Segmentation: The Coming Healthcare Divide by Array Architects

Segmentation: The Coming Healthcare Divide By Neil Carpenter, Jillian Barbaro, Isabelle Moratti, Alexandra Laramee

INTRODUCTION Array wanted to break out of the incremental nature of most health care evolution white papers and focus on long term trends that might not be felt strongly for a decade or more. Just as a major pandemic was eminently predictable but rarely addressed because it was never a likely near-term event—so are the structural forces we describe in our papers. We interviewed 16 leading healthcare executives across the industry, including representatives from the provider side, payor organizations, technology innovators, and academia and asked them to visualize health care delivery in 2040. The study documents and expands upon the perspectives of these leading thinkers and the four major trends that emerged from these interviews. Each installment unpacks one of the four trends: • Deterioration of trust: following the societal trend, patients will no longer simply listen to what the provider says. As the care delivery process becomes more participative, what are the implications? • Segmentation of healthcare: the big sort is coming to healthcare practices and different demographics will demand different focuses. • Whole person care: an integrated vision of health will mean a much broader definition of physical and mental wellbeing, with less traditional providers and methods of care. • Evolution of healthcare settings and employment: a major shift in how health care dollars are spent coming. Discover how care settings and the workforce will be the key drivers. Not only do we provide research behind why we believe healthcare is heading this way, but we also provide implications for how different players within the industry can prepare themselves to be successful for what is to come. New installments of the study will be issued every week. The first follows. To contact the authors with questions, comments or strategic planning support, see p 11 for their information or contact us. This paper will be a four-part series with a new emergent trend to be released each week.

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INTERVIEWEES Shahid Shah Co-Founder of Citrus Health (technology at home), Founder of Netspective Communications (technology strategy & sale), Health Sciences & Technology Advisor at Larta Institute.

Rasu Shrestha, MD, MBA Chief Strategy & Transformation Officer, Atrium Health

Robert Kramer Marcy Carty, MD, MPH EVP of Strategy at Ready Responders

Paul Keckley The Keckley Group, Healthcare Industry Research and Policy Analysis

Trenor Williams, MD

Founder and Fellow at Nexus Insights; Co-Founder and Strategic Advisor National Investment Center for Seniors Housing & Care

Sara Vaezy Chief of Digital and Growth Strategy at Providence Health, Health Evolution Forum Fellow

Dan Durand, MD

CEO & Co-Founder Socially Determined

Chief Clinical Officer & Chair of Radiology at LifeBridge Health

Tom Cassels

Braden Lambros

President at Rock Health

Executive Vice President at Olive

Michael Tangrea, Ph.D. Endowed Professor in Biology, Former Scientific Director of Innovation & Research

Sunny Ramchandani, MD President and CEO, Stream Health Group, Former Payor Executive

Peter O’Neill

Susan Mani, MD

Executive Director of Cleveland Clinic Innovations & Innovation Consultant

Payor Executive, Former Chief of Population Health at LifeBridge Health

Mark F Victor, MD

Alan Pitt, MD

CEO, Cardiology Consultants of Philadelphia

Neuroradiologist with Dignity Health and Co-Founder of Vitalchat Telehealth

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This is the age of the “big sort” as coined by the author Bill Bishop. The American public has self-segmented in numerous ways. Our neighbors

More and more counties are uncompetitive

are more likely to be just like us than at any time in the last 100 years.

Counties where presidential candidates won the two-party popular vote by more than 20 percentage points

This is evident in everything from how we shop, to our religious preferences, what we eat, and even how we vote. For example, in 2020 Biden won 85% of counties with Whole Foods and 32% of counties with Cracker Barrel. In 2016, Trump won 74% of counties with Cracker Barrel and just 22% of those with Whole Foods.i Healthcare is one sector that has been slow to sort. Until recently, doctor’s offices, ERs and many care venues were very democratic. Insurance plans, with some exceptions, were relatively standardized. Even top Academic Medical Centers, like Johns Hopkins Hospital, have a payor mix that looks very similar to little-known community providers in their geographies.ii The reasons for this similarity range from laws, such as EMTALA which says you can’t turn away patients from an ER, to

SOURCE: FiveThirtyEight, Cook Political Report

culture – providers generally believe everyone deserves good care.

However, the big sort is coming to health care—albeit slowly. The diversity of payor products has emerged over the last decade. From high deductible plans on the commercial side to Medicare Advantage and Medicaid wraparound services (e.g., Absolute Care, PACE) on the public payor side, patients are being grouped and treated very differently. These models may not all be proven to work, but the process of individualization has begun. Currently the segments forming are not determined by the customer’s ability to pay or their desires for certain products, but by the costs that they are willing to endure. This same process is coming to the provider side, but a bit more slowly and in different forms.

