The Business of Health Care

Robert PearlAs CEO and Executive Director of The Permanente Medical Group at Kaiser Permanente, I have been following with interest the exchange between Malcolm Gladwell and Steven Brill, prompted by Gladwell’s critique of Brill’s book (America’s Bitter Pill).  Gladwell accurately points out that the solution to the problems of the American health care system that Brill puts forth in the book are very close to the structure of Kaiser Permanente.  We provide world class hospital and ambulatory care to millions of Americans through our dedicated, physician-led Permanente medical groups, and pay for it through the not-for-profit Kaiser Foundation Health Plan.

Brill dismisses Gladwell’s criticism explaining that “Kaiser Permanente is not the same because it doesn’t have a monopoly, or oligopoly power, in any of its communities. It’s not a teaching hospital. It doesn’t have the network of high-quality doctors, or isn’t perceived to, like New York Presbyterian has in New York or the Cleveland Clinic has in Cleveland.” Continue reading “A Response to Steven Brill”

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Screen Shot 2015-01-02 at 8.08.19 AMAbout seven years ago, the California Healthcare Roundtable and HealthAffairs sat down to prepare a white paper on the emerging “phenomenon” of urgent care centers, and what it might mean for primary care. At the time the group couldn’t agree that urgent care was a “disruptive” innovation, but it seemed clear to all participants that it represented a threat to primary care: The rise of UC, the group noted, would lead to 1) less preventive care and 2) concentrate acuity in primary care clinics. They wrote: “[Urgent care] means fewer patients per day, a higher intensity environment for providers, and potentially lower reimbursement.”

In particular, the group couldn’t understand if patients were choosing to leave primary care because they didn’t value having a PCP, or if they were settling for the inherent limitations of UC because cost and convenience outweighed its disadvantages.

 Seventy-five percent  [of UC customers] are women ages 28 to 42 and their children. Some hypothesize that this consumer group thinks of its health care relationships differently than do people of the baby boomer generation and older. The younger cohort often has no “medical home,” while baby boomers and older people tend to view the primary care physician as the center of their medical care. Discussants concurred that what the data do not reveal, however, is whether the medical “homelessness” of this younger group and its high relative use of retail clinics reflect how these consumers want to receive their care or is instead merely their experience (or is a function of the fact that they have fewer chronic conditions and thus need less care and care coordination).

Since the roundtable in 2007, there has been a flood of urgent care centers with ongoing rapid growth. The American Academy of Urgent Care estimates that there are around 9300 UCs nationally. Across the country, clinics are sprouting like flowers, sometimes fueled by private equity investors, but often by hospitals and health systems who are reflexively installing UCs in repurposed strip malls, sometimes without a clear strategy other than “keeping market share” in an otherwise low margin business.

The reasons for growth, according to the American Academy of Urgent Care? Primarily extended hours (as compared to primary care) and better wait times and lower prices than the ED.

As the private-equity fueled urgent care bubble expands, here’s my prediction on how this all plays out: Don’t bet the farm on UCs being the final answer to the consumer’s search for value. For all of UC’s utility, it’s also possible that urgent care may just get out- maneuvered by the next generation of primary care.

Continue reading “Competing With Urgent Care”

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Screen Shot 2014-12-29 at 11.03.12 AMWe hear a lot about how US medicine is broken, from how much we spend annually ($4 trillion) for unimpressive outcomes, to the growing epidemic of obesity and diabetes, to problematic financial models, to the growing malaise amongst doctors.

Across US health care, a lot of smart people are crafting solutions to these problems, but in my view the reality is that many of them are generating efficiencies on top of a broken product.

The real problem is that conventional primary care as it’s practiced today no longer serves the needs of most people, be they wealthy or under-served, be they patient or provider.

I am starting Parsley Health, a new kind of medical practice that directly addresses these problems, first by providing something called Functional Medicine rather than traditional primary care, and second by providing functional medicine in a tech driven, modern and affordable way.

What is Functional Medicine?

I became a functional medicine doctor because early on I recognized two major limitations of the conventional medicine.

