Author Archive

The Covid Pandemic: Interface with the Healthcare System, the Economy, Race, Politics, and History

Thursday, June 4th, 2020

In this UCSF Medical Grand Rounds presentation (June 4, 2020), four world-renowned experts discuss the wide-ranging implications and challenges of the Covid-19 pandemic with regard to the healthcare system, the economy, race, politics, ethics, and history. What will the lasting changes be? What can we learn from history? The session is hosted by UCSF Department of Medicine chair Bob Wachter.

Covid-19: The End of the Game

Tuesday, May 19th, 2020

Back in the early 2000s I was on the board of the California Health Care Foundation and one day the German Minister of Health paid CHCF a visit as part of a learning tour of American healthcare. Mark Smith MD CHCF’s CEO invited me to join the meeting with the minister. She was a delightful person who didn’t speak much English, but because she was accompanied by her handler/translator we managed to communicate just fine. Mark and I tried to explain to the Minister how the American healthcare system worked, and we got to the point in the conversation about the money. The essence of the “game” we described was that commercial insurers (particularly self-insured employers) paid a significant multiple of cost (sometimes in excess of 300% of costs) in order to make the math work for providers. We explained that the game works only if these purchasers paid much higher prices. I don’t speak German, but I think she said: “What The F**k?!”. Exactly.

As we enter the Post COVID world, a key question is: Will healthcare simply restart this game? Or make it even more extreme, in fact, by providers turning to those commercial insurers and self-insured employers to make up the difference for the COVID “Elective Collapse Recession” that has so traumatized provider’s finances including hospitals, specialists, primary care, and dentists leading to job cuts, furloughs, salary reductions and bankruptcies of providers.

A number of recent articles have pointed to how the game works. In particular, the always superb New York Time’s columnist Sarah Kliff’s review of the Mayo Clinic and the other highflying institutions whose excellence is rewarded not by value based reimbursement but by high prices for commercial activity under a relatively benign payor mix (industry code for “don’t see a lot of poor people, uninsured or on Medicaid”).

Mayo is not alone. Every hospital I know plays a variant of this game. Some in less generous environments like Arkansas live leaner to the bone to make the math work, lucky to make 130% of Medicare on the commercial side. A tiny few, like my friends at the Benefis Health System in Montana, through passionate focus on operational excellence and a run lean culture, actually can make money on Medicare. But they are exceptional. Many if not most hospitals with more dominant market positions are able to generate in excess of 300% of Medicare on their commercial contracts including many of the country’s leading academic medical centers. And many titrate down their public payment patient mix to keep the game going. As I used to joke to hospital CEOs of financially struggling hospitals, “just move your hospital to the affluent suburbs”. Some did.

RAND has documented in studies of actual paid claims for commercial insurance that on average hospitals charge 241% of Medicare across the 25 or states covered in the analysis. I’m sure all these institutions make wonderful use of the money subsidizing research, uncompensated care, and the salaries of employed physicians especially academic doctors who are teaching the next generation. But all of these worthy activities are enabled from money derived from the game.

George Halvorson, former Kaiser CEO, proposed recently on The Health Care Blog an alternative funding scheme using a 20% payroll tax (paid equally by employer and employee) that would be used to fund a Medicare Advantage type program for All. (I proposed a similar solution twenty years ago in Healthcare in the New Millennium:  Vision, Values and Leadership, Jossey-Bass 2000, pp 231-2).  It might be a better alternative, but I am not sure we can get from here to there and especially by demanding high paying enterprises like Apple, Google and Facebook embrace a 20 percent payroll tax.

In the wake of COVID, hospitals have received one-time financial support from the Federal government to shore up both costs of care for the afflicted by the disease and for the financial damage of suspended clinical operations. Ironically, the share of non-COVID case-related reimbursement was distributed proportional to net patient revenue, in other words revenue gained in the game.

Absent a meaningful alternative like Medicare Advantage for All, to date employers have been complicit in the game and (while not exactly thrilled) have tolerated it for decades. Their coping mechanism has been to transfer the burden of rising costs and prices to their employees progressively over the last 20 years through the magic of high deductible healthcare. Sharing the pain with their employees and making them miserable in the process as workers face the weird reality of rising out-of-pocket costs, surprise bills, and denials of coverage.

Health plans see no real reason to change the game. They can make money on managing Medicare and Medicaid and are eager to do so, while commercial small group insurance is even more profitable. But the majority of Americans with private health insurance, over 60% by most estimates, are employees and dependents of self-insured employers including giant corporations such as Boeing, Disney and Walmart. Insurers typically charge on an ASO (Administrative Services Only) basis charging about 3% to manage networks and pay claims. But remember 3% of a big number is a big number. So plans are not exceptionally motivated to change the game.

All this works if self-insured employers rejoin the game post-COVID. But will they?

Ironically, employers have seen their health spend per employee drop dramatically in the Covid shut down by as much as 20-50%, but it is cold comfort if you are an in an industry that may have seen revenue plummet and you are now facing financial collapse and lay-offs: think airlines, hotels, hospitality and virtually all non-Amazon, non-Grocery retail.

Unemployment claims are up over 36 million, many of those jobs are not coming back in the next 12 months. In fact, I have gone as far as saying that January 2020 was the all time high in level of employer sponsored coverage never to be reached again. A full 10-40 million Americans are likely to migrate to Medicaid and the uninsured rolls in the next year as we stagger back to some kind of an economic recovery.

But as we return to a New Normal, employers are deeply concerned that they are going to be asked to pay higher prices in 2021 as providers try to make up losses. They fear greater consolidation in healthcare as weaker players capitulate and strong, regional health systems get even stronger with greater market power and control over primary and specialty care.  And they are concerned that some of the positive short-term regulatory relief (enabling telehealth and scope of practice easing) will be rolled back, post Covid. Let’s hope not.

Don’t be surprised to see employers step up to this moment and finally do what they have not done to date, namely massify their economic firepower and act in a concerted way to change the game. After all, they are the financial lifeblood for the entire healthcare system.

Employers could demand greater accountability for performance on measures of outcome, appropriateness, and demand a focus on ubiquitous technologically sophisticated primary care.