Percentage of Covered Workers Enrolled in an HDHP/HRA or an HSA-Qualified HDHP, 2006-2020

HDHP/HRA HDHP/HRA

Total Medicare Advantage Enrollment, 1999-2019 (in millions)

HSA-Qualified HSA-Qualified HDHP HDHP 22.0 22.0

30% 30%

20.4 20.4 19.0 19.0 17.6 17.6 16.8 16.8 15.7 15.7

20% 20%

10% 10%

14.4 14.4 13.1 13.1 11.9 11.9 11.1 11.1 10.5 10.5 9.7 9.7 8.4 8.4 6.9 6.8 6.9 6.8 6.8 6.8 6.2 6.2 5.6 5.3 5.6 5.3 5.6 5.3 5.3 5.6

2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 ‘99 ‘00 ‘99 ‘01 ‘00 ‘02 ‘01 ‘03 ‘02 ‘04 ‘03 ‘05 ‘04 ‘06 ‘05 ‘07 ‘06 ‘08 ‘07 ‘09 ‘08 ‘10 ‘09 ‘11 ‘10 ‘12 ‘11 ‘13 ‘12 ‘14 ‘13 ‘15 ‘14 ‘16 ‘15 ‘17 ‘16 ‘18 ‘17 ‘19 ‘18 ‘19 18% 17% 18%15% 17%14% 15%13% 14%13% 13%13% 13%16% 13%19% 16%22% 19%23% 22%24% 23%25% 24%27% 25%28% 27%30% 28%31% 30%31% 31%33% 31%34% 33%34% 34% 34% NOTE: Covered workers enrolled in an HDHP/SO are enrolled in either an % of Medicare % of Medicare Beneficiaries Beneficiaries HDHP/HRA or HSA-Qualified HDHP. Values may not sum to toals due to rounding. NOTE: Includes cost plans as well as Medicare Advantage plans. About 64 SOURCE: https://www.healthsystemtracker.org/indicator/ million people are enrolled in medicare in 2019. access-affordability/percent-covered-workers-high-deductible-health-plans/ SOURCE: https://www.kff.org/medicare/ issue-brief/a-dozen-facts-about-medicare-advantage-in-2019/

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The rise of the gated health care community. One Medical and many other VIP services are exploding. For example, One Medical showed a 30% increase in membership count going from 422K to 559K in 2020. Net revenue was $122 million compared to $77 million in 2019, a 57% increase.iii As income inequality continues to increase, it is not a surprise that those who can afford it are seeking a differentiated experience that values their time and has a different level of provider-patient interaction. With One Medical, members have access to 24/7 virtual care; a mobile app that provides the ability to asynchronously communicate with their provider, renew prescriptions and schedule appointments; and access to practices near where they live and work. These concierge doctor’s services generally run $125-$200 per month.iv There are also new technologies to engage people with their health from Fitbit, Apple etc. that target not just the worried well, but specifically the wealthy worried well. Fitbit, the lower end of the health fitness tracking movement, has its strongest penetration with those holding Advanced Degrees and over 125K of income according to Numerator Insights.v These new startups are responding to market signals but not traditional medical needs. High income individuals on average have a life expectancy 10-15 years longer compared to the poorest Americans.vi The Urban Institute published a report that showed 22.8% of people earning an income of $35k reported poor health based on self-report of fair or poor health. People in the report with an income of $100k or more reported poor health at just 5.6%.vii The question becomes: when does this group’s health, income, and approach to health lead them to break away from the system overall? It is just like when this same group makes the decision to leave the public school system. One panelist put it: “This group could have an entirely different experience just buying catastrophic care insurance and entering a different membership like Amazon Prime [for their own care].” Most high-income individuals (e.g., income above 250K) could self-insure just like most businesses have some level of self-insurance. These gates, meanwhile, are not revealing one well-off subdivision versus the rest but many subdivisions of different incomes.

Segments are not just arising based on consumer wealth. Super-Users One segment that is not driven by the high wealth of the consumers but the high cost of their healthcare is sometimes referred to as “super-users”. This well-known minority of people, account for 5% of the population and 50% of healthcare costs in the United States. viii

Their healthcare costs are on average 5-15 times moreix than the average patient health care costs a year. If cost control is important,

then by definition there needs to be a different plan for those patients than everyone else. To paraphrase one of our panelists, eventually America will need to control costs of health care spending like the rest of the world with a NICE-like panel evaluating what actually works well before paying for it, at least for patients who cannot afford to buy themselves into a different tier of insurance coverage. The recent controversy over the Alzheimer drug Aduhelm is a great example of the cost implications (tens of billions) of long shot medicine.

