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Health care standards as a product
And what that means regarding health care consolidation
This is a short one. I have some exciting things in the works that I’ll be able to announce next week.
This newsletter was triggered by a line I saw in Brendan Keeler’s recent newsletter, based on a very good Redox webinar, where he talks about how standards are a product:
Imagine you’re a product manager. You get together with your competitors’ product manager and hash out a product brief/design. You post it to the internet and hope that people adopt. It’s kinda bonkers, but this is literally how standards happen. There are good ones and those get picked up and built. There are bad ones and those live on in failed specifications and implementation guides. On top of that, you have limited to no visibility into the adoption of the standard like you might for a regular product one sells and deploys. You’re relying on word of mouth and public announcements to know.
I’ve never been a product manager. I have no idea how standards work (although the webinar helped!). So why did this grab my attention? Because of a strange bit of information I learned when my colleague Krista and I were reporting this piece on the Optum/Change Healthcare acquisition, published this week in the American Prospect.
I learned that there is an algorithm, called Prometheus Payment, that groups disparate CPT codes into recognizable (and therefore reimbursable by the insurer) episodes of care.
The Prometheus algorithm was developed starting in 2006 using Robert Wood Johnson Foundation funding. Prometheus was one of two health care software brands owned by the Health Care Incentives Improvement Institute (HCI3), a nonprofit entity, which subsequently merged with the nonprofit Altarum Institute in 2016.
This explanation of how Prometheus works comes from a 2014 Health Affairs blog post:
As of 2020, Prometheus Payment was capable of defining more than 90 different episodes of care.
Then, in August 2020, Change Healthcare announced that it, a for-profit, had acquired Prometheus Payment. According to the press release, Change was interested in Prometheus because it allows providers and payers to adjust their networks and monitor episodes of care, which fits into Change’s other data and analytics offerings.
The acquisition caused some industry concern—after all, a formerly nonprofit software was now coming under the aegis of a moneymaking entity—but because Change does similar work and acts as a more or less impartial arbiter for all payers, the acquisition seems to have occurred smoothly.
In a 2017 article published by Healthcare IT News, Horizon Blue Cross Blue Shield of New Jersey explained how they used the algorithm, after it had been acquired by Change: “We send our data and Change runs it through the algorithms to produce reports that show us what the patients look like as they go through episodes. We send a mess of data and I don’t want to see it again until it runs through the algorithms and comes back to us,” said Lili Brillstein, Horizon BCBSNJ’s Director of Episodes of Care.
This is pretty emblematic of how health care data works in general, and why algorithms like Prometheus can be so valuable.
However, in December of 2020, UnitedHealth Group’s Optum announced that it was acquiring Change. This means that, as we talk about in the Prospect piece, Optum will own a large chunk of the rails on which physician reimbursements travel—as well as the standard-setting Prometheus Payment software.
This could mean nothing, or it could mean something very big. Because if the standard is a product, and Optum now owns that product, it means that everyone else has to acquire that product from Optum—which, being owned by UnitedHealth, the largest payer in the U.S., is not a neutral observer.
Furthermore, because Prometheus is used by both providers and payers to optimize their networks and monitor care, this acquisition theoretically gives Optum even greater insight into how its competitors work. Optum, meanwhile, insists that it has a strong firewall that will prevent any overlap.
This makes me nervous. And I know that it’s not just me, because in reporting the Prospect piece, my colleague and I heard some pretty serious rumors that major health care players are actively trying to contest the acquisition behind the scenes, beyond the public American Hospital Association letter.
Of course, this example is just one subset of what Brendan is talking about when he talked about standards in health care. But as data and analytics becomes an ever-bigger part of health care business—as does, potentially, value-based, episodic reimbursement models—it’s certainly worth paying attention to.
I’m also adding disclaimers to my newsletter! You should already know this, but this information shouldn’t be taken as investment advice, and the opinions expressed are entirely my own musings, not representative of my employer or anyone else.