They could turbo-charge efforts to codify Centers of Excellence models as the means of accessing appropriate, high quality, elective services using mandatory or highly incentivized benefit designs to have patients patronize only select high performers. To date the Wal-Mart and PBGH Center of Excellence models have saved money not so much by price discounting but by reducing inappropriate care by 20-50%.

COVID is like high deductible health care. It is a blunt instrument that has reduced appropriate and inappropriate care in probably equal measure (we don’t know yet in the case of COVID-foregone electives).  But I don’t think employers will just go back to endorsing access to elective healthcare at ever escalating prices without asking some tough questions. 

If you are a plan or a provider. Don’t just assume that the game just comes back. There may be new rules.

Original source:

Tuesday, May 19th, 2020

The THCB Gang Episode 6

Thursday, April 23rd, 2020

Episode 6 of “The THCB Gang” was live-streamed on Thursday, April 23 at 1pm PT- 4pm ET! 4-6 semi-regular guests drawn from THCB authors and other assorted old friends of mine will talk about health care business, politics, practice, and tech. It’s available below and is preserved as a weekly podcast available on our iTunes & Spotify channels.

Our lineup included: Saurabh Jha (@roguerad), Ian Morrison (@seccurve), Kim Bellard (@kimbbellard), Grace Cordovano (@GraceCordovano),Vince Kuraitis (@VinceKuraitis), Brian Klepper (@bklepper1), and a special guest – Alexandra Drane (@adrane, founder of Eliza, Queen of the Unmentionables, CEO of ArchAngels and sometimes Walmart cashier). Lots of great conversation especially around palliative care, patient experience, the real prevalence of COVID-19 and much more.

The THCB Gang Episode 4

Thursday, April 9th, 2020

Episode 4 of “The THCB Gang” was live-streamed Thursday April 9. You can see it below and it’s also preserved as a weekly podcast available on our iTunes & Spotify channels. Every Thursday at 1pm PT-4pm ET, 4-6 semi-regular guests drawn from THCB authors and other assorted old friends of mine will talk about health care business, politics, practice, and tech. It tries to be fun but serious and informative!

This week, joining me were Jane Sarasohn Kahn (@healthythinker), Anish Koka (@anish_koka), Saurabh Jha (@roguerad), Elizabeth Clayborne (@DrElizPC), and Ian Morrison (@seccurve). A fun and very informative discussion about where the COVID-19 crisis is right now and what it’s going to mean both now and in the near future 

The THCB Gang Episode 2

Friday, March 27th, 2020

This episode of “The THCB Gang” is up here as a video (you could also see it live at 1PT/4ET every Thursday) and it’s also preserved as a weekly podcast and available on our Itunes & Spotify channels a day or so later. Each week 4-6 semi-regular guests drawn from THCB authors and other assorted old friends of mine will talk about health care business, politics, practice, and tech. It should be fun but serious and informative!

This week, joining me was Michael Millenson (@MLMillenson), Grace Cordovano (@GraceCordovano), Vince Kuraitis (@VinceKuraitis), Brian Klepper (@bklepper1) Ian Morrison (@seccurve) & Anish Koka (@anish_koka). A fun and argumentative discussion about where the COVID-19 crisis is right now and what it’s going to mean both now and in the near future

The THCB Gang Episode 1

Thursday, March 19th, 2020

Starting today we are going to create a new live show on THCB that will be preserved as a weekly podcast. I’m calling it The THCB Gang. Each week 4-6 semi regular guests drawn from THCB authors and other assorted old friends of mine will shoot the shit about health care business, politics and tech. It should be fun but serious and informative!

Médecins sans Hôpitaux (Doctors without Hospitals)

Wednesday, April 4th, 2018

There is lots of talk of disruption in healthcare particularly involving new entrants and weird combinations such as the CVS-Aetna merger, CIGNA and Express Scripts, Amazon Berkshire Hathaway and J.P. Morgan, and now Wal-Mart and Humana all claiming to transform healthcare. At the same time, we are seeing continued consolidation in the traditional healthcare industry with hospital systems merging at the local, regional and national level.

The rise of consumerism is affecting healthcare particularly the retail/primary care area where consumers are spending with their own money in a world of high-deductible healthcare.

The growth of digital health offers the opportunity to disrupt traditional care interactions in both the management of chronic conditions and in routine primary care. And there is a whole new set of patient decision-makers such as millennials who bringing with them different sensibilities in terms of access to services.

Doctors: Disruption and Discontent

Where are doctors in all of this change? One megatrend has been the increasing consolidation of physicians into larger group practices on the one hand and increasingly in employed relationships with hospitals on the other. Recently the American Medical Association (AMA) survey shows that approximately a third of physicians are employed directly by hospitals or by practices either owned wholly or in part by hospitals (Table below).

Source: AMA, 2017

Among the third of physicians that currently work for hospital systems there is strong anecdotal evidence and some survey evidence that there is considerable buyers’ and sellers’ remorse among those hospitals and physician practices. Indeed, there has been a “cooling of ardor” toward hospital owned physician practice by both parties. Some physicians are now realizing they have sold out “to the man” and have reduced autonomy and control. Conversely, some hospital leaders are realizing they are subsidizing the incomes of the employed physicians to the tune of tens if not hundreds of thousands of dollars per year per physician and experiencing declining productivity among the newly salaried doctors. Nevertheless these employed physicians are a core component of most health systems’ strategy going forward, as we explore below.

In 2011 my colleagues (at Nielsen at the time) developed a segmentation of physicians based on surveys of attitudes of physicians to practice arrangements and industry trends such as electronic health records, payment reform and evidence based medicine. At one extreme was a segment of Blazing Believers, those who had “drunk the Don Berwick Kool-Aid” in that they were willing to be on salary, believed in large group practice, believed in the use of electronic health records (EHRs) and evidence based medicine. Approximately 37% of doctors were in this category by 2016 rising steadily each year from 23% in 2012. At the other extreme were the independent resisters, think “cranky old surgeons from Texas” who were more likely to be in solo practice and less likely to be enthused about groups, salaried employment, EHRs and so forth. Resisters comprised approximately 30% of physicians the remaining third were split almost evenly between what we labeled optimistic intenders (12%) physicians that have not experienced integration but were open to it and a fourth category, reluctant objectors (20%) who had tried integration and did not like the experience.

