Meet Dan Mendelson, president and founder of Avalere Health. Founded in 2000, Avalere is a solutions company dedicated to helping health care organizations make better decisions. Based in Washington, D.C., the company develops strategies based on data and has worked with companies across the health care spectrum, including life sciences, managed care and providers including those delivering senior housing and care.
Spotlight on Technology
From the providers that you’re working with that approached Medicare Advantage plans about working together, what kind of data are you telling them that they need to be able to show?
Hospital quality data. It’s the clinical experience of the patient in the facility. If they are sent back to the hospital, where are they sent and why?
Basic EHR data?
The industry is finally getting to a point where they don’t all have EHRs, but they’re getting there.
And that facilitated the creation of our algorithms because we use those data to predict where the patient’s going to do best.
Mendelson grew the company from its inception and sold Avalere in 2015 to Inovalon in a $140 million transaction. He remains at the company’s helm. We sat down with him to learn about why data is so critical to solving the problems around caring for a growing senior population, why Medicare Advantage should be well positioned to participate in the space, and how senior living providers can do better to form partnerships with payers and prove their worth as a lower-cost setting for care.
Senior Housing News: Tell me about how you came to create Avalere.
Dan Mendelson: I was running the health office for the White House Office of Management and Budget under President Clinton. When that ended, I went on faculty at Duke University in its business school. I started teaching there, and I wanted to be in a consulting house that was close to the political action, but very focused on the commercial needs of providers, payers and life sciences companies.
I started the company in 2000 and then grew it organically from then until 2008. We took in private equity money in 2008 from ABS Capital, and then sold the company in full to Inovalon, a healthcare data company, in 2015.
I have great partners, and I’m still enjoying my role advising for the company.
Coming from the policy perspective, did you always know you had the entrepreneurial bent?
Yes. I saw an opportunity to build a company that was focused on data analytics and really leveraging knowledge into the space, and that’s why I started it up.
But what made you want to do it? Did you come from an entrepreneurial background, or was it just kind of one of those things you always wanted to do?
I wanted to do it because I saw an opportunity in the space, and I think there was a really strong need for independent and objective information. And our clients really appreciated the fact that we would give them the straight shot, we would be neutral, and then a lot of our a lot of our clients have strategic planning processes that needed better inputs. In other words, they would go off and do a strategic plan, but they would not be relying on good data, and it’s a very leveraged model. You can really start to bring insights into the settings very efficiently because everyone needs the same information.
Was there a lot of data available to be used at that point, when you started?
Absolutely. We already had government data, and then over the years, we’ve gotten better government data. We now have patient-identified Medicare data on all patients in systems, so we can track a patient from the hospital to the nursing home. We know whether they have had an experience with home health, whether they went into hospice. And so we can track the patient. For a nursing home, or even an acute care provider that’s starting to think about capitation and bundling, you need that kind of information in order to make good decisions about who to take care of it.
Why this is important to senior living, which is a private-pay business that, to be totally frank, has kind of shunned the government payers?
Over the years, we’ve worked with a lot of assisted living and other similar facilities. You’re exactly right that there has been a concerted strategy to stay out of the government reimbursement space. And I think that to some extent that has worked. However, there is still a relatively acute population in a lot of these facilities, and the government is looking at it again, and they will continue to look at it because they have equities there.
Most of these patients are Medicare patients, if not all. And so the experience that they have in assisted living will affect government expenditures. And in addition, if there’s a clinical mix of patients in an assisted living facility, the government’s going to feel like it has some equites in protecting those patients — not only the federal government, also states. I tend to believe that it is strongly in the interest of the assisted living community to think about this carefully and to come to some kind of agreement about what constitutes the appropriate level of regulatory intervention, because the last thing you want is to let the government figure that out.
I think that’s one of the things that the nursing home industry did poorly in the 1980s. The fact is that it was a non-regulated environment, and patients were not treated properly, and as a result, the government came in and regulated it a lot more aggressively than they would have had to if there have been a joint approach where the industry would come to the table.
Now you have the industry at the table, and they’re in discussions with CMS, but I do think that at some point assisted living will be more heavily regulated, and it makes sense for the industry to be thinking about what a rational approach would be to the government.
We saw a Government Accountability Office (GAO) report that came out a couple of weeks ago. In my opinion, it didn’t really have any real teeth. It covered what everybody already knew. I think the industry looks at the government and says “Hey, you’re not paying us to have people in our communities, so why should we care?”
