Aneesh Chopra is the former CTO of the US under Obama. He’s now head of strategy at Arcadia, but this week is one of the driving forces behind the new challenge called “Transforming Cancer Navigation with Open Data & APIs” . I caught up with Aneesh about why the need for this type of data exchange and why caner, and also more generally about interoperability, data analysis (his day job) and the impact of AI. Aneesh is an optimist but also about the most articulate person in health care explaining what is going on the ground and in policy with the regulations and actions of data exchange, and its uses. Pay attention–Matthew Holt
Why Financial Incentives Oppose Quality Improvement Projects in Healthcare

By TAYLOR J. CHRISTENSEN
When I attended the Institute for Healthcare Improvement’s 2024 annual forum in Orlando, Florida, one of the best parts of the conference, as always, was talking to the other attendees. Every time I would sit down to eat a meal or sit down in a session, I would talk to the people around me. And I heard about so many different quality improvement (QI) projects!
After several conversations, I started to notice a pattern: Many of the projects were fighting an uphill battle because they were going against financial incentives. Or, at a minimum, they were not supported by financial incentives. All of this got me thinking about a new exhaustive, mutually exclusive categorization . . .
All QI projects can be divided into three categories:
Category 1: Supported by financial incentives
Category 2: Neutral to financial incentives
Category 3: Opposed by financial incentives
Determining which category a potential project will fall into is important for predicting how much support from hospital leadership a QI project will have.
So how do you determine which category a potential project is in?
Remember that seeking profit (or “surplus” if you’re a non-profit organization) is what drives most behavior in all organizations, even in healthcare. And whatever is profitable is what organizations have a financial incentive to do. Here’s a simple formula for profit:
Profit = Revenues – Costs
In most industries, providing a higher-value product or service (Value = Quality / Price) compared to competitors will earn that organization greater market power, which they can use to extract greater profits either by keeping prices the same and winning more market share or increasing prices while maintaining the same market share. Either way, that greater market power turns into greater profit.
In healthcare, however, higher value does not lead to greater market power. The reasons for this have been explained elsewhere, but it really comes down to patients not making value-sensitive decisions when they are choosing where they will receive care.
Thus, quality improvement efforts that result in a healthcare provider delivering higher-value care are not automatically financially incentivized. Instead, the only factor that matters from a financial incentives standpoint is whether the QI project increases revenue or decreases costs.
So, if a project will increase revenue and/or decrease costs, it’s in Category 1; if it will not have any net impact on profit because either it doesn’t change revenues or costs or it increases or decreases both of them equally, then it’s in Category 2; and if it increases costs or decreases revenues, it’s in Category 3.
This all probably seems heartless–we’re talking about quality improvements that can save lives and quality of life here, and all I’m focusing on is money?
Continue reading…Past Presidents Posthumous Advice To Trump #47

By MIKE MAGEE
For those many, many millions of viewers who tuned in to the live coverage of former President Jimmy Carter’s funeral this week, they were rewarded with two hours of intriguing video images, and moving words and song, including a recounting of the beginnings of environmental advocacy as Los Angeles burns, and John Lennon’s “Imagine” performed by Garth Brooks and Trisha Yearwood.
Five former Presidents and four Vice-Presidents were in attendance. And there were notable firsts, like the first greeting and handshake between incoming President Trump and former VP Pence since January 6, 2021.
But perhaps the most striking events of this carefully staged national funeral were the two especially haunting posthumous eulogies delivered by the sons of a former president and vice-president. Presented by Steven Ford, son of former President, Gerald Ford, and Ted Mondale, son of former Vice-President Walter “Fritz” Mondale, they appeared to be directed to America itself, and its’ soon-to-be 47th president.
As the speakers explained, Jimmy Carter, some years back, asked both Ford and Mondale if they would be willing to present eulogies at his funeral. Both agreed, and put pen to paper in anticipation. But as it became evident that Carter might very well outlive them, they each asked their sons, in that event, to read their remarks at his funeral. And today they did.