Changing practice circumstances in combination with payment reform pressures, increased scrutiny of quality, heightened reporting requirements, and angst over the electronic health record have led to rising physician discontent. This is not new. A similar trend existed in the 1990s as managed-care took hold. The fever broke with the managed-care backlash and physician satisfaction bounced back and was relatively high in the early 2000s. Over the last seven years surveys show continued growing physician dissatisfaction with practice (not a majority of physicians to be sure but a significant plurality (40%) reportedly dissatisfied with practice).

Surveys also reveal high levels of burnout with the majority of all specialties and 56% of all physicians nationally responding they are burned out. More recently physicians have described to me that the more accurate term is “demoralization” reflecting the compounding effects of these broader changes that undermine the autonomy, authority, independence, and stature of physicians.

It is against this backdrop of change that we are seeing alternative models proliferate in terms of offering physicians new ways to practice.

Three Buckets of Physicians

In my travels I see many hospital systems with three buckets of doctors. The first bucket is the employed multispecialty medical group (usually split evenly between primary care and specialists) which has grown rapidly over the last few years both organically through recruitment, and through acquisition. In many markets across the country, from Oklahoma to Oregon, from Mississippi to Maine, these groups account for a third or more of all the physicians practicing in the institution and perhaps an even higher proportion of admissions and all clinical activity. A second bucket is the loyal medical staff most of whom practice in traditional solo, small group or single specialty group arrangements. In some cases these physicians are included in the clinical integration organization legal structure that enables activities such as care coordination, managed care contracting, and population health activities but often this second bucket are simply the loyal medical staff who practice exclusively in the health system. The third bucket is the community-based physicians some of whom maybe “splitters” working with competing health systems, some may be in more entrepreneurial mode operating independent surgery centers or in procedural oriented specialties such as orthopedics, ophthalmology, dermatology, or plastic surgery where they do not need to have a close full time relationship with the hospital. Most health systems are trying to drive more of the clinical activity towards the first bucket, but recognize the central importance of the other two buckets as key revenue generators for the foreseeable future.

My friend Daniel Varga M.D. Chief Clinical Officer for Texas Health Resources talks eloquently about the need for THR (and all health systems) to develop “economic docking opportunities” with all three buckets of physicians. And that makes good sense to me. However, increasingly health systems are not the only place that this third bucket or even the second bucket of physicians look for practice opportunities.

Increasingly, we are seeing publicly traded companies, as well as private equity and venture capital backed initiatives that are seeking to organize physicians in different ways then the traditional relationship with independent practitioners, small or large groups or hospital owned practice.

Here are some interesting examples of physician consolidators. Each has a very different approach to the marketplace.

One Medical is a nationally growing member-based primary care practice founded originally by Dr. Tom Lee a pioneering, highly trained physician MBA entrepreneur who created an innovative environment for primary care physicians to practice using high-tech, high touch medical care targeted perfectly to the Uber generation. Well-funded by elite venture capital investors including the prestigious Google Ventures and Benchmark Capital, One Medical is growing rapidly in the San Francisco Bay Area and in other sister markets such as New York, Washington DC, Boston, Chicago, Phoenix, Seattle, Los Angeles and beyond. Their new CEO, Amir Dan Rubin formerly CEO of the Stanford Health Care system and more recently executive vice president at Optum brings vast experience in managing leading edge provider systems at scale. Amir Rubin is building on One Medical’s vision to transform the patient care experience for primary care physicians and their patients leveraging technology and value based care, while growing employer sponsorship for membership for their employees. One Medical will continue to grow as it provide opportunities for young tech savvy physicians to practice the way they really want and for patients to get primary care on their terms.

Amir notes that, “One Medical is focused on transforming health care by delighting consumers with 90% Net Promotor Scores, delivering premier health outcomes, reducing the total cost of care, and engaging providers and technologists within an outstanding environment.”

Oak Street Health is a venture backed primary care service in Illinois and Indiana with growing footprint in the Midwest focused on vulnerable elderly populations. Their model as I understand it, mirrors the pioneering work of CareMore (a medical group that is now part of the Anthem family) that focused on providing coordinated care to frail dual eligible elders on a capitated basis. The revenue flow for such patients is enormous on a Per Member Per Month (PMPM) basis and with prudent management and population health and primary care concierge medical services, has the potential (as CareMore did in its day) to dramatically reduce unnecessary hospitalization and costs.

Core Institute is a private equity backed orthopedic, neurology and spine health practice based in Phoenix and expanding to other markets such as Michigan. Core’s model is a “focused factory” that improves quality and dramatically reduces costs in high volume orthopedics such as hip and knee replacement with a special focus on bundled payment opportunities. They also have a rapidly growing management and advisory services practice helping hospitals manage and optimize their orthopedic service lines.

Optum is the rapidly growing $91 billion revenue health services company buried inside the behemoth $200 billion United Health Group. Optum has built its own monster PBM and has stealthily acquired other physician practice and other healthcare delivery assets such as 200 Ambulatory surgery centers through their purchase of Surgical Care Affiliates, and 280 Urgent Care Centers through their purchase of Med Express. Optum has reportedly 20,000 affiliated physicians and has added to their portfolio recently with the acquisition of the former Healthcare Partners Practices that were previously owned by Da Vita with 2,000 employed or affiliated physicians. All of these delivery assets can be brought to bear on the 91 million lives served one way or another by Optum. In particular, 75 geographic markets have been targeted for OptumCare primary care driven practices (35 already penetrated) according to United Health Group’s most recent financial filings.

Investor Backed Ambulatory Services are growing in many states especially where there is no Certificate of Need legislation. A previous column ( focused on the future of emergency medicine highlighted there are 10,000 urgent care centers, 5,000 ambulatory surgery centers, 2,800 retail clinics and more than 500 freestanding emergency rooms in the United States. In addition, there are numerous micro hospitals and diagnostic imaging centers that either employ or partner with community based physicians. These new settings provide increased opportunities for physicians to practice without hospitals.

