Yesterday, there was a huge announcement that sent retail and drug middlemen stocks plummeting. Amazon, which had previously announced a partnership with Berkshire Hathaway and J.P. Morgan to reduce healthcare costs, bought a mail-order pharmacy provider. This is just the tip of the iceberg of the news these past few months of massive vertical integration in healthcare. Amidst all of that, Regenexx announced yet another partner to disrupt orthopedic surgical care. Let me explain.
The Negative Effects of the ACA
No matter if you love Obama or have other feelings, the Affordable Care Act (ACA) destroyed the healthcare system as we knew it and resurrected in its place a mess. As a doctor, the single benefit of the law was that people with preexisting conditions couldn’t lose their insurance. The biggest problem is that “Rolls Royce” plans covering everything that could be possibly paid for by an insurer became legislated into law. The law also promoted massive consolidation and monopolization. For example, we saw medical groups join into massive supergroups, legions of doctors flee private practice to be employed by hospitals, and local hospitals, in turn, purchased physician groups. All of this has the effect of seriously driving up healthcare costs.
Because our healthcare system just went from crazy and broken to crazier and more broken, we have seen bizarre changes in the alliances and ownership of various healthcare businesses this past year. For example, we’ve seen unheard-of levels of what’s called vertical integration. This means that one company in the food chain of paying for or delivering healthcare buys another. As examples, pharmacy chain CVS bought Health Insurer Aetna and United Healthcare just bought the world’s largest primary-care business from DaVita.
The problem with this type of vertical integration is that it has the effect of increasing costs for employers and profits for insurers. For example, vertical integration is great if you own Cigna or United stock, but it’s awful if you have a company that must purchase health insurance through an insurer. Why? For example, when United controls both the payments to providers and the providers, they’re not doing this to reduce their profits; they’re doing this to grow those profits. They also move from having an incentive to negotiate better rates with providers and passing that on to employers to having to report quarterly earnings based on those same rates. Hence, United will want to keep provider rates as high as possible.
The Healthcare Disruption Business
Because of spiraling healthcare costs and vertical integration, many companies have sprung up to disrupt healthcare delivery. This includes our partners, like Edison Healthcare and ACAP Health. These companies work with self-funded employers to reduce their costs. A self-funded health plan is one where companies pay their own bills generated by employee medical care; hence, they tend to be more focused on bending the cost curve down while bending the quality curve up.
This week, it was reported that Amazon bought the mail-order pharmacy business PillPack. When this happened, retail pharmacy and drug middlemen stock prices tanked. Why? Because everyone knows that Amazon will cut out multiple drug middlemen and force prices down. This is consistent with its stated mission to disrupt our crazy inefficient healthcare system with its partners Berkshire Hathaway and J.P. Morgan.
Walgreens had an interesting response after losing billions in market value. On an earning’s call, they claimed that there will still be a need for brick and mortar drug stores. While that’s true, there will be much fewer needed when most people get their scripts filled through Amazon Prime with free shipping. What’s next?
If I were a device sales rep I would be seriously worried about these moves. There are already companies trying to do away with the traditional orthopedic device salesman who hangs out around the O.R. or visits doctor’s offices. When Amazon buys one of the ventures, we’re going to see a lot of out of work salespeople. Why? Amazon has demonstrated time and time again that it seeks to save consumers money by getting rid of the middlemen. One of the reasons there is so much fat to be cut in healthcare is that the business is chock full of middlemen who no longer have a role in a digital world.
The Orthopedic Surgery Machine Is Ripe for Disruption
Orthopedic surgery is out of control. It’s the single biggest line item for any company that pays its own healthcare bills. Despite this, there is almost no accountability for outcomes or costs. In addition, the groups that should be helping to push costs down, due to the ACA, are in fact, incentivized to push costs up.
Orthopedic surgery is not accountable for patient outcomes. From a 30,000-foot view, as a provider, I can’t tell you the number of failed spine fusion cases I have seen in the past several decades where the patient is in more pain and is more disabled, yet the surgeon’s response is that the fusion looks great on an X-ray. In addition, as I have reported, study after study shows that common orthopedic surgeries like meniscectomy are ineffective; however, surgeons keep performing these procedures. Why? Cutting out ineffective procedures would make it hard to make payroll.
Finally, the groups who should be reducing costs have the incentive to do the opposite. For example, we’ve seen massive consolidation among orthopedic groups. Why? To create less competition between small practices and maximize reimbursement. The same has happened with hospitals. Insurers in one market no longer have many options to choose from when contracting with hospitals; hence, prices drift up. In addition, if either these orthopedic groups or the hospitals tried to cut out orthopedic procedures shown not to work, they would run into serious financial trouble.
How Regenexx Disrupts Orthopedic Surgery
Regenexx is an exclusive, nationwide network of physicians who are focused on lowering orthopedic surgery costs by cutting out the need for about 70% of elective procedures. Unlike surgeons who must continue to grind out the surgeries, we are non-surgeons (and few forward-thinking surgeons) who understand that precise image-guided procedures that use best practices cellular therapies can help damaged tissues heal. Hence, we are incented to disrupt orthopedic surgery rates by replacing those procedures.
Our network focuses on provider training. Meaning that we only accept providers who understand how to perform precise image-guided injections and then we require a rigorous, standardized training curriculum. This education includes 90+ core X-ray and ultrasound-guided procedures that we have vetted to reduce orthopedic surgery rates by replacing the need for these surgeries. These procedures also offer much quicker recovery times and fewer lost work days because they’re dramatically less invasive than surgery.
Connect Healthcare Collaboration
This group gives self-funded employers the tools needed to drive down healthcare costs. They communicate best-in-class solutions to consultants, brokers, and employers to eliminate excess healthcare spend and improve lives. They are also committed to finding comprehensive solutions that solve the most pressing healthcare issues facing employees and their families. Hence, they are a great match for a company like Regenexx that wants to disrupt a dysfunctional orthopedic care system.
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The upshot? Healthcare is entering its disruptor phase, meaning that we’re going to see industries like orthopedics turned on their head and those that don’t recognize what’s happening will be relegated to the dustbin of history. We’ve seen this with taxis and Uber, with Amazon and Whole Foods, and now with Amazon and prescription drugs. Our goal at Regenexx is to replace much of orthopedic surgery with interventional orthopedics, and this will reduce invasiveness, downtime, and costs. Hence, we are very proud to have a like-minded partner like the Connect Healthcare Collaborative! Learn how to add the Regenexx procedures to your self-funded health plan at RegenexxCorporate.com.