GAO reports never have teeth, but the Justice Department has teeth and CMS has teeth and state regulators have teeth, so that’s really what you have to be thinking about.
Do you think we’ll get to a point where assisted living, specifically, starts to become government reimbursed at the federal level?
No. I don’t think the government wants to reimburse for assisted living; the government doesn’t like to reimburse for new things. However the government pays for Medicare Advantage, and pays for managed care in Medicaid. If a Medicare Advantage plan decided that it was cost effective to enter into a relationship with an assisted living facility, that could actually be a really excellent commercial relationship for the assisted living facility. We’re already starting to see a little bit of that in the market today. Again, that is something that could actually be a new revenue stream for assisted living. That’s not a bad thing to start thinking about.
I don’t think the government wants to reimburse for assisted living; the government doesn’t like to reimburse for new things. However the government pays for Medicare Advantage, and pays for managed care in Medicaid. If a Medicare Advantage plan decided that it was cost effective to enter into a relationship with an assisted living facility, that could actually be a really excellent commercial relationship for the assisted living facility
From your experience, are providers coming up with their own Medicare Advantage programs, or are they actually approaching the ones that are already established?
They’re approaching established Medicare Advantage plans. To take a step back, when I was running OMB Health we had about 6% of seniors in Medicare Advantage, and now we have 35% of seniors in Medicare Advantage. So it has grown dramatically over the last 20 years, and it’s still growing dramatically and this administration has a very concerted strategy for continuing to grow Medicare Advantage. The desire is to move more patients out of fee-for-service, and by the way, that also very directly affects post-acute care. But move from fee-for-service into health plans, and as that happens there are going to be more plans that have large arrangements, more plans that have a relatively acute-needs patient mix and more plans that are potentially interested in engaging with senior living to better serve the population.
What role do you think senior living is going to play? Is it going to be for a short-term, post-acute episode to prevent fall risk? Everyone’s trying to figure out exactly what it means.
It’s a good question and it can mean different things at different times. [For example, MA plans] get paid more if [their] patients have routine mammograms, and if you have one of your enrollees in Medicare Advantage who’s living in an assisted living facility, the AL comes to the MA plan and says, ”’Hey, I’ll make you a deal. I’ll make sure that all of these patients are doing what they need to be doing and you pay me a little bit of money.” That kind of relationship is permissible and could be to the advantage of the plan, particularly if the AL can show that re-hospitalizations are reduced in that setting.
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Are you saying that there are opportunities for more than just your typical “They fall. They break their hip. They need to go into assisted living for a few days?” Do you think there’s more of a continuous relationship, where it could actually be marketed?
That’s another way that AL can help Medicare Advantage plans; to be a marketing arm. There’s an economic value to that as well.
I wonder if assisted living is actually prepared to start receiving reimbursements from a government payer when it’s never been their business before.
But Medicare Advantage plans are not government payers. They’re commercial health plans and they’re into ROI and it’s a relatively unregulated stream of funding, and I will say again from having worked across a lot of different areas that there are all sorts of businesses that have flourished providing services to Medicare Advantage.
There are analytics services, there are home health services, and great little businesses that go in and put on the T-shirt of the Medicare Advantage plan and check up on the patient after they’ve been discharged from the hospital, and these have been great. A lot of them have been wildly successful. So the health plan just needs to know that you’re going to return on the fees that you’re getting. That can be the basis of a good relationship.
But that’s unregulated dollars for the AL.
From the providers that you’ve been working with, do you think they’re enabled technology-wise to actually meet the needs of what the Medicare Advantage plan needs from the data perspective?
In a nutshell, no. Most of them do not have the kind of data feeds that a Medicare Advantage plan would want. But with that said, it’s possible to create data feeds. We’ve actually done some work with a couple of AL facilities where they started collecting data and found the data were really valuable for other purposes, so those pieces can have collateral benefits as well.
We talk a lot about technology and data, yet I still go to assisted living communities and I can’t get a Wi-Fi signal. Do you think there will be issues from a technology standpoint? Home health is going to be competing hard for these Medicare Advantage dollars, and I think people would rather stay home than to assisted living. Is there a strategy when you’re competing against home health?