Both President Ford and Vice-President Mondale’s words (voiced by their sons) deserve a full viewing when time allows. But in the meantime, let me share the closing remarks of each, prescient and timely now, at American democracy’s hour of need.
Steven Ford, son of former President Gerald Ford (7/14/13 – 12/26/06), reciting the president’s written words posthumously:
“…Now is time to say goodbye, our grief comforted with the joy and the thanksgiving of knowing this man, this beloved man, this very special man. He was given the gift of years, and the American people and the people of the world will be forever blessed by his decades of good works. Jimmy Carter’s legacy of peace and compassion will remain unique as it is timeless…As for myself, Jimmy, I’m looking forward to our reunion. We have much to catch up on. Thank you, Mr. President. Welcome home, old friend.”
Ted Mondale, son of former Vice-President Walter “Fritz” Mondale (1/5/28 – 4/19/21) reciting the vice-president’s written words posthumously.
Ted prefaced his reading with this sentence – “My father wrote this in 2019, and clearly he edited it a number of times since then, but here we go.”
“…Two decades ago, President Carter said he believed income inequality was the biggest global issue. More recently, in a 2018 Commencement Address at Liberty University, I think now the largest global issue is the discrimination against women and girls in this world. He concluded that, ‘Until stubborn attitudes that foster discrimination against women change, the world cannot advance, and poverty and poverty and income equality cannot be solved.’ Towards the end of our time in the White House, the President and I were talking about how we might describe what we tried to accomplish in office. We came up with a sentence which remains an important summary of our work. ‘We told the truth. We obeyed the law. And we kept the peace.’ That we did, Mr. President. I will always be proud and grateful to have had the chance to work with you towards noble ends. It was then, and will always be, the most rewarding experience of my public career. Thank you.”
Mike Magee MD is a Medical Historian and regular contributor to THCB. He is the author of CODE BLUE: Inside America’s Medical Industrial Complex. (Grove/2020)
“Hospital Mergers Kill”: An Economists’ Exercise in Reality Distortion

By JEFF GOLDSMITH
In late June, 2024, two economists, Zarek Brot-Goldberg and Zack Cooper, from the University of Chicago and Yale respectively, released an economic analysis arguing that hospital mergers damage local economies and result in an increase in deaths by suicide and drug overdoses in the markets where mergers occur. Funded by Arnold Ventures their study characterizes these mergers as “rent seeking activities” by hospitals seeking to use their economic power to extort financial gains from their communities without providing any value.
The Brot-Goldberg-Cooper analysis was a spin-off of a larger study decrying the lack of federal anti-trust enforcement regarding hospital mergers. These two studies used the same economic model. The data were derived from the Healthcare Cost Institute, a repository of commercial insurance claims information from three of the four largest commercial health insurers, United Healthcare, Humana and Aetna (a subsidiary of struggling pharmacy giant CVS) plus Blue Cross/Blue Shield. HCCI’s contributors account for 28% of the commercial health insurance market.
The authors use a complex econometric model to manipulate a huge, multifactorial data base comprising hospital merger activity, employer health benefits data, county level employment data and morbidity and mortality statistics. This data model enabled a raft of regression analyses attempting to ferret out “associations” between the various domains of these data.
Using HCCI’s data, the authors construct what they termed a “causal chain” leading from hospital mergers to community damage during their study period–2010 to 2015. It looked like this: hospital mergers raise prices for private insurers-these prices are passed on to employers–who respond by laying off workers–some of whom end up killing themselves. So, according to the logic, hospital mergers kill people. Using the same methodology, the authors argued that between 2007 and 2014, hospital price increases of all sorts killed ten thousand people.
A classic problem with correlational studies of this kind is their failure to clarify the direction of causality of data elements. The model lacked a control group–comparable communities that did not experience hospital mergers during this period–because the authors argued that mergers were so pervasive they could not locate comparable communities that did not experience them.
