Sometimes you wonder where the line is in health care. And perhaps more importantly, whether anyone in the system cares.
The last few months have been dominated by the issue of costs in health care, particularly the costs paid by consumers who thought they had coverage. It turns out that “surprise billing” isn’t that much of a surprise. Over the past few years several large medical groups, notably Team Health owned by Blackstone, have been aggressively opting out of insurers networks. They’ve figured out, probably by reading Elizabeth Rosenthal’s great story about the 2013 $117,000 assistant surgery bill that Aetna actually paid, that if they stay out of network and bill away, the chances are they’ll make more money.
On the surface this doesn’t make a lot of sense. Wouldn’t it be in the interests of the insurers to clamp down on this stuff and never pay up? Well not really. Veteran health insurance observer Robert Laszewski recently wrote that profits in health insurance and hospitals have never been better. Instead, the insurer, which is usually just handling the claims on behalf of the actual buyer, makes more money over time as the cost goes up.
The data is clear. Health care costs overall are going up because the speed at which providers, pharma et al. are increasing prices exceeds the reduction in volume that’s being seen in the use of most health services. Lots more on that is available from HCCI or any random tweet you read about the price of insulin. But the overall message is that as 90% of American health care is still a fee-for-service game, as the CEO of BCBS Arizona said at last year’s HLTH conference, the point of the game is generating as much revenue as possible. My old boss Ian Morrison used to joke about every hospital being in the race for the $1m hysterectomy, but in a world of falling volumes, it isn’t such a joke any more.
I feel like the healthcare world just skipped over the $17.3 billion mega-merger between Centene and Wellcare, which just received final regulatory approval last Wednesday. With their powers combined, this new company will create the Thanos of government-focused health plans, hopefully without any of the deranged plans to take over the world. I do get it, 181 million lives are covered by employer-sponsored insurance, between full-risk and self-insured plans. These employer populations have the most disposable income and their HR departments are willing to provide supplemental benefits. However, in my opinion, the future growth of health insurance will be governmental programs like Medicare Advantage (MA), Medicaid managed care, and ACA exchanges. But instead of me telling you this, here is exactly what Centene and WellCare said in a press release to defend the merger:
“The combined company would be the leader in government-sponsored healthcare with increased scale and diversification both geographically and in its managed care service offerings, and enhance access to high-quality services for members. It will offer affordable and high-quality products to its more than 12 million Medicaid and approximately 5 million Medicare members (including Medicare Prescription Drug Plan), as well as individuals served in the Health Insurance Marketplace and the TRICARE program. The combined company will operate 31 NCQA accredited health plans across the country and will have increased exposure to government-sponsored healthcare solutions through WellCare’s Medicare Advantage and Medicare Prescription Drug Plans. It will also benefit from leveraging Centene’s growing position in the Health Insurance Marketplace to new markets. The transaction creates a company with the size and scale to better serve members through enhanced healthcare programs, expanded capabilities and increased investment in technology.”
In this post, I write down all my strategy and business development knowledge in healthcare and organize it into the top 9 commandments for selling as a healthcare startup. I think everyone from the founder to the most junior person on the team should know these pillars because all startups must grow. I should also note these tenets are most applicable for selling into large enterprise healthcare incumbents (e.g., payers, providers, medical device, drug companies). Although I appreciate the direct-to-consumer game, these slices are less applicable for that domain. If your startup needs help developing or implementing your business development strategy, shoot me an email and we can discuss a potential partnership. Enjoy!
1. Understand Everything About the Product and Market
You must also understand the competitive landscape, who else is in the marketplace and how they appear differentiated? What has been their preferred go-to-market approach and is your startup capable of replicating a similar strategy with your current team members? Also, do you understand the federal and state policy that most affects your vertical, whether that be pharmaceutical or medical device (e.g., FDA), health plans (e.g., state insurance commissioners), or providers (e.g., CMS)? For example, if your company is focused on “value-based care” and shifting payment structures of physicians to downside risk, do you intimately understand The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) and the requisite CMS Demonstration Models from the Innovation Center (e.g., MSSP, BPCI-A, etc.)? Make sure you do or at least hire someone to explain what is important now and in the future.
Rob Coppedge and Bryony Winn wrote an interesting article in Xconomy yesterday. I told Rob (& the world) on Twitter yesterday that it was good but wrong. Why was it wrong? Well it encompasses something I’m going to call the Lynne Chou O’Keefe Fallacy. And yes, I’ll get to that in a minute. But first. What did Rob and Bryony say?