Physician Led ACOs are proliferating rapidly with one study found: “As of January 1, 2017, half of the 480 organizations participating in the government’s Medicare Shared Savings Program (MSSP) — which offers upside potential and downside protection for the 438 Accountable Care Organizations (ACOs) in what the Centers for Medicare & Medicaid Services (CMS) refers to as Track 1 — reported to CMS that they are composed solely of networks of individual physician or small group practices”. This study and others seem to show that “small is beautiful” with independent physician led ACOs apparently out performing ACOs on average. ( )

Physician Outsourcers such as Team Health, MedNax, AMN are for profit health service companies. They are not traditional healthcare providers and yet they organize tens of thousands of physicians. Team Health has 20,000 affiliated physicians and provides physicians for hospitals and health systems in several specialties especially emergency medicine, anesthesiology and hospital medicine. MedNax is a physician aggregator/outsourcer with revenues of $3.5 billion and over 4,000 employed or affiliated physicians focused primarily on pediatrics, obstetrics and anesthesiology (including through their well know Pediatrix and Obstetrix brands). For example, MedNax physicians represent over 20% of the nation’s neonatologists (1,125 of the estimated 5,300 neonatologists nationally according to company presentations to investor conferences). AMN is the largest healthcare staffing company with $2 billion in revenue that provides a wide range of healthcare workforce solutions including physicians recruitment, nurse staffing, locum tenens and healthcare workforce optimization services. All of these companies position themselves as providing diverse opportunities for physicians to practice the way they want.


So what does this all mean for hospitals and healthcare systems across the country?

• Looking for Doctors. At every health system board or management retreat I have been involved with in the last five years (and there are a lot of them all over the country) one common recurring strategic issue is attracting and retaining physicians. For the old hands out there, this is not exactly breaking news. This is how the game has been played for a century. But it is different now. All the consolidation, disruption, shift to the ambulatory environment, coverage expansion, physician demoralization, changing character of the labor force in terms of gender and lifestyle all combine to increase the challenge of recruitment and retention of physicians. Whether it is because of over priced housing markets in the Bay Area or Boston, or disinterest in taking call, or an overall shortage of physicians, or all the intervening opportunities described here, most health systems are having trouble attracting physicians. Except Kaiser of course.

• Doctors are Unsettled. While hospital based employment provides economic security and (in many cases subsidy) it is not for everyone. Whether it is burnout or demoralization there is no doubt that doctors are unsettled. And many of them are entrepreneurial and value autonomy over anything else (for many physicians, that’s why they went into medicine in the first place so they don’t have to work for a boss). The new plethora of practice arrangements especially with investor backing may represent an attractive option. (Actually making money in these investor backed ventures is a whole other matter as evidenced by the horrible financial history of Physician Practice Management companies in the 1990s).

• Not Either/Or. The healthcare outsources like AMN and Team Health work with health systems, the disruptors like CVS-Aetna will partner with health systems, the focused factories like Core Institute may build significant ambulatory operations and still partner with health systems. Like Silicon Valley learned decades ago you need to simultaneously collaborate and compete. Get used to it.

• But People will get Sick. No matter how successful disruptors and innovators are there will still be sick, vulnerable patients needing hospitalization. Your I-Phone won’t change your diapers, or turn you in bed at four in the morning, or bring together hundreds of highly-trained professionals, just for you, to deliver complex care like transplantation. And let’s not forget that complex care for the sick is where the money is in healthcare. Just 5% of patients account for 50% of costs and a lot of it quite frankly is not easily disruptible, no matter how many PowerPoints argue the contrary. We will need hospitals, doctors and nurses in our future more than ever as we age and get sicker as a society. But hospitals must understand that Médecins sans Hôpitaux will have an effect on their strategy and operations as physicians have more opportunities to practice in a wider range of settings.

Ian Morrison PhD is an author, consultant and futurist in Menlo Park, California

Consumerism and Disruption: Lessons from Florida Blue

Tuesday, February 6th, 2018

As we enter a new year, the healthcare industry is once again all atwitter about the megatrends of the year. Chief among them is the rise of consumerism. I’ve been in the health futures business for over 30 years; Dude, every year is the start of the rise in consumerism.  It’s been the future for a long time.

But there is some validity to the argument that we have reached a tipping point in the role of consumers in healthcare, not the least of which is the increasing responsibilities consumers have for selecting plans, providers and treatment options and more importantly in paying out of pocket for the privilege of choosing.

Consumer “empowerment” to make selection plan and provider decisions is a major shift that has occurred not just in ACA Marketplaces but in Medicare Advantage (which continues to grow rapidly and accounts for a third of all Medicare enrollees) in managed Medicaid where in many states enrollees must make choices, and in the employer-sponsored market where more of the decision-making and economic burden is placed on consumers through higher deductibles and copayments.

Some conservative observers say this latter trend toward rising out of pocket costs is overplayed and cite the fact that relative share of out-of-pocket expenditures as a total of national healthcare expenditures is actually going down over time not up).   Nevertheless, the prevailing sense in the marketplace is that consumers are paying more out-of-pocket in absolute terms and perceive themselves to be paying a bigger share of costs (certainly in the employer-sponsored market).  Consumers are increasingly responsible for choices and are often ill-equipped to make those choices in a way that best serves their health.  (For example, there is a massive body of evidence that now that supports the obvious that high deductible care is a blunt instrument that causes patients to forego both necessary and unnecessary care in almost equal measure).

All actors in the healthcare system are trying to deal with consumerism in their own way. With mega deals such as the CVS acquisition of Aetna being consummated and as healthcare stakeholders anxiously eye Amazon, Apple, Google and Facebook as they lurk on the edge of the healthcare system.  There is considerable anxiety in the healthcare ecosystem about consumerist led disruption of conventional healthcare.

What is Consumerism?

Consumerism means different things to different people. One angle is the increased use of transparency and consumer navigation tools to guide choices particularly when those choices have significant financial incentives attached such as in narrow networks, reference pricing, high deductible health plans, tiered benefit designs and so forth.

A second dimension of consumerism is the sheer importance of consumer experience to providers and plans both in terms of patient acquisition, retention and loyalty as well as patient satisfaction (which increasingly carries dollars with it in terms of patient experience measures in value-based payment under Medicare and in Medicare Advantage).

Third, consumerism in healthcare is seen as a strategic imperative of meeting consumers’ expectations (particularly tech-savvy millennials) who increasingly have ever higher expectations of service industries driven by their positive experience with high technology enabled consumer offerings such as Netflix, Amazon, Uber and Air BNB.