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In the UK, NICE’s role is to improve outcomes for people using the National Health Service and other public health and social care services by: 1. Producing evidence-based guidance and advice 2. Developing quality standards and performance metrics for those providing and commissioning health 3. Providing a range of information services for commissioners, practitioners, and managers across health and social care.

Another avenue for the cost control segment, which is more politically palpable but with only developing evidence of cost-effective impact, is the rise of “hot spotting” social determinants of health and other wraparound service providers to create less demand for health care services and net savings. Cityblock (the Google spin off) is one of the most prominent value-based providers. They were designed for Medicaid and lower-income Medicare beneficiaries, who tend to fit the high spending segment identified earlier. Cityblock has raised $500 million—some of their initial results are positive. However, the Camden Coalition and their work on “hot spotting” looked very effective until deeper research dispelled the hype.x The ability to help the community is generally not questioned with any of these efforts, but the purely economic ROI (with studies done to the same standard as drugs and medical devices) are debated.

Women’s Care Another segment is the crossover of concierge and demographically nuanced healthcare with women’s care. For example, Tia is a women’s health startup that in 2020 only had one clinic in New York. However, like many others, the startup shifted to telehealth amidst the pandemic. Their New York office worked with just two physicians, two nurse practitioners, and two therapists. By September 2021, Tia had raised $100 million in funding.xi Their focus, like One Medical, is easy access through an app and availability to same day appointments. Tia’s member fee is $150 per year to access these same day appointments and other features they provide for women-specific care. In the future, they are looking to expand clinics and care to an all-encompassing healthcare model for women. They have said that their goal is to, “Personalize care delivery models that are built for people instead of specialties.”xii

The LGBTQ+ Community The healthcare system is also segmenting to become more inclusive of members of the LGBTQ+ community. Many people within this community fear being discriminated against and/or turned away from service due to their preferred gender or sexual orientation. One report showed that there was a 46% increase in the proportion of adults within LGBTQ+ who reported mental distress due to fear and anxiety surrounding the chance of refusal of care.xiii

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Investors are funding numerous digital health startups focused on queer and transgender people. Denver-based company, Plume, had $14 million in new funding.xiv Another startup, Folx health in Boston, had $25 million in new funding led by Bessemer Venture Partners.xv Venture capital funding surged for these types of startups, surpassing the 2020 funding recorder of $30 million and reached $40 million in 2021.xvi With or without the pandemic, these LGBTQ+ practices offer queer and transgender people their preferred option of digital health due to a history of discrimination and violence. As of now, these startups lack primary care but offer apps to address specific patient needs in 33 states where the actual physician is not required to be present. These startups are based on membership fees as well.

As care urgency decreases, patients will have more choice, which propogates segmentation. One macro-level factor that has both allowed for and will continue to cause segmentation in healthcare is the move away from emergent, inpatient care. In 1994, outpatient services accounted for just 28% of total hospital revenue.xvii At that time much of healthcare, especially hospital care, was lifesaving, critical care, and under those circumstances individuals could only be so picky about what hospital they went to or doctor they saw. The balance of urgency has shifted, however. Today, outpatient services comprise over 50% of total hospital revenue.xviii Further, over the past 20 years inpatient admissions have decreased from 120 to 103 per 1,000 persons (a 14% decrease) while outpatient admissions per capita grew by 26% over the same period.xix Over the next ten years this trend is forecasted to continue with a 1% decrease in the overall inpatient use rate and a 21% increase in the outpatient use rate according to Advisory Board.xx As discussed in our earlier “Erosion of Trust” paper, new remote monitoring technology that can detect health problems for patients before they are at a critical juncture will continue to drive down emergent care and push elective care, in which case individuals will have the time and luxury to choose where they go and who they see. As patient’s gain the power of choice through time, they will sort themselves by the very care decisions they choose.

