, e.g. capitation, from “non-affiliated” customers, namely health plan competitors of United’s health plans. That capitation represents almost 23% of Optum Health’s total revenues. In addition, Optum Health reports $14.1 billion in services income, almost certainly “fee-for-service” based income from other health plans. What share of Optum Health’s $6.6 billion in profits come from these contracts with United’s competitors is a compelling mystery, since this is not reported in United’s financial disclosures.

Whatever the profit split, Optum Health is very much dependent not merely on the kindness of strangers, but of competitors of United’s core business. An important and unknowable question is whether Optum’s contract renewals with those competitors have enabled it to recover the soaring costs of nursing coverage, temporary physician coverage, turnover and retirements, and other labor factors that have exploded in the wake of the COVID pandemic. Every care delivery enterprise in the US has faced rising people costs, as the largest care delivery enterprise in the US, these forces have not spared Optum.

Optum’s medical group acquisition strategy to date has targeted independent (e.g. non-hospital) medical groups with significant at-risk (e.g. “capitated”) populations, mainly in Medicare Advantage plans. These included the original asset, the Nevada based Sierra Medical Group which United acquired when it purchased the Sierra Health Plan in 2007, but also Healthcare Partners, Monarch and North American Medical Management (based in Los Angeles), WellMed in central Texas, Atrius and Reliant in Massachusetts, Everett and PolyClinic in Seattle and Kelsey Seybold Clinic in Houston Texas. It is a growing presence in Oregon, New York and Connecticut through mainly smaller acquisitions. The map below showed where Optum Health’s assets were as of 2022.

The Vertical Integration Conundrum

Healthcare strategists have touted the idea of vertical integration –pioneered by Kaiser Permanente—which offers a comprehensive healthcare service experience—pretty much soup to nuts—through its health plan. The only way to access Kaiser physicians and hospitals is by enrolling in their health plan. Vertical integration has been viewed as a way of reducing health cost (by eliminating middlemen’s profits) and procuring products and services more efficiently, though actual evidence that it does so is scarce upon the ground.

With United, the health plan preceded the health services. In the first thirty years of its existence, United was a “network” plan, which contracted with independent hospitals and doctors for care. With the Sierra acquisition in 2007, United embarked on an adventure in strategic ambiguity—owning physician clinics which provided care to United customers as well as those of competing health plans. After Sierra and WellMed, a large capitated medical group in central Texas that Optum acquired in 2011, Optum’s medical group acquisitions have been, at best, loosely tied to United’s health plan enrollment. A 2018 analysis showed at best modest overlap between United’s Medicare Advantage market presence and the Optum Health network.

Making United “more vertical” in Optum markets would be complicated. Offering financial incentives to the Optum Health patients presently enrolled in competing plans to switch to United would pose two challenges. One is that this would damage Optum Health’s contracts with competing health plans. And sharing savings (e.g. some of United’s profits) with patients to redirect their care or lowering their rates would reduce health plan profit margins.

Conversely, telling Optum patients that they could only get care if they enrolled in United’s health plan would trigger a firestorm of negative publicity not to mention retaliation and cancelled contracts by United’s health plan competitors. Telling United subscribers they could only get care from Optum physicians and facilities would overwhelm them in volume and trigger longer waiting times and provider burnout. In sum, it does not appear to make business sense for United to make Optum more “vertically aligned” with its health plans. So straddling competitors in local markets seems to be an ambiguity with which United will have to cope going forward.

How much unregulated and invisible profit United’s health plans can generate  “inside” United’s visible and highly regulated medical loss ratio (MLR) by selectively and generously compensating Optum’s physicians, surgical facilities, etc. is the most compelling mystery of this business model. Matthew Holt, a veteran industry observer, has termed this strategy of maximizing enterprise profit through contracting favorably with yourself “provider fracking.” Companies that control both insurance and care delivery have a great deal of flexibility in what the accountants term “transfer pricing”.  This flexibility is valuable and would be lost were Optum to be spun off in a future United restructuring.

Two Big Risks for the Partially Integrated Optum Health

There are two other major clouds on the horizon for Optum Health. One is the Federal Trade Commission’s proposal to ban of non-compete clauses for corporate employees, including physicians. Non-compete clauses effectively make the patient populations of acquired physician groups the property of Optum. If physicians leave Optum, they are required to move out of the community to practice, surrendering their patients to the company.

Many of the senior physicians who were equity holders in the large practices acquired by Optum departed millionaires with United’s cash, leaving behind junior colleagues to suffer through both Optum system conversions and leadership changes that affected their daily lives as practitioners. Outlawing non-competes would enable disgruntled Optum physicians to remain in their home communities and take their patients with them.