The model focused on a subset of 304 hospital mergers from 2010 to 2015, culled from a universe of 484 mergers nationally during the same period. The authors excluded mergers of hospitals that were further than fifty miles apart, as well as hospitals with low census. The effect of these assumptions was to exclude most rural hospitals and concentrate the mergers studied in metropolitan areas and cities. The densest cluster was in the I-95 corridor between Washington DC and Boston. See the map below:

According to the model, these mergers resulted in an average increase of 1.2% in hospital prices to commercial insurers, 91% of which were passed to their employer customers in those markets. This minuscule rate increase had a curiously focused and outsized effect–a $10,584 increase in the median employer’s health spending in the merged hospitals’ market.
According to the model, local employers “responded” to this cost increase by reducing their payrolls by a median amount of $17,900, all through layoffs–70% more than the alleged merger cost increase. This large overage was not explained by the authors. Moreover, the layoffs took place almost immediately, in the same year as the merger-induced increases, even though many health insurance contracts are multi-year affairs, and lock hospitals in to rates for that period.
At the end of the “causal chain,” 1 in 140 laid off people in those communities for whatever reason killed themselves through suicide or drug overdoses. By extrapolation, the authors accuse the perpetrators of overall hospital rate increases of killing ten thousand people in the affected communities during seven years overlapping the study period.
Continue reading…Public Health Policy: At the Intersection of Law and Medicine.

By MIKE MAGEE
As 2025 kicks off, it’s wise to pause, and gather our thoughts as a nation. Few would argue that we’ve been through a lot over the past decade. And quite naturally, we humans are prone to blame individuals rather than circumstances (most of which have been beyond our control) for creating an environment that feels as if it is unraveling before our eyes.
How should we describe our condition – dynamic, tense, complex? Is peace, contentment, and security achievable in this still young nation? Have accelerationist technocrats, armed with bitcoins and Martian fantasy, short-circuited our moment in time that had been preserved for recovery from a deadly pandemic that eliminated a million of our fellow citizens seemingly overnight?
Who do we turn to for answers, now that we’ve largely lost faith and trust in our politicians, our religious leaders, and our journalists? And how exactly do you create a healthy nation? Certainly not by taking doctors and nurses offline for miscarriages, and placing local bureaucrats in exam rooms. Are they prepared to deal with life and death decisions? Are they trained to process human fear and worry? Do they know how to instill hopefulness in parents who are literally “scared to death” because their child has just been diagnosed with cancer? It certainly must require more than a baseball cap with MAHA on it to heal this nation.
Historians suggest this will take time. As Stanford Professor of Law, Lawrence M. Friedman, wrote in A History of American Law, “One hundred and sixty-nine years went by between Jamestown and the Declaration of Independence. The same length of time separates 1776 and the end of World War II.”
During those very early years that preceded the formal declaration and formation of the United States as a nation, our various, then British colonies, fluidly and independent of each other, did their best first to survive, and then to organize into shared communities with codified laws and regulations. It was “a study of social development unfolding over time” impacted by emotions, politics and real-time economics. At the core of the struggle (as we saw with the pandemic, and now the vaccine controversy) was a clash between the rights of the individual and those of the collective community.
This clash of values has been playing out in full view over the past five years of the Covid pandemic. In 2023, Washington Post columnist, Dr. Leana Wen, asked, “Whose rights are paramount? The individual who must give up freedoms, or those around them who want to lower infection risk?”
Continue reading…My Totally Wrong, Expert Predictions for Health Care 2025

By MICHAEL MILLENSON
January
In a blistering commentary, the American Medical Association’s flagship journal, JAMA, condemns the corrosive effect on patient care of the profit-seeking practices of health insurers. Separately, the organization announces that it’s selling the 13 journals in its JAMA Network to a private equity firm for $375 million “in order to enhance our mission of promoting the betterment of public health.”
February
Quickly following up on a campaign pledge to slash the federal budget, the Trump administration announces a radical consolidation of various entities at the Department of Health and Human Services. The new organization will be known as the Agency and Bureau for Children, Drugs, Explosives, Firearms, Families and Food (ABCDEFFF). Reflecting the new president’s strong personal preferences, “alcohol” will no longer be permitted in any agency name.