Continue reading “Why I’m Starting a Radically Different Kind of Medical Practice”

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Privacy Trumps Convenience

2014 was the year of the Affordable Care Act.  There were other profound and important developments in health, but for consumer interest, media attention, and impact on the health business, the ACA dominated the picture.

2015 is expected to be different.  This increasingly wired, consumer-oriented, and innovative health industry is poised for profound transformation: 2015 will be the year that a true, industry-wide healthcare market begins to take shape.  To help navigate this emerging market, we’ve identified ten Top health industry issues of 2015 driving transformation.

Three issues coalesce around consumer–centric digital health technology:

Do-it-yourself healthcare        
U.S. physicians and consumers are ready to embrace a dramatic expansion of the high-tech, personal medical kit. Our Health Research Institute (HRI) surveys show that clinicians may be more open to using these tools than consumers. One-third of consumers said they would use a home urinalysis device. But more than half of physicians said they would use data from such a device to prescribe medication or decide whether a patient should be seen.

Making the leap from mobile app to medical device        

The proliferation of approved and portable medical devices in patients’ homes, and on their phones, will make diagnosis and treatment more convenient, redoubling the need for strong information security systems. Regulatory approval may provide a competitive edge — 20 percent of consumers and 26 percent of clinicians said FDA approval was important when deciding to use apps.

Continue reading “2015 Forecast: A True Healthcare Market Takes Shape”

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Screen Shot 2014-11-06 at 5.11.35 PM

In 1980, Apple gave a small California design firm (that later became IDEO) a simple yet incredibly complex task: do more with less. The challenge: take a computer mouse that cost $400 and make one that cost $25 while simultaneously improving the quality, functionality and user experience. The result: IDEO not only delivered an exceptional product, but also pioneered a design thinking approach that has allowed it to make innovation a regular occurrence.

This month, as part of the first Evolent Health Clinical Innovation Summit on high-value health care delivery, we visited IDEO at its Palo Alto headquarters. Twenty health care leaders from across the country visited the IDEO toy lab, heard the story of the first Apple mouse and marveled at a 3D-printer. The question on our collective minds: could the design thinking principles that produced the first Apple mouse be used to transform U.S. health care? Continue reading “Could the ‘Design Thinking’ that Led to the Apple Mouse Transform Health Care?”

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flying cadeuciiThe original purpose of white papers as a B2B marketing tactic was to produce objective information, packaged as quasi-academic research, to validate a company’s or product’s value proposition. White paper sponsors sought to educate, inform, raise comfort levels and eventually initiate sales conversations with prospective customers.

White papers gained significant adoption as a content marketing tool concurrent with the rapid growth of new technologies that often required detailed explanation or context for non-technical buyers. Over time, however, the market education function was largely assumed by research firms such as Gartner and Forrester, whose opinions carry greater credibility than self-publishers of white papers.

Unfortunately, what began as a legitimate and sometimes helpful marketing tactic has morphed into poorly disguised sales promotion, packaged in a plain vanilla wrapper. The evolution of white papers from bona fide content into self-serving advertorials has been validated by vertical industry trade publications, in which companies, for a fee, are permitted to “feature” their white papers in a special section. White papers jumped the shark when they became paid content.

The outcome of widespread abuse of white papers – driven by marketers grasping for new ways to put lipstick on a pig, or too lazy to produce rigorous research that might empower customers to draw their own conclusions – is that the tactic has lost its franchise as an effective B2B marketing asset class. Increasingly, prospective customers do not believe white papers will be helpful or credible, and as a result, they often no longer play a critical role in their decision-making process for purchasing products or services. Continue reading “The White Paper Isn’t Dead. It’s On Life Support.”

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Screen Shot 2014-10-08 at 8.26.56 AMThe role of the United States’ antitrust laws are to ensure competition, not to prescribe or favor any particular organizational structure.  Yet recent Federal Trade Commission (“FTC”) enforcement actions in the health care provider merger arena have done just that – dictated that if provider groups want to integrate, they can only do so through contractual means, not by merging their businesses.  Everyone accepts the proposition that health care integration is essential to improving health care and bending the cost curve.  Yet often the FTC has been a roadblock to provider consolidation arguing that any efficiencies can be achieved through separate contracting.[1]  But this regulatory second guessing is inconsistent with sound health care and competition policy.