Fourth, is the notion that consumers need to be more proactive and engaged in their own health and wellness and take more personal responsibility for health and lifestyle choices.  As one doctor asked me recently “when are the patients going to be accountable?”

Finally, perhaps the most significant dimension of healthcare consumerism is the economic out-of-pocket costs burden being placed on consumers going forward and the battle that ensues for wallet share in the wellness, health and healthcare industries that are now colliding.

We will cover all five of these threads in this discussion but it is important to recognize that they are different and in some senses complementary.

Healthcare Stakeholders on the Consumerism Journey

Hospitals are behind the curve in their understanding of consumers.   (They are quite advanced in their understanding of patients but that isn’t always the same thing).   Most Americans don’t get admitted to hospital in a year (only about 14%) while 80% of Americans visit a doctor, 90% now have a health plan relationship and probably even higher percentage visit a retail facility with a pharmacy.  Hospitals should know the answer to the basic consumer questions: how many unique consumers do you touch, who are they, what do you do for them, and how is that working for them and you?  As hospitals integrate across the continuum of care, absorb more risk and pursue population health initiatives, these questions become increasingly important.

With close to 90% of Americans having some relationship with health insurers, health plans have made significant strides to be more consumer friendly by improving their navigation tools, their customer service and support functions and their outreach to consumers.   Let’s be clear, health insurers are coming from a difficult position at the bottom of the heap of consumer ratings.  Technology leaders like Apple and elite retail and fast food outlets enjoy Net Promoter Scores in the 70s which are considered world class (Net Promoter Score is a measure of consumer loyalty and willingness to recommend a product or service on a scale of plus 100 to minus 100, a high positive score is desirable, 70-80 is considered world class).  Most of healthcare ranks pretty low in net promoter scores but there are exceptions like Kaiser and the Mayo Clinic.  The health insurance industry generally has negative or low double digit net promoter scores (just ahead of Al Qaeda in their trustworthiness and popularity), but progress is being made and many large insurers now tie executive compensation partly to improvement in net promoter scores and other consumer measures (United, Aetna, And Anthem in particular).

The Case of Florida Blue

So insurers, like others in the health industry are trying hard to reach out to consumers in new ways to enhance the experience.  Perhaps one of the most interesting examples is from Florida Blue (the Blue Cross Blues Shield Plan of Florida) who have a strong consumer focus and indeed have built a significant retail presence over the last few years.

I reached out to Patrick Geraghty, Florida Blue CEO, who was kind enough to walk me through his perspectives on consumerism and disruption from a health insurance point of view.

By way of context, Florida Blue operates under the umbrella of GuideWell Mutual Holding company (that Geraghty also leads) whose combined businesses have a current run rate of $16 billion in revenue with Florida Blue comprising almost 90% of that revenue base.   They operate or joint venture in a number of related business entities in both the insurance space, (such as Florida True Health, a joint venture a Medicaid managed care organization) as well as a portfolio of direct healthcare delivery operations such as medical clinics and freestanding emergency services.

Over the last decade GuideWell built capabilities in consumer navigation and population health acquiring a number of businesses that they seek to expand nationally.  Indeed, despite their obvious focus on the Florida market with 5 million members (almost a third of all Floridians) many of their businesses operate nationwide or in multiple states.  For example, their traditional Medicare business is the fee-for-service Medicare administrator for Medicare jurisdictions which account for 11 states, the District of Columbia, the Indian Health Service at the VA thereby being the back-office processor for millions of Medicare recipients. GuideWell is interacting with millions of consumers in a lot of different ways.

Pat Geraghty who came to lead Florida Blue from Minnesota is an industry veteran with great experience and enthusiasm for the positive role consumerism can play in transforming healthcare. He was kind enough to share his insights about Florida Blues’ pioneering experience in opening retail outlets in support of the core health insurance function and how it relates to the consumerism agenda.

In the last few years Florida Blue has opened 20 retail centers around the state (providing access to 80% of the population of Florida within a 30-mile radius of the centers).   These retail centers are conceived much in the way as an Apple store supports Apple products not just as a sales channel but as a service center, brand presence and product support function.

Geraghty told me: “health care is a system, from coverage to care, and many consumers need support in navigating the system,” much in the way many of us Apple users struggle to get the most out of our seemingly simple devices.  In some sense the Florida Blue retail centers are the “Genius Bar of Health Insurance”.

In exploring the contribution that retail centers have made to Florida Blues strategy, Geraghty laid out the importance of complementing not cannibalizing existing distribution and service channels.   “These retail centers are just one of many channels that support our products and services” he said.

In particular, when the two pilot retail stores were opened some years ago, brokers reacted negatively to the potential of them cannibalizing or undercutting traditional distribution channels to individual and small group purchasers.  Since then, the retail centers were recast and repositioned to supplement and partner with brokers rather than to supplant them.

When I asked Geraghty how Florida Blue got into the retail business he pointed to their analysis of the Massachusetts market (the early pioneer of exchanges) as a harbinger of what might happen under the Affordable Care Act.  Florida Blue examined the experience with the Massachusetts Connector (the pioneering Romney Care Exchange) where consumers would go online to select insurance but many people needed support in making decisions and customizing their selections.   Selecting health insurance is a complex choice “it’s not like buying an appliance” Geraghty said, “there’s a lot of complexity to the product and it is highly personal.”

The Florida Blue retail centers were conceived as a place to help navigate health insurance and healthcare choices and answer customer questions, but increasingly the retail centers integrate and co-locate other health services such as physician groups and wellness.

The retail concept has met with considerable positive feedback from consumers.   In the last year, 300,000 unique customers have visited across the 20 retail sites with customer satisfaction scores of 92% overall and 97% where clinical services are co-located.

The stereotypical user is not a confused, less well-educated, older, non-tech savvy customer as you might imagine.  Florida Blue executives were pleasantly surprised to find that a wide cross section of consumers were using their retail facilities for sales, service and product support such as Florida Blue’s “know before you go” tools that they provide to consumers who are embarking on significant interactions with the medical care system.  Indeed, Geraghty told me that a significant segment of retail customers were younger couples just starting a family who were seriously engaging with health insurance for the first time.