I don’t see that in the market today. The plans want to care for patients as inexpensively as possible while maintaining the quality measures that they are accountable for. And that’s really kind of the metric, if you will. So if you can substitute home health for a SNF stay, you’re going to do it. If you can substitute inpatient rehab for a SNF stay, you’re going to do it. You’re going to go to the least expensive setting, and you never want to use long-term acute care (LTAC). But with respect to assisted living, it’s a little bit of a question mark. You don’t generally think about assisted living as being a substitute for home health care because typically it’s a longer stay. The home health care is actually relatively cost-effective, so you’re right that the plan is looking for the least expensive way to deliver the care. We’ve created analytic models to help plans understand what the best way is to care for a patient with a certain clinical presentation.
We pull in all of the clinical data for the patient and we run that through a set of algorithms and then we tell the plan what we think the most cost-effective way to care for the patient is going to be — whether it’s home health, sending the patient home without home health, or in some cases, it actually is cost-effective to send the patient to a nursing home.
When would it be cost-effective to send them to a nursing home?
If their risk of rehospitalization is higher in the home even with home health, that can really blow you out of the water. There are some patients [who have more acute needs] where it is actually cost-effective to send them to a nursing home.
The nursing homes will be happy about that.
Well, it’s a smaller population. So there are probably some nursing homes that are happy about it, but by and large I think that’s one of the reasons why you see volumes coming down. It’s because plans are using algorithms like ours, and when acute care providers are responsible for the cost of post-acute associated with the bundling of episodes, they’re also using our technology as well.
You talked about that algorithm, but you didn’t mention that assisted living was actually in those settings. Why not?
We didn’t look at assisted living.
Because we don’t have data on assisted living. We have data on all many different settings, but the assisted living settings are unregulated and the government doesn’t pay for those services, so we don’t get AL information in our data feeds. I do think that it is strategically to the advantage of assisted living operators to start thinking about that, to start wiring and to be able to generate data feeds so that there can be a basis of a relationship with plans and providers that want to engage with them in that way.
Can you disclose who you’re working with?
No, actually, but it’s public that we’ve done a lot of work with Kindred Healthcare. Kindred has a very diverse set of assets, as you know, and they have been great to work with because of that full range of services that they provide.
I only know of two or three different assisted living companies that are currently involved in Medicare Advantage plans. In five years do you think it’ll be dramatically different?
Yes, I do.
What percentage would you guess?
It’s always a little bit hazardous to venture a projection, but I’d say it little bit differently that I think there is going to be a strong strategic advantage for ALs that are in highly concentrated MA markets. And by the way, right now, it costs nothing if you’re running an AL to go over and get to know the CEO of the local Medicare Advantage plan to find out what’s in their strategic plan to understand how you can help and engage in that way.
Is it really that simple?
I think it really is. Maybe it isn’t the CEO of the plan, maybe it’s the head of clinical or someone that you happen to meet in the Chamber of Commerce, but [it’s easy] to ask them ‘What are your needs?’ and ‘Do you see benefits to engaging with AL?’ Part of it also depends on what’s in the strategic plan of the AL; whether they need more volume, or whether they’re looking to increase the affluence of the residents or whatever is in their strategic plan [that] could possibly be accomplished with a health plan as a partner. So health plans can be very effective partners for ALs, and that’s something that we have worked on with selected ALs, is helping them align their strategies with the strategies that the plans are adopting in those areas.
Should assisted-living providers to be looking at Medicare Advantage as a referral source? Or as something to help keep their residents in their communities longer? Or both?
It can be both. It’s a symbiotic relationship. We’ve even had some Medicare Advantage plans start thinking about acquiring into the space.
We just saw Humana do it with their Kindred deal. It makes a lot of sense.
Exactly. Think about what’s happening strategically. Granted, the Humana acquisitions are the home health assets of Kindred, and not the institutional assets. But look at what United [Healthcare] is doing in buying up physician practices and home health practices. There could be a compelling argument that the next round of liquidity for assisted living will be health plans buying into the space, and I think also that in that context, understanding who the residents are from a clinical perspective is critical.
Plans are very sophisticated. They know and they understand it, so they’ll want to engage in that way.
You’re the first person who has brought up seeing the health insurance companies actually potentially buying providers.
There’s no question.
Do you think they’re paying attention right now?
Yes, a couple of them are. If you look at kind of all the different asset classes, assisted living is nicely synergistic with what the health plan is trying to accomplish.
In what way?
First of all, because it is a non-regulated stream event of income, there’s a benefit to that. We all know that. But if you look, for example right now, at UnitedHealthcare, they have about half of their profitability coming from … [unregulated] revenue. They like that. It helps build stability. So when you think about home health, part of it is regulated and part of it is not regulated. Whereas skilled nursing, 90-plus percent is regulated dollars. It’s not as attractive. The plans are definitely starting to think about that.