Implications for health providers: Doctors early in their practice, pick your segment (i.e., Niche down). It will be hard to be an “all-comer” practice. Over time, different groups will get picked off from you because of consumer demand or paer channeling. Like an oldfashioned general store, you may be forced to pivot. If you are early in your career you may want to think about a group of patients you really connect with and figure out if they have similar demographics and care needs. Then think about how to really connect with that group: who should you work with, where do you locate your office, etc. Many providers choosing rural communities or high-need communities have been picking a lane for a long time because the community they served was relatively homogenous. However, more folks will need to choose going forward. Practices—pick your niche or collection of niches. A few stores can handle a wide range of brands catering to different audiences under one roof but most can’t. Practices, just like providers, are used to a diverse source of patients and revenue. The big sort makes this harder. Focusing is a path towards relevance in a low trust, highly segmented society with insurance schemes that may look very different depending on who you are (i.e.. self-insured One Medical patients vs. MA patients). If the cross-referral volume is hard (because people don’t just go where there doctor tells them) then the economic logic of bundling makes less sense. However, the economic logic of scale can still hold through management service organizations (MSOs) or even multiple brands in a market. Just like GM has different brands in its portfolio, so could a health practice with teams/staffing/design aligned to the targeted segment. Match infrastructure to your segment. As providers pick a lane, the matching infrastructure needs to be there. That likely means real scale for IT and modular delivery. Because winners will “nail” their niche, and that means less room for experimentation/deviation at scale. All Apple stores look the same for a reason. All stores have the same processes for a reason. Practice that re-invent the wheel on design, operations, and especially IT will get somethings wrong and lose to competitors who have data backing every choice.

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Knowing value and tech can help to inform the provider who from the segment they need to see, or possibly beneficial segment adjacencies.

Doctor/Practice chooses

The patient segment dictates the

CRM technology may

a patient segment

technology and infrastructure

help to ‘know’ or ‘value’

(patient will only choose

needed to cater to them

patients or who to target

back if it’s a match)

New Entrants target the segments or groups that have not been catered to yet to be successful.

Health Systems: There will be a new breed of mega wealthy systems with a different business model—like mega wealthy universities. Today, Cleveland Clinic, John Hopkins and others have outposts across the globe catering not only to the traditionally wealthy but also to the global millionaires/billionaires. This has already helped Johns Hopkins fund an institute for stroke treatment with a $50 million donation by The United Arab Emirates.xxi It is named after UAE President Sheikh Khalifa bin Zayed Al Nahyan who had been receiving care from Johns Hopkins after suffering from a stroke and requiring emergency care. Additionally, the oil rich nation has donated an undisclosed amount of money previously to support the building of a two-tower hospital building named after former UAE president, Sheikh Zayed bin Sultan Al Nahyan, which was finished in 2012.xxii Reportedly the billion dollar tower was funded half through the Sheikh and half via Michael Bloomberg.xxiii Just like colleges, who serve the global elite, don’t need tuition to operate, these hospitals will be on their way to a more endowment-centric funding model as well. What that wealth will enable is the ability to finance ventures other players cannot and a brand advantage with serving the mega wealthy. The elite’s choice of care locations are literally news items, and people logically assume that since the rich can get their care anywhere, wherever they go is the best place. Geography will be less of a barrier. These globalized health systems will be able to “reach into” communities of wealth around the world through partnerships and other alliances in ways that are just becoming visible now. Eventually this will include winning over local big donors who may become scooped up by big name nationally branded systems and take away key revenue from local providers. The growth of traditional telemedicine will just make this market expansion easier for them as will the growth of remote monitoring, other personalized medicine, and increasing use of home care (all discussed in latter papers). However, the decline in geographic barriers to entry along with self-segmentation also applies to the less famous providers of care. Other providers can still expand (especially with a good segment fit) outside their current geographic boundaries. Be ready to build a focused brand. There are generally two types of campaigns out there today—AMCs saying they are the best at what they do (locally) and community hospital types selling their access, ease, and localness. That’s fine for now, but owning a segment means owning a real brand. Among health care providers these efforts are nascent, but examples include owning a standard delivery style (e.g., Kaiser) or owning a demographic (e.g., MD Anderson’s suburban health system affiliation strategy).

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CRM is just the beginning of managing the patient experience. Even today some players are creating systems to align patient access with patient value. In these systems, the patients being called have a known value to the system and have slots aligned with that value ready to go (no violation of EMTALA given the lack of emergency). Given the potential legal and board issues, we would urge you to be very careful going down that path, but the logic makes sense. Today big donors have different access than you and I—and maybe these new systems will ensure high-risk readmission patients have the same gold standard of access. Provider-payor integration could slow down or speed up segmentation. Many segmentation plays are with payors as partners. This is very logical since a big part of a local provider’s strategy is to stymie competition, and these new players bring competition into markets. If a big local system and a big local payor where to integrate, that would recreate some local barriers to entry. This move would mitigate niche plays as payors gravitate towards the local providers. Supplemented with network design, this strategy could deter niche players from entering the market.