If FTC precedents hold, the non-compete clause prohibition might not apply to non-profit hospitals (80% of all hospitals are non-profit), putting Optum and other corporate employers of physicians at a competitive disadvantage. In my opinion, entities that rely on coercive measures like non-competes to assure physician loyalty need to take a long hard look at their corporate culture.

The FTC’s proposed ban on non-competes is a major enterprise risk for Optum Health’s vast agglomeration of medical groups. If enacted, it would force Optum management directly to address physician working conditions, values, and priorities. United does have the potential for markedly reducing the documentation burden for Optum physicians that take care of United patients by selectively altering its claims review strategies. It will be interesting to see if they do so.

E Pluribus Unum

The other major cloud on the horizon is the unionization of physicians. According to AMA, some 67 thousand practicing physicians (e.g. not interns, residents or fellowship trainees) are members of labor unions. There are been several recent high profile instances where disillusioned hospital-employed physicians elected union representation (Allina in Minneapolis/St Paul, Providence St. Vincent and Legacy Health in Portland OR, are recent examples).

Unionization is often not motivated directly by compensation issues but rather by a sense of powerlessness and a feeling that core issues that affect the employee are not being addressed. Unionization would both increase Optum’s operating costs and reduce its management’s flexibility. Optum Health’s groups are by far the largest and most lucrative target of physician unionization in the United States.

Down in the Valley

The emerging market risks for Optum can be seen in two medium sized cities in Oregon’s Willamette Valley. During the early pandemic, Eugene-based Oregon Clinic encountered terminal operating difficulties and sold to Optum in late 2020. In March of this year, Optum sent letters to patients of departing Oregon Clinic physicians that they would have to find care elsewhere because they were unable to recruit replacements for their physicians. These 32 physicians resigned, apparently, because they were unhappy with working conditions at Oregon Clinic after the Optum takeover. Reading between the lines, due to non-competes, the departing physicians were unable to remain the Eugene area and thus unable to continue seeing long-standing patients.

Meanwhile, up the road forty miles in Corvallis, Optum requested that the State of Oregon expedite review of its proposed acquisition of the Corvallis Clinic due to accelerating cash flow difficulties that made it impossible for the Clinic to meet its payroll. The State ultimately acceded to Optum’s request.   The apparent cause of the cash flow problem: the Change Healthcare cyberattack, which made it impossible for Change, an Optum subsidiary to accept or pay claims from its provider networks, including, most likely Corvallis Clinic. In other words, the catastrophic system failure of one piece of Optum likely accelerated another piece of Optum’s acquisition of the largest physician group in town.

Taken together, these simultaneous problems have not served to enhance Optum’s image as a care provider in the southern Willamette Valley. They make the company appear as a cold and exploitative outsider capitalizing on problems it helped create. These events will not enhance the likelihood of United growing its core insurance business in the area or endear the company to Oregon’s health system regulators, or its state managed Medicaid program, the Oregon Health Plan.

Outgrowing Its Nervous System?

Optum Health has almost quadrupled in size in the past six years, but its profit margin has fallen by a third. Given the explosive pace of acquisitions and the cost pressures on physician practices during and after the COVID pandemic, this margin deterioration is not surprising. However, if Optum Health’s new management does not stabilize its operating performance, margins could deteriorate further, putting pressure on United’s earnings.

There are no evident economies of scale or co-ordination in physician services. How Optum can recruit and retain high quality motivated physicians and advanced practice nurses to its vast care system is a major challenge to the enterprise. They will need a compelling answer to the question: “Why work for Optum?” The answer cannot be: we are huge and you don’t have a choice. How the company creates value for its tens of thousands of physicians and nurses will be the central management facing United, or indeed any large-scale employer of these complex professionals.

There is growing evidence that there are diseconomies both of scale and co-ordination in health services generally. Those diseconomies manifest themselves in the vast empty space between the giant enterprise and the physicians and patients who rely on them. Every denial of care by United’s AI-driven claims management system makes a tiny dent in the company’s consumer image. Patient anger over arbitrary and self-interested health plan meddling in care decisions resulted in first managed care backlash in the late 1990’s. United’s recent Net Promoter Score of -5 suggests that it has a long way to travel to regain customer confidence and loyalty.

The physician-patient relationship remains the bedrock of the health system. If the nerve endings of an enterprise do not reach out and sense the effect it is having on that relationship, it isn’t going to be very long before it either ceases to grow or ceases to be profitable or, likely, both. United and Optum have reached that tipping point right now. Follow Optum’s physicians and their patients and see the future.

Acknowledgements: Trevor Goldsmith provided research and technical support for this piece. The author appreciates Ian Morrison, Andrew Mueller  and Jamie Robinson for reading and commenting on this piece.

Jeff Goldsmith is a veteran health care futurist, President of Health Futures Inc and regular THCB Contributor. This comes from his personal substack