Florida is a particularly interesting state in terms of providing retail choice to individual health insurance consumers because it is home to the largest individual market in the country as measured by exchange enrollment.   Approximately 1.7 million Floridians have signed up for exchanges in 2018 according to CMS, and although, final numbers aren’t yet verified for Florida Blue, a good estimate is that one million members will be enrolled with Florida Blue through the exchange. With this scale and good operational discipline Geraghty told me with regard to the individual market: “we operate in the black”.

In the last year, the entire health insurance industry has experienced the roller coaster of withdrawal of Cost-Sharing Reduction (CSR) support causing strategic chaos and impairing the finances of most insurers in the individual market and accelerating exit from state markets by national players such as United and Anthem for 2018.  Removing CSR funding late in 2017 resulted in 15-30% increase in rates for 2018 in many states.  This is ameliorated for those lower income exchange customers (some 87% of people buying on the exchanges) who are getting some form of subsidy that insulates them from these rate increases (but doesn’t insulate the government from paying even more in premium subsidies).  Perversely, the withdrawal of CSR support in many states has led to bronze plans being even cheaper than 2017 for the lowest income consumers.

For non-subsidy consumers (those over 400% of FPL) rates have increased on average by 30% in Florida as in many states as the elimination of CSRs are priced in for 2018, and similar effects will be likely in 2019 as the repeal of the individual mandate takes effect.

The gap between the subsidy population and non-subsidy consumers will continue to widen in terms of what consumers actually pay with younger, lower income consumers getting plans that are almost free to them while upper and middle income older consumers in the non-subsidized individual market paying more than $1,500 per month (as I was going to do this year in California before getting on full blown fee for service Medicare at about a third of the cost, Yay!   Another column for another time).

The rules of engagement in the individual market must be resolved one way or another politically and economically in the twenty four months preferably to the benefit of all consumers and taxpayers.  The lack of clarity is frustrating health insurance industry leaders and making the lives of actuaries increasingly difficult.  As one CEO of a major national insurer told me recently: “This industry can change dramatically with just one stroke of a pen in Washington”.  The ultimate disruption.

No matter what the political and policy rollercoaster, part of the success Florida Blue has experienced in enrollment is the ability for these retail outlets to provide consumers of all types with an opportunity to truly understand the product and engage with confidence in their choices.

Sparked by the ACA and the rise of individual market Florida Blue deems their retail initiative a success and a key part all of an overall strategy of assisting all consumers in making informed choices. Recently, these retail centers have been expanded to include other services such as health risk appraisals, on site clinical services co-located with partners, and even providing consumers access to “test drives” and advice on selection of “wellness wearables” such as Fit Bits and smart watches.  Florida Blue continues the path of integrating complementary clinical services as their consumer facing strategy develops.

While focused on individual market consumers, members in other lines of business particularly the small group market also make use of these retail centers even though they may have a relationship with agents and brokers but use the retail center to complement the advice.  (Most of their self-insured employer customers have their internal employee benefit tools and navigation aids that are complementary).

Geraghty also told me of a recent acquisition PopHealthCare, a Nashville based company with presence in multiple states.  Geraghty sees this new asset as an exciting opportunity to expand the retail platform to help identify chronically patients in need of clinical services who could potentially have them delivered and managed through a combination of retail clinical offerings and home-based services. This is not dissimilar to the vision that CVS and Aetna’s merger hopes to yield by combining a physical retail presence locally with a sophisticated set of relationships and data analytics tools to identify high-cost populations that may be better treated with chronic care services in the retail and home-based setting.

It is important to point out that retail strategy is by no means the only method of communication with consumers.  Florida Blue (like most insurers) have extremely sophisticated in-bound and outbound call center operations, web-based solutions and digital outreach using multiple technology platforms, all supported by data analytics to help engage with consumers in all of their lines of business from Medicare to the individual market.

Dealing with Disruption

When I asked Geraghty about what keeps him up at night in terms of disruption and where that disruption may come from whether it be Silicon Valley, retail giants like CVS or Amazon or some other weird new upstarts, he adroitly pointed out: “anyone who isn’t paranoid isn’t paying attention.”

“Our goal is to try and disrupt ourselves”, he said which I think is wise advice.  I wrote a book The Second Curve more than 20 years ago about change in business generally (the first curve being the incumbent the second curve being the disruptor).  Great companies that endure like IBM have been successful in disrupting themselves but it is not an easy thing to do.  Certainly other leaders in healthcare such as Providence-St Joseph and Kaiser are pursuing a strategy of self-disruption as a motivation for their teams to continuously innovate.   See a previous column

As Geraghty told me, while healthcare seems ripe for disruption it is not necessarily true that everyone wants to be an insurance company. I’ve described before what I call the mutual disrespect problem within healthcare: everybody thinks everybody else’s job is easy and anyone can do what an insurance company does.  It turns out it’s not that easy to be an insurer as provider sponsored health plans and venture capital backed insurance upstarts alike are finding out.

The real growth and potential disruption is in adjacent services.  A good example is the rapid growth of the Optum division of United Health.   Optum now has annual revenues in excess of $80 billion much of it related to PBM activity.  Similarly, the CVS-Aetna deal is spun around at its core a massive PBM operation.   Incumbents such as Optum, Anthem, Aetna, Cambia and other insurers have significant service and technology businesses and population health offerings.  At the same time, there are a myriad of health 2.0. offerings being developed to compete in these adjacent services.  Geraghty argues that the more intense disruptive activity will occur among these related service offerings beyond traditional insurance.

It makes sense to anticipate that the core health insurance functions of claims processing, network development and customer service and support and so forth will see continue consolidation with more horizontal rather than vertical integration to the degree that regulators allow it.  At the same time, we will see increased competition and disruption and a great sorting out of all of the peripheral service businesses to health insurance.  But no matter what, as we have argued in these columns before, innovation by itself is not enough, Innovation at scale is required.

Lessons Learned

The case for Florida Blue provides insights on the rapidly changing field of consumerism in health.  It also spurred me to think about where we are headed with consumerism in health.  My takeaways:

Meet people in their lives. Florida Blue is meeting people in their lives, in retail environments and on-line with services and support, and navigation tools that enhance the overall healthcare consumer experience.