March
Bipartisan legislation demanding transparency from Pharmacy Benefit Managers dies in committee after industry executives explain that secret rebates to PBMs are like secret political action committee contributions to politicians: they allow you to loudly proclaim you’re an “advocate” for those supposedly paying you while actually serving the interests of those who are really paying you.
April
Pfizer announces that its once-a-day pill version of the wildly successful GLP-1 agonist weight loss drugs will shortly be submitted for government approval, and also that the company is moving its headquarters from New York to Louisiana, a state with a 40 percent obesity rate. Coincidentally, Louisiana is also the home state of Republican senators Cassidy and Kennedy, senior members of the Senate committees overseeing health care and all federal appropriations.
May
The new private equity owners of the JAMA Network say that all staff except one editor at each journal will be replaced by ChatGPT. A source at the private equity firm tells the Wall Street Journal that OpenAI won out over Gemini “because our CEO is a Leo” and over Claude “because nobody likes the French.”
June
Controversial right-wing firebrand Rep. Marjorie Taylor Greene, long the subject of rumors that she’s had cosmetic surgery, is diagnosed with a serious infection after an unspecified procedure. The House quickly schedules its first hearing on medical error in over two decades, but then cancels when the American Hospital Association points out the official term for what the Georgia Republican contracted was a “healthcare-associated infection,” so it’s entirely possible she accidentally brought the infection with her to the pristine hospital. Meanwhile, with House leadership telling Members they were free to vote their conscience, a resolution to send Greene a “Get Well” card passes unanimously after deletion of the word, “Soon.”
July
Following through on years of promises to reveal a “really great” replacement for the Affordable Care Act, President Trump on July 4 announces the “100-100-100” Make America Healthy Again plan. In keeping with the GOP’s advocacy for “skinny” plans with low premiums that encourage “consumers” to “comparison shop,” the plan will cover 100 percent of any medical bill for up to $100 a day for a premium of just $100 a month. Separately, Elon Musk tells a meeting of health insurance executives the plan can also replace both Medicare and Medicaid, enabling the federal government to cut spending by almost as much as the market capitalization of Tesla.
August
Before Congress recesses, a coalition of progressive organizations issues a press release declaring that all basic health services, whether provided by government agencies or the private sector, should be “available to the entire population according to its needs.” Shortly afterwards, the coalition is forced to make an embarrassing retraction after ChatGPT alerts the lone editor of JAMA that the coalition accidentally re-released a section of the report of the Committee on the Costs of Medical Care, formed in 1927.
September
The Business Roundtable says its members are committed to improving the quality of health care for all employees because “quality health care is good business.” An 85-year-old freelancer for The New York Times notes that this was the exact title of a September, 1997 policy paper by a Roundtable task force in which an executive for Sears, which at the time operated over 3,500 stores, declares, “We believe that quality health care is lower-cost health care.” Sears currently has about a dozen stores.
October
Medicare Advantage plans step up their advertising expenditures after public opinion polls show that nobody anymore believes the portrayal of happy and healthy seniors playing pickleball instead of writing tear-soaked letters pleading for approval of hip surgery. The trade associations for hospitals, drug and device companies and PBMs call on Congress to provide greater oversight of greedy insurers. The editor of JAMA resigns after ChatGPT writes an editorial extolling the merits of MA plans run by for-profit companies.
November
The National Rural Health Association says that in the spirit of the Thanksgiving holiday, its members will accept live turkeys in partial payment of the medical debts that now affect 99.99 percent of all Americans after passage of the administration’s “100-100-100” Make America Healthy Again plan. A KFF survey explains that the number is not 100 percent because Congress retained conventional health insurance for itself and top federal officials and because America’s billionaires had opted for self-pay.
December
A Washington Post editorial declares, “The bottom line is that if we want to contain spending, we will have to make critical choices about how care is delivered, to whom, and under what conditions.” Different chatbots differ on where that quote originally came from, but agree that if any humans believe the American public is ready to make critical choices, they’re hallucinating.