Having walked the halls and corridors and been deafened by the DJs at HLTH, Rob & Bryony determined why many digital health companies have failed (or will fail) and a few have succeeded. They’ve dubbed the winners “Digital Health Survivors.” And they go on to say that many of the failures have been backed by VCs who don’t know health care while the companies they’ve invested in have “product-market fit problems, sales traction hiccups, or lack of credible proof points.”
What did the ” Survivors” do? They have:
“hired health care experts, partnered effectively, and have even co-developed their models alongside legacy players. Many raised venture capital from strategic corporate investors who have helped them refine their product, accelerate channel access, and get past the risk of “death by pilot.”
Now it won’t totally shock you to discover that Rob heads Echo Health Ventures, the joint VC fund from Cambia Heath Solutions (Blues of Oregon) & BCBS of N. Carolina, and Bryony runs innovation at BCBS of N. Carolina. So they may be a tad biased towards the strategic venture = success model. But they do have a point. Many but not all of their portfolio are selling tools and services to the incumbents in health care, which mostly includes health plans, hospitals and pharma.
And now we get to the Lynne Chou O’Keefe fallacy. (You might argue that fallacy is the wrong term, but bear with me).
No one likes getting bills. But there is something that stinks particularly spectacularly about bills for healthcare that arrive despite carrying health insurance. Patients pay frequently expensive monthly premiums with the expectation that their insurance company will be there for them when illness befalls them.
But the problem being experienced by an
increasing number of patients is going to a covered (in-network) facility for
medical care, and being seen by an out-of-network physician. This happens because
not all physicians working in hospitals serve the same master, and thus may not
all have agreed to the in-network rate offered by an insurance company.
This is a common occurrence in medicine. At any given time, your local tax-exempt non-profit hospital is out of network of some low paying Medicaid plan or the other.
In this complex dance involving patients, insurers and doctors, Patients want their medical bills paid through premiums that they hope to be as low as possible, Insurers seek to pay out as little of the premium dollars collected as possible, and Doctors want to be paid a wage they feel is commensurate to their training and accumulated debt.
Insurers act as proxies for patients when
negotiating with the people that actually deliver healthcare – doctors.
Largely, the system works to funnel patients to ‘covered’ doctors and
hospitals. Patients that walk into an uncovered facility are quickly
redirected. But breakdowns happen during emergencies.
There are no choices to make for patients arriving unconscious or in distress to an emergency room. It suddenly becomes very possible to be seen by an out of network physician, and depending on the fine print of the insurance plans selected, some or none of these charges may be covered.
As recent events in northeastern Syria make clear, the number of displaced people in the world is rising — as are their health needs.
In 2018 I went with a team of other doctors to a Syrian refugee camp in Lebanon. At one stop, a woman offered us homemade bread as we examined her husband, although the couple had very little money and not enough food for themselves. As we ate the bread, she asked if we could leave them extra medications since they didn’t know when the next humanitarian mission would come through their camp.
Her request was reasonable in the situation – indeed, many other refugee families we treated asked us the same thing. Their host countries’ healthcare systems are simply not equipped to handle their needs. Lebanon alone has almost 1.5 million refugees, an increase of 1/4 of their population.
But expecting vulnerable and displaced people to hoard needed medicine is neither sustainable nor humane. Instead, we must make it part of the social contract for healthcare corporations to use some of their massive wealth to help reduce disparities in global access to healthcare. Pharmaceutical companies and the retail industry have already created efficient models healthcare corporations could follow.
I strongly believe that getting people the information and incentives necessary to choose higher-value providers and insurers is the solution to improving value in healthcare (see my Healthcare Incentives Framework). But, you say, we’ve tried that and it doesn’t work, and current efforts are a waste of time!
Here’s an example of some great research that you might use to support your opinion:
The news media would see this and report the main findings–that only 3% of enrollees used Aetna’s price comparison tool–and argue that even people who have the opportunity to shop for care will not do it, which they will interpret to mean any “consumer-driven” healthcare effort is proven through evidence not to work. People can wrest information to prove whatever they want.
But what if you actually read the study?
Sinaiko and Rosenthal found that only about 60% of enrollees even had a claim during their study period. And of those 60%, I’m guessing a large percentage of those were outpatient visits (primary care or specialty) with established providers, which are claim types that people historically do not shop for. Think about it, if you have your favorite hairdresser who knows you best, you have a relationship with that person, and you like how they cut your hair, are you going to price shop every single time you need to get your hair cut?