Make the Complex Simple.  Healthcare is complex it needs to be made more simple and even if we have simpler designs we need to build better support tools for consumers that may involve more retail handholding and decision support.  Health insurance is a complex product and even tech savvy millennials struggle with it, indeed in a recent Aon Consumer Survey found 41% of Millennials say:  “I have stopped trying to figure out what I should pay for medical services and just pay the bill when it comes.”

Scale and Local Market Penetration Matter.  Insurers with significant market share in local markets such as regional Blues plans can have significant influence on provider systems and population health in their geography.  Powerful local plans have an opportunity to set the standards and change the rules of engagement for the entire local health system.

Use Multiple Channels.  Consumers, even millennials are not all digital all the time, sometimes we need a little real help, face to face.

Technology and Policy will expand Digital Consumer Facing Services.  Recent policy and technology changes such as Fast Healthcare Interoperability Resource standards (FHIR), Open Application Programming Interfaces (APIs) and Blockchain tools are all likely to promote inter-operability and create a rich and rapidly evolving environment of consumer facing digital offerings.  This new frontier is not without challenges such as cyber security, data privacy, and fraud and abuse potential, but overall we will see an acceleration in the number, range and hopefully the quality of digitally enabled, consumer facing solutions.  Expect continued competition and disruption in this space.

Navigation tools need work.  In the early 2000s we asked a series of questions in Harris Interactive Surveys about consumers use of report cards on health plans, hospitals, and doctors.  We asked are you aware of them, do you ever use the report card, and did you actually make a change on the basis of the report card.   We did the surveys every year for 10 years and the square root of zero humans ever changed a decision-based on the report card (actually 1%).  I am sure it’s better now (we’ll check this year).   Consumers do want information to make comparisons on cost and quality of plans, providers and treatment options, but we need to get better in consumer decision support.

Free. Great consumer service brands such as Google and Facebook are popular partly because they are free.  (Actually not really free since we users are getting bombarded with commercial messages as you surf, post and like).  In health insurance, there are actually some free or close to free offerings such as Medicaid, zero premium Medicare Advantage and highly subsidized exchange offerings, but generally health insurance carries a consumer cost that is more visible and economically painful every year.  We may not all get to free, but the ultimate goal is to get health insurance and healthcare affordable for all concerned.  Let’s work on that.

Spotlight on Healthcare Costs

Tuesday, November 21st, 2017

Ian Morrison specializes in long-term forecasting and planning with particular emphasis on healthcare and the changing business environment. He sat down with Leader’s Edge to discuss hospitals bills from both the patient and provider perspective, the politics of repeal and replace, and how some providers are already preparing for a Medicare-for-all kind of world. He also addresses employers’ role in long-term change for our healthcare system.

Can you start by digging into the healthcare cost issue a little from the consumer side?

The basic problem with the consumer’s relationship with the bill is the bill is a fabrication that bears really no tie back to reality. Hospitals bill for things they can count, so you get a ridiculous equivalent of the $750 toilet seat. It’s basically a failure, in my view, of the whole way in which the industry accounts for cost and confuses cost and prices.

So things that are really expensive are, for example, a day in an ICU where you’ve got seven FTEs per patient. It’s hard to charge what it really costs for that in a way that is defensible. So they end up creating these bills …The lab test that nominally the marginal cost would be $80 is $800. It becomes a revenue-capturing vehicle that isn’t really tied to the true underlying cost of delivering the service. So that’s frustration number one.

Frustration number two is, you don’t know it in advance. And unfortunately, where the consumer is on the hook, particularly in the outpatient environment and particularly in the initial stages of deductibility, it comes as a complete shock, right? Nobody tells you in advance you’re going to write a check for $1,500.

So on the one hand the industry does a poor job of actually measuring what things cost and attaching prices to the real thing. And then there’s a communications failure, which is basically that you don’t know in advance and you end up getting these enormous surprises, at just the wrong time. It’s like a perfect storm of indignation.

Is there a lack of ability to measure among providers? Or is it more that they know what things cost but, like you alluded to, they can’t reasonably charge you what the real cost is to provide your intensive care service so they have to make up for it somewhere else?

I think that’s an accurate way of reflecting it. I call it the financial hydraulics of healthcare. If you do cardiovascular surgery in Oklahoma on an uninsured person and you sic a collections agency on him, you’ll get seven cents back on the dollar. Medicaid pays about 70 cents of the cost of care on average for inpatients across the country. Medicare pays about 90 to 95 percent of the cost.

So, basically, what all hospitals systems do is charge private insurers at least 120, sometimes 300 percent of Medicare to make up for the difference. That’s the cost-shifting piece. Then you apply it …to a procedure, which as I explained at the beginning, is not accurately cost accounted, and it multiplies the error, in some sense. And the consumer is left going, “Seriously? That can’t be right. How can an aspirin be that much?” There’s a certain lunacy to it.

But all they’re trying to do is to get the revenue they need to cover the services they provide with some margin. And they back into charges out of that goal.

You mentioned there’s a range that happens, here, on the private side. What are your thoughts on this model of creating a cap of Medicare cost, plus, as a certain percentage that would potentially create more transparency and insight, and not that surprise cost for the consumer on the end?

I’m working with some colleagues at Leavitt Partners and Stanford CERC [to find] providers who actually can survive on Medicare level of reimbursement, or at least have higher quality than average and below-average cost… many of them aspire to learn to live on Medicare level of reimbursement because they can feel the winds of change and the pressure that the game of cost shifting may not be sustainable.

So they’re tightening their belts and seeing their margins erode, quite frankly. The first 2017 numbers are all horrible for most hospital systems I’ve seen the numbers for. And that’s part of this broader squeeze. You know, expenses are rising, people are being paid more. You got to subsidize the docs. The technology is expensive. The drugs keep going up, and the people up the food chain are trying to dampen costs. So I think there’s real interest conceptually in trying to live in a field of level reimbursement.

But getting from here to there is a tough one to pull off because most hospitals in America are 15 to 20 % away, minimum, from making money on Medicare, and are reliant on that cost shift to stay afloat. So it is very threatening.