Michael L. Millenson is president of Health Quality Advisors & a regular THCB Contributor
“Comparisons Are Toxic.” True or False?
by MIKE MAGEE
THCB is back from its end of year break, but we are starting with a little catchup from December from Mike Magee.
As my wife often reminds me, “Comparisons are toxic.” And, in general, I agree and try to respect this cardinal rule. But these are extraordinary times. So grant me this exception.
On December 9, 2024, in my early morning survey of the news, two articles demanded my attention. The first was an editorial in the New York Times with the self-explanatory title, “My Last Column: Finding Hope in an Age of Resentment” by Paul Krugman. The second was an article published that morning in Nature titled “Quantum error correction below the surface code threshold” authored by “Google Quantum AI and Collaborators,” a blanket label for a team of 300+ engineers led by Founder and Leader, Hartmut Neven. More on him in a moment.
As a loyal reader of Krugman, I read his “last column” carefully – twice. Over 25 years I’ve admired this specialist’s (global economics) willingness and interest to wander often into generalist, cross-sector, liberal arts territory. No match for his Nobel winning intellect or pure-bred education at MIT, Yale and Princeton, I do share a history of common geography (upstate New York in our early years, and the New York metropolitan area later on); an upbringing in religious households (Jewish and Catholic); and more than two uninterrupted decades of weekly published columns.
Though I have not always agreed with his take on every issue, I count myself as an admirer. The issues that have interested him, both pro and con, over the years, are more often than not the same issues that have troubled or encouraged me. So I was not surprised that he chose, in his “last column,” to reflect on the recent election, and the current levels of anger, violence and resentment in our society. And while I agree with the findings in his examination of the body politic, we arrived at a different diagnosis.
Krugman writes, “What strikes me, looking back, is how optimistic many people, both here and in much of the Western world, were back then (25 years ago) and the extent to which that optimism has been replaced by anger and resentment. . . some of the angriest, most resentful people in America right now . . . are billionaires who don’t feel sufficiently admired.”
As for the diagnosis, in response to the question he himself raises (“Why did this optimism curdle?”), he answers, “As I see it, we’ve had a collapse of trust in elites.” And the treatment for this disease? “if we stand up to the kakistocracy — rule by the worst — that’s emerging as we speak, we may eventually find our way back to a better world.”
Now that sent me back to Hartmut and the Nature article for a reality check. Were American oligarchs and technocrats, with wild wealth and even wilder ideas, the cause of every day people jumping aboard the Trump cult train?
Nevin is 9 years younger than Krugman. He is a German-trained PhD physicist who came to the University of Southern California as an entrepreneurial research professor in computer science in 1998. His several start-ups which were focused on “face recognition technology and real-time facial feature analysis for avatar animation” helped make him famous and rich when they were purchased by Google in 2006. But his fantastical dream was to create a “quantum chip” that would outperform anything that currently existed.
Six years later, he launched the Quantum Artificial Intelligence Laboratory, and by 2016, he had come up with an experiment (still ongoing) to prove “quantum supremacy.” Starting his own chip fabrication factory in Santa Barbara, his dream became concrete. He took a world view in 2020, stating: “It’s not one company versus another, but rather, humankind versus nature — or humankind with nature.”
Nevin believes he is in the right place at the right time. The AI Arms Race is full on and relies on ever increasing data consumption to support generative self-learning. That demands enormous consuming power. In his words, “Both (quantum computing and AI) will prove to be the most transformational technologies of our time, but advanced AI will significantly benefit from access to quantum computing. This is why I named our lab Quantum AI.”
Quantum computing is measured in “qubits” (which are the size of a single atom) versus the binary digit measure of standard computers, called the “bit.” As the New York Times explained, “Quantum bits, or ‘qubits,’ behave very differently from normal bits. A single object can behave like two separate objects at the same time when it is either extremely small or extremely cold.” The test using exotic metals cooled to 460 degrees below zero, reported out on October 9th that Hartmut’s quantum chip “performed a computation in under 5 minutes that would take one of today’s fastest supercomputers 10,000,000,000,000,000,000,000,000 (10 septillion) years to compute.”