I recently saw a patient who received a bill for an outpatient procedure for $333. The Medicare allowable reimbursement for the procedure was $180. I have seen other medical bills where the healthcare provider was charging patients more than 10 times the amount they expected to receive from Medicare or any insurance company.
one of my patients had an unexpected medical complication which necessitated a
visit to an emergency room. He received a huge bill for the services provided.
When I subsequently saw him in my office (for poorly controlled diabetes) he
told me he could not attend future office visits because he had so many
outstanding medical bills and he could not risk incurring any additional
medical expenses. While I offered to see him at no cost, he declined, stating
the financial risk was too high.
patient is required to pay the entire medical bill if they
poor quality insurance
a bureaucratic “referral problem”
an out-of-network provider, which means they have no contractural relationship with the healthcare provider/institution, as might result from an emergency room visit or an unexpected hospitalization.
physicians and other healthcare providers usually do not know what they are
going to get paid for any given service as they contract with many insurance
companies, each of which has a different contracted payment rate. Healthcare
providers and institutions typically set their fee schedule at a multiple of
what they expect to get paid from the most lucrative payer so as to ensure they
capture all the potential revenue. In the process, they create an economically
irrational fee schedule which is neither reflective of a competitive
marketplace nor reflective of the actual cost of the services provided.
The system is unstable. We are already seeing the precursor waves of massive and multiple disturbances to come. Disruption at key leverage points, new entrants, shifting public awareness and serious political competition cast omens and signs of a highly changed future.
So what’s the frequency? What are the smart bets for a strategic chief financial officer at a payer or provider facing such a bumpy ride? They are radically different from today’s dominant consensus strategies. In this five-part series, Joe Flower lays out the argument, the nature of the instability, and the best-bet strategies.
There are five ways that both healthcare providers and payers can cooperate while they compete to bring the highest value forward to the customer.
Align incentives in the contracts: Healthcare providers must be able to provide performance guarantees that give at least some of the bottom-line risk to them. Work with third-party companies that can actually audit organizations’ abilities to give performance guarantees consistently over time.
Eschew embiggening: Size per se is not a safe harbor from risk. There are few economies of scale in healthcare. Concentration within a given market can be essential to success in offering a true range of services, well supported, at a lower price, customized to the regional population, the provider mix, the state laws, and the local economy. But local concentration is not the same thing as size per se.
And size does not help the customer. There just are no examples in the history of healthcare in which size alone has returned greater value to the patient, the consumer, or the buyer, whether lower cost, greater reliability, or higher quality.
Expand the definition: Widen the “medical services” that you fund and offer to include services such as functional medicine, chiropractic, acupuncture, and various other modalities that have been shown to be highly effective at far lower cost. There absolutely are ways to do this within licensing requirements.
Integrate behavioral health: Find ways to fund behavioral health and addiction treatment. Integrate behavioral health directly into the patient experience, triaging at the door to the Emergency Department and in every primary encounter. Find local innovators that can help pre-empt costly crises. Partner with community health, housing, and nutrition advocates. Helping people change their habits, manage their lives, and get beyond their addictions is far less expensive than fixing them over and over.
Retrain clinicians: Physicians and other clinicians are heavily trained to create and document reimbursable events. If you change the economics so that the system finds ROI in promoting health, preventing disease, managing population health, producing cures and reducing suffering as efficiently as possible, those very same clinicians will need to be retrained. Most of them will be deeply grateful, because they, like you, genuinely want to bring real value to the customer. In fact, if you do this you could end the physician shortage and the nurse shortage. People will flock back to do what they became a doctor or a nurse to do: Help people.
When you left the story your hero had just arranged for Best Buy to attempt delivery on Tuesday afternoon last week. I was in SF for the “can’t miss” Rock Health Summit. I was waiting at the apartment when I got about 4 calls from the same random number in 3 minutes but when I answered no one was there. I called back, no answer. Then I got a voicemail saying the delivery team was outside. I ran outside! No they weren’t! At that point I gave up and had lunch. But then for now the 5th time I called Best Buy and lined up a new delivery. I stressed about 10 times that the delivery team could NOT leave next time without seeing me. There may have been some shouting…..
Monday was the next available day for delivery and it was day that Best Buy was going to finally get it right. I got an email saying they’d be there at 1.30pm
I was across town in a meeting at 12.30 and noticed 4 missed calls from the same number. Being of a very suspicious nature, I called the number, and yes