My work with Leavitt and Stanford is still in progress, but from our initial pass, I would say the hospitals [that met our cost/quality criteria]—and there were not many of them—tended to be ones that were passionate about cost management and had a long history of doing that. And they were in markets where they didn’t have the luxury of so much of cost shifting, whether because the population wasn’t growing or they just had a disproportionate share of their revenue coming from Medicare and Medicaid and not a lot of commercial.

And it’s appealing. The only downside I see on these rate settings things—well, there’s a lot downsides. How do you administer it? Suppose you had been a hospital that was doing all the hard work to reduce costs and all of a sudden somebody came in with an arbitrary price that was tied just to Medicare.…I always worry about the unevenness of the application with an arbitrary across-the-board scheme in that you create winners and losers and it may not be, quote, unquote, “fair.”

I think this is going to be floated as a policy proposal, especially because the more moderate Democrats are recognizing that only a third of Americans would go for single payer, but you could probably build a broader coalition for what they’re calling Medicare-X, which is allowing Medicare buy-ins and the use of Medicare fee schedules in a public option that is available to more Americans and to more employers.

Do you think this would pose a slippery slope to single payer?

I think that’s the fear that the more conservative thinkers would have. Because let’s be honest, if you get access to Medicare prices, how could you lose as a plan, right? On average in America commercials are paying 150 % of Medicare to hospitals. In some states, like Wisconsin, it’s 200 to 300%. So if I can walk in and start a health plan with Medicare prices, I theoretically should be able to clean up. And I should have a bunch of employers knocking down my door because basically I’ve created an ability to do something the private sector can’t do currently, which is get enough clout, to get the price down.

You have a presentation slide that says employers are most concerned with hospital prices, specialty pharmaceuticals, and cancer care, respectively. Given their skin in the game and how much they are forced to pay attention to all this stuff, do you feel that they have a responsibility for pushing payment reform forward? And, if so, do you think they have the will to do it?

The short answer is yes. If you think about two sides of the problem being either utilization or price, we often frame the problem as utilization. There’s overuse of this, or there’s too many of that. When you think about commercial insurance, and particularly self-insured employers, it’s about price. …They have trouble affecting price. And payment reform is a method to try and engage providers in doing things differently…the role of the private sector is incredibly important as a source of potential experiments in payment reform and as a kind of test bed and co-collaborator. But if you don’t get CMS [the Centers for Medicare & Medicaid Services] driving this in Medicare and, in turn, Medicaid, you don’t have enough critical mass to change the game. And that’s the basic dilemma here.

It’s a very different CMS under a Trump administration than it was with Obama. Andy Slavitt at CMS in the Obama Administration was trying to push his team to imagine what’s possible in payment reformand go 10 % faster than that. Sometimes they overreached. But Secretary Price and Seema Verma’s  signal to the market was, “No, we’re not doing mandatory. We’re doing voluntary. Yeah, we’ll do that but maybe later. Well, MACRA is good, yeah, but we’ll exempt even more people and slow the timetable down.” So that’s not gone unnoticed by the [field].

It’s not that people think payment reform is being undone. It’s just that the sense of urgency and speed is undone. And I don’t think employers are capable of driving it without that.

Do you believe the only way we get acceleration around this is with federal government intervention? And is that the only viable lever that will really change the paradigm?

I wish it were not true but I think it is true… The basic problem, and you guys know this better than anyone, is employers are very different in their needs. Disney is a perfect example of the blended problem. Disney has a billion in spend, half of the employees working the theme parks making just above minimum wage, and the other half are Johnny Depp or on ESPN or work for Lucasfilm. And they’re all on the same health plan. That’s a tough gig to organize, given you’ve got people who are making $20,000 a year and $20 million a year.

I think employers are coming to the payment reform issue. They are doing it with increased vigor and attention. Their problem is they can’t coordinate in a meaningful way to impact providers in given geographies because they have different strategic priorities and it’s hard for them to operationalize a kind of kumbaya strategy, just in the Bay Area, even, for example.

Look at a company like GE, which is massive, but it doesn’t have more than 12,000 or 15,000 lives in any one place. And the companies who do are public employers. So states, big governments, school boards and so forth, they’ve got more concentrated fire power but ironically they are the most brain dead with regard to employee benefit innovation. With the exception of CalPERS and a few others. The people with the most generous health benefits in America are school teachers and firefighters, probably, legitimately, but they’ve been less aggressive on the cost management side than almost anyone.

I think a lot of our members right now are extremely frustrated in the ACA repeal and replace exercise around there being no discussion above the committee level about cost and price. Is that just a manifestation of the politics and lawmakers ignoring that part for now, or do they just not understand it well enough. Or it is a blend?

It’s a very, very good question. The Democratic proposals that became Obamacare were very much about coverage expansion, not necessarily cost containment in the aggregate. Although there were significant pilot experiments, like CMMI and [ACO] legislation and IPAB that were meant to provide some kind of intellectual support and policy support for cost in the aggregate.

But your point is right. Both [Republicans and Democrats] in their own way are ignoring the fundamental problem, which is the health system is too expensive. The Republicans made enormous political gains in the last seven years and all they had was repeal and replace and cutting taxes. The goal was not to cover more people and reduce cost. The goal was repeal and replace, politically. It was to say you’ve done that. And to cut government spending. They were trying to get rid of something and cut what they saw as another entitlement that was badly crafted. And if you can’t deliver the first one, you know, come on. You’ve got all the leverage of government. So that’s where I think the frustration on the right is coming from.

Now, the Democrats would say, like in Massachusetts, once you get the coverage thing done you can manage cost. And I was just in Massachusetts last week, you know, and they’ve got this commission and the commission basically says we’ll monitor if you go over, you know, whatever the number is – 3.5 percent GDP healthcare growth per capita. And they came in at 2.8, you know, and everyone was declaring victory.

Well, that’s fine and dandy but Massachusetts has the highest per capita healthcare cost in the known universe. It’s fair enough to slow your costs when your costs are enormous. It doesn’t solve the problem that we all have, which is the stuff is too expensive. And the bottom line, there, is healthcare cost equals healthcare incomes. If you start taking cost down somebody’s income has to go down. Either fewer people or they make less money. That’s how it works in every other country. The reason it’s cheaper in other countries is people make less money doing the same thing. Way less money. The prices are much lower. It’s not that utilization is lower. It’s the prices are lower for the same thing. That is very threatening to everybody.