But that’s not the amazing part. In past experiments, the device was error prone, and the more qubits, the less reliable the computations. But now, for the first time, this group was able to demonstrate the more qubits in play, the more accurate the outcome. As Nevin explained, “This historic accomplishment is known in the field as ‘below threshold’ — being able to drive errors down while scaling up the number of qubits.” How big was that? According to Javad Shaman, director of the Center for Quantum Information Physics at NYU, “one of the highlights of the recent decade.”
Nevin doesn’t seem to “worry about being admired.” In his blog this week he tied his qubit “below threshold” accomplishment to “helping us discover new medicines, designing more efficient batteries for electric cars, and accelerating progress in fusion and new energy alternatives.” That seems a far cry from Paul Krugman’s highlighting of “the pettiness of plutocrats who used to bask in public approval and are now discovering that all the money in the world can’t buy you love.”
Gallup has been conducting an annual survey of “Americans Satisfaction With The Way Things Are Going In The U.S.” for roughly a half century. Currently only 22% say they are satisfied. Back in 1986, that number peaked at 70%. That was the year that Robert Fulcrum wrote a little book that remained on the New York Times Best Seller list for nearly two years. Some criticized the book as “trite and saccharine,” but 17 million copies of his books remain in circulation.
The 1986 book was titled, “All I Really Need To Know I Learned in Kindergarten.” Here are his top ten learnings:
- Share everything.
- Play fair.
- Don’t hit people.
- Put things back where you found them.
- Clean up your own mess.
- Don’t take things that aren’t yours.
- Say you’re sorry when you hurt somebody.
- Wash your hands before you eat.
- Flush.
- Warm cookies and cold milk are good for you.
I was trying to figure how members of my own family could vote for a man to lead our nation who routinely and deliberately breaks most of these rules. I’ve come up with two reasons:
- Greed. They simply don’t want to share any of their wealth or good fortune with others.
- Religious certainty. They do not believe in separation of Church and State, and do not respect individual self-determination and free will. And yet values can not be enforced on human beings. They must be freely embraced to become permanently embedded.
Comparisons may be toxic, but Hartmut and Paul point us toward the truth. We (not our leaders regardless of their human deficits) are responsible. And we as citizens of America need to get our act together. As Nevin the information scientist teaches, optimism flows from purpose and the promise of service. And Krugman, the Nobel economist, teaches that money alone can not buy you love – or peace, or lasting joy, or contentment.
Mike Magee MD is a Medical Historian and regular contributor to THCB. He is the author of CODE BLUE: Inside America’s Health Industrial Complex. (Grove/2020)
John Zutter, Lantern
John Zutter is the CEO of Lantern which is a company managing specialty care. It has evolved from a centers of excellence model, and changed its name from Employer Direct Healthcare earlier this year. The trick is product expansion into the expensive stuff, especially cancer care, infusion and specialty surgery. John has thought a lot about where there is money to be saved–and how health care can be structured, and how cost and quality can be managed. This is a fascinating and in-depth conversation about how employers can save money, and how that might make the overall market evolve–Matthew Holt
Managed Care History Part III: The Rise of Machine-Driven Managed Care

This is part 3 of Jeff Goldsmith’s history of managed care. If you missed it read Part 1 & Part 2
By JEFF GOLDSMITH
Two major changes in health insurance ensued as the US health system entered the 21st century- a strategic shift of health cost risk from providers to patients and the emergence of machine driven managed care.
Insurers Shift Strategy from Sharing Risk with Hospitals and Doctors to Markedly Implicating their “Patients’.
After the 2008 recession, employers and their health plans shifted strategy from putting physicians and hospitals at risk through delegated risk capitation to putting patients at risk through higher patient cost sharing. In the wake of the recession, the number of patients with high deductible health plans nearly quintupled–to over sixty million lives. By 2024, 32% of the lives in employer-based plans (50% among small employers’) were in high deductible plans regardless of patient economic circumstances.