You’re the first person I’ve been able to talk to about Medicare Advantage in senior living. We’ve tried to talk to people about it, but most aren’t thinking about it. What would you tell a senior living executive as to why they need to get into Medicare Advantage?
Medicare Advantage is growing rapidly. This administration wants to accelerate the growth of Medicare Advantage. When Medicare Advantage becomes 50% of Medicare spending, it’s game over. That’s called Medicare reform. And then they’ll stop worrying about payment systems — that is, five to ten years from now. But think about it. Growing by 5% to 7% a year, compounded growth, there will be some areas — like some rural areas and places where it’s hard to create networks — where Medicare Advantage will not thrive unless the rules are changed. But then conversely, in some places like New York City and in Florida and in most of California, Medicare Advantage already is the dominant form.
So one reason is growth. Another is the value proposition that the plans and the assisted living facilities are really trying to accomplish the same thing. They’re trying to keep patients healthy at home, and independent for as long as possible, and to defer or eliminate medical expenses. So they have a joint process, if you will. The third really is the changes in the shape of the health care system and the blurring of the lines between plans and providers. If an assisted living facility has a relatively acute mix of patients, and they are patients that are already members of a Medicare Advantage plan, there’s a real benefit to that MA plan being able to engage.
Has Avalere done any studies about what percentage of senior living residents are actually part of Medicare Advantage plans?
No, and this is a place where a lot more research needs to be done. The one criticism I would make of the assisted living industry is that the leaders have really not come together aggressively enough to do the kinds of analytic studies to start showing the value proposition to external folks, which by the way only helps the industry at large because it drives valuations, and it helps to create a positive fiscal future. So what is the value proposition? How many Medicare Advantage individuals are in these facilities? Are there places of high concentration of Medicare Advantage? Those are some of the questions that the industry really should be focused on, and the value proposition is the most important thing. Do senior living facilities really keep patients healthier? Do they keep patients out of the hospital? Are they able to defer medical expenses? Proving that would go really a long way towards raising the profile of the space.
The one criticism I would make of the assisted living industry is that the leaders have really not come together aggressively enough to do the kinds of analytic studies to start showing the value proposition to external folks, which by the way only helps the industry at large because it drives valuations, and it helps to create a positive fiscal future.
Do you think the profile needs to be raised?
I think it would be to an advantage to the industry. I know that there are some who do not believe that.
Why don’t you think they believe that?
It’s all in the desire to escape regulation. I look at the market cap of the pharmaceutical industry and of the health plans. And the fact that they are regulated is just a cost of doing business. To me the regulatory approach to AL should be really light, but that regulatory approach could also indemnify from litigation — and all ALs face a lot of litigation. Patients get hurt in AL. Look, a patient gets hurt taking the drug that’s approved by the FDA. Guess what the defense is? It’s approved by the FDA. There is an element of protection that good businesses get from some level of regulatory intervention that is not afforded to the AL industry at this point.
In order to have that protection, assisted living needs to actually be able to show data, and show what was done but frankly, right now, it doesn’t seem like the industry is actually ready for that.
What types of technologies do you think the industry needs to in order to sit at the table with Medicare Advantage plans?
Basic information on the patient and the experience of the resident. Some of the plans, interestingly, are experimenting with home technology right now, [such as] cardiovascular monitors and scales for diabetic patients. They monitor weight gain, for example. And some technology that you see in AL today could be really attractive to plans. That might be one way that some ALs could develop relationships with plans or with forward-thinking providers that are taking risk.
In other words, if you already have scales and some assistive devices wired into your facility, talk with a with the MA planner or integrated provider in the area and say: ‘Would you like to experiment a little bit with seeing whether this has an effect?’
Two words you just said, experiment and risk, are two things that I hear a lot with Medicare Advantage programs, especially in home health. Do you think assisted living is going to have to start to share in any of that risk that’s being taken under these plans?
I think we’re a long way from that. The plans are increasingly shifting risk to hospitals and to large integrated physician groups because they know that doing that is beneficial, and is in fact lucrative for them. If a plan can align a provider with its quality incentives, they are more likely to be able to get the benefit of that. Now the reason why I say that it’s remote in assisted living is [because] we don’t have a lot of quality measures that are aligned into the assisted living facilities specifically. A lot of the quality measures like the ones that I mentioned before — rehospitalization, diabetes — could be aligned with what AL could provide, but right now, you don’t see a lot of that focus in the industry.