Health care provider consolidation poses some of the most challenging antitrust issues.  Particularly challenging are efforts by hospitals to acquire or integrate with physician practices.  There is clearly tremendous pressure from both the demand and supply side for greater integration between hospital and physicians.  And arrangements between firms in a vertical relationship are treated solicitously by the antitrust laws, because they are typically procompetitive and efficient.  Where competitive concerns arise from a merger or alliance, the FTC will ask if there are efficiencies from the relationship and, if so, whether there are less restrictive alternatives to achieve the efficiencies.  If there is a less restrictive alternative, the FTC will claim the efficiencies should not be credited.  So for example, if the FTC believes that contractual arrangements between doctors and hospitals can achieve comparable efficiencies, the FTC will reject the merging parties’ claimed efficiencies.

Continue reading “An Open Letter to the FTC on Hospitals and Providers”

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Halvorson WEF

For decades, health policymakers considered Kaiser Permanente the lode star of delivery system reform.  Yet by the end of 1999, the nation’s oldest and largest group model HMO had experienced almost three years of significant operating losses, the first in the plan’s history. It was struggling to implement a functional electronic health record, and had a reputation for inconsistent customer service.  But most seriously, it faced deep divisions between management and the leadership of its powerful Permanente Federation, which represents Kaiser’s more than 17,000 physicians, over both strategic direction and operations of the plan.

Against this backdrop, Kaiser surprised the health plan community by announcing in March 2002 the selection of a non-physician, George Halvorson, as its new CEO.  Halvorson had spent most of his career in the Twin Cities, most recently as CEO of HealthPartners, a successful mixed model health plan.  Halvorson’s reputation was as a product innovator; he not only developed a prototype of the consumer-directed health plan in the mid-1990’s, but also population health improvement objectives for its membership, both firsts in the industry.

Continue reading “The Kaiser Permanente Model and Health Reform’s Unfinished Business”

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Screen Shot 2014-09-24 at 1.25.29 PMJudging by its nearly invisible public presence, you’d never know that this is prime time for HCA, the nation’s largest hospital chain.    A former HCA regional VP, Marilyn Tavenner, runs the nation’s Medicare and Medicaid programs.  Former CMS Head and Obama White House health policy chief Nancy Ann DeParle, sits on the HCA Board.  Its longtime investor relations chief, Vic Campbell, is immediate past Chair of the highly effective trade group, the Federation of American Hospitals.  And its Chief Medical Officer, Jonathan Perlin, MD, is Chair Elect of the American Hospital Association.

This astonishing industry leadership presence is something most health systems would be trumpeting, perhaps even placing ads in Modern Healthcare.  But not HCA, the bashful giant of American healthcare.  Most hospital systems make a show of “branding” their hospitals with the company logo.  Yet in its corporate home, Nashville, and the surrounding multi-state region, HCA’s 15 hospital network is called TriStar.  Everyone in Nashville’s tight knit healthcare community knows who owns their hospitals, but you have to read TriStar’s home page closely to find the elliptical acknowledgement of HCA’s ownership.

Despite a nationwide merger and acquisition boom, HCA hasn’t done a major deal in twelve years (Health Midwest in Kansas City joined HCA in 2002).  The company has not participated in the post-reform feeding frenzy, continuing a long-standing and admirable tradition of refusing to overpay for assets. For the moment, owning 160 hospitals is plenty.

Continue reading “HCA: The Bashful Giant”

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CVS Health large take 2
Last Tuesday at midnight, CVS officially changed its name to CVS Health and simultaneously cleared its 7,700 retail stores of tobacco products a month earlier than previously reported. Its stores will be called CVS Pharmacy with plans to expand its 900 primary care clinics to 1,500 by 2017, and its $90 billion pharmacy benefits management unit, CVS Caremark, continuing to play a key role in serving its 65 million customers(1).

And the following day, the CMS Office of the Actuary released its forecast of health spending, predicting that health spending will likely return to 6% annual increases for the next decade(2).

No doubt, the timing of the two is coincidental. But taken together, they paint a future state in healthcare that’s distinctly different from its recent past.

Continue reading “Behind the CVS Health Decision”

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