The stated intention of the High Deductible Health Plan movement was to encourage patients to “shop” for care. In real care situations, however, patients found it difficult or impossible to determine exactly what their share of the cost would be or which providers did the best job of taking care of them. For an extensive review of the literature on how healthcare “consumers” struggle to manage their financial risk, read Peter Ubel’s 2019 Sick to Debt: How Smarter Markets Lead to Better Care.
Employers and insurers, working together to “empower consumers”, rapidly shifted “self-pay” bad debts onto their provider networks. Some 60% of hospital bad debts are now from patients with insurance. Instead of “shopping for care”, consumers found themselves saddled with almost $200 billion in medical bills they could not pay, and hospitals and physicians ended up eating most of it.
This escalating “insured bad debt” problem forced providers to hire revenue cycle management (RCM) consultants to revise and strengthen their policies regarding patient financial responsibility, “revenue integrity” (meaning crossing all the “t’s” and dotting all the “I’s” in each medical claim and making sure care is coded properly) and rigorously monitoring the flow of claims to and from their major insurance carriers. As a result many providers found themselves spending 10-15% of their total operating expenses on RCM!
Medicare Advantage Enables Insurer Market Dominance
The movement from Ellwood’s vision of regionally-based provider sponsored health plans to market dominance by huge national carriers was cemented by the emergence of Medicare Advantage as the most significant and profitable health insurance market segment. In 2013, Medicare Advantage accounted for 29% of total Medicare spending. A decade later, in 2024, it was 54% (of roughly a trillion dollar program). And until a federal crackdown on MA coding and payment policies by the carriers, it was a 5% margin business, significantly more profitable than commercial insurance, ObamaCare Exchange or managed Medicaid businesses.
As Medicare Advantage emerged as the largest health insurance market, it was dominated by a cartel of large publicly traded carriers.
Continue reading…Managed Care History Part II- HMOs Give Way to Managed Care “Lite”

This is part 2 of Jeff Goldsmith’s history of managed care. If you missed it read Part 1
By JEFF GOLDSMITH
The late 1990s crash of HMOs opened the door to a major consolidation of the health insurance market controlled largely by national and super-regional health plans. While HMOs by no means disappeared post-backlash, the “movement” begun by Ellwood and Nixon fell far short of national reach. HMOs never established a meaningful presence in the most rapidly growing parts of the US- the Southwest, South and Mid-Atlantic regions, as well as the Northeast.
The exemplar, Kaiser Permanente, damaged its financial position with an ill-considered 1990’s (McKinsey-inspired) push to become a “national brand”. Today, over 80% of Kaiser’s 13 million enrollment is still in the West Coast markets where it began 80 years ago!
HMOs Go Public and Roll Up
Two little noticed developments accelerated the shift in power from providers to payers. One was the movement of provider sponsored health plans into the public markets. PacifiCare, the most significant hospital sponsored health plan owned by the Lutheran Hospital Society of Southern California, was taken public in 1995. A subsequent merger with FHP health plan destabilized the newly public company.
After PacifiCare crashed post the 1998 Balanced Budget Act cuts, and struggled to refinance its debt, it was acquired by United Healthcare in 2005, bringing with it a huge sophisticated, delegated risk contracting network. United then bought Sierra Health Plan based in Nevada in 2007, including its large captive medical group, its first medical group acquisition. Following these acquisitions, United rolled up PacifiCare’s southern California based at-risk physician groups in the late 00’s, and then capped off with its purchase of HealthCare Partners, the largest of all, 2017 from DaVita in forming the backbone of today’s $110 billion Optum Health.
United’s buying BOTH sides of the delegated risk networks-plan and docs-in high penetration managed care markets is not fully appreciated by most analysts even today.
It has meant that as much as 40% of Optum Health’s revenues, including almost $24 billion in capitated health insurance premiums, come from competitors of United’s health insurance business.
However, of greater strategic significance was Humana’s decision in 1993 to exit the hospital business by spinning its 90 hospitals off as Galen.
Continue reading…