New Entrants: Someone will be the new Kayak (or Tinder) of healthcare: As one panelist said, there is a lack of companies who can organize care for people based on what they want. New entrants, even Amazon, are in effect insurgents in health care delivery. One of the keys to insurgency is understanding where there are weaknesses and focusing there. Your best ally in this fight is local providers who won’t change for a variety of reasons. Leverage that, think hard about the organization whose patients you have to pick off to win. Some examples of specific signs of exposure: health systems with high payor rates (and often the high-cost structure that goes with it), systems with poor EDs (and hence a bad or mediocre reputation in the community), or even good systems with CEOs that will retire in a year or two (less likely to rock the boat at the end). The happier they are—the less likely they will immediately react to market signals, leverage that complacency.

In our next paper we will discuss how an integrated vision of health will mean a much broader definition of physical and mental wellbeing, with less traditional providers and methods of care.

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Footnotes: i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. xiii. xiv. xv. xvi. xvii. xviii. xix. xx. xxi. xxii. xxiii.

https://twitter.com/redistrict/status/1336349272950890497?lang=en Maryland hospital based reporting data https://investor.onemedical.com/news-releases/news-release-details/one-medical-announces-results-fourth-quarter-and-fullyear-2020 https://www.washingtonpost.com/lifestyle/home/before-you-pay-extra-to-join-a-concierge-medical-practice-consider-thesequestions/2019/10/21/90d8206a-ef8b-11e9-b648-76bcf86eb67e_story.html Fitbit Demographics and Consumer Insights | Numerator https://newrepublic.com/article/153870/inequality-death-america-life-expectancy-gap https://www.urban.org/sites/default/files/publication/49116/2000178-How-are-Income-and-Wealth-Linked-to-Health-andLongevity.pdf https://www.theatlantic.com/health/archive/2017/06/fixing-the-5-percent/532077/ https://www.healthsystemtracker.org/brief/a-look-at-people-who-have-persistently-high-spending-on-health-care/ https://www.nejm.org/doi/full/10.1056/NEJMsa1906848 https://www.fiercehealthcare.com/tech/tia-clinches-100m-as-investors-bank-women-s-health-startups https://asktia.com/article/a-new-and-distinctly-female-model-of-care-for-the-healthcare-system https://www.hrw.org/report/2018/07/23/you-dont-want-second-best/anti-lgbt-discrimination-us-health-care https://www.outfrontmagazine.com/gender-affirming-healthcare-app-plume-receives-14-million-in-funding/ https://www.fiercehealthcare.com/tech/folx-health-snaps-up-25m-to-expand-virtual-care-for-lgbtqia-community https://rockhealth.com/insights/enabling-more-inclusive-healthcare-four-market-approaches-to-lgbtq-digital-health/ https://revcycleintelligence.com/news/inpatient-no-longer-king-as-hospital-outpatient-revenue-grows https://revcycleintelligence.com/news/inpatient-no-longer-king-as-hospital-outpatient-revenue-grows https://wolfmediausa.com/2021/07/06/thought-leaders-unprecedented-growth-in-outpatient-care-in-next-10-years/ https://dag.advisory.com/2015_E_DAG_Estimator/?var=b7602a01-33fe-4fae-9e91-772dd8de6c57 https://www.baltimoresun.com/health/bs-hs-hopkins-uae-stroke-20180130-story.html#:~:text=The%20United%20Arab%20 Emirates%20has,stroke%20patients%20across%20the%20globe. https://www.hopkinsmedicine.org/news/media/releases/major_gift_to_johns_hopkins_medicine_honors_uae_sheikh_zayed_bin_ sultan_al_nahyan https://www.baltimoresun.com/health/bs-hs-hopkins-bloomberg-20120412-story.html

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About Array Advisors Array Advisors is a healthcare strategy consulting and operations optimization firm dedicated to both improving the way healthcare is delivered and helping clients overcome their business challenges. The team can help clients with strategic plan development including market analysis, ambulatory and service line planning, provider strategies and integrated capital and facility planning as well as operational analysis including scenario modeling, benchmarking, and lean design.

Author Contacts

NEIL CARPENTER, MBA

JILLIAN BARBARO, MHA

Vice President Strategic Planning

Strategic Planner

d: 202-795-3707

d: 202-788-5631

m: 917-576-9980

jbarbaro@array-advisors.com

ncarpenter@array-advisors.com

ISABELLE MORATTI

ALEXANDRA LARAMEE, LCSW

Array Advisors Intern

Behavioral Health Clinical Operations

imoratti@array-advisors.com

alaramee@array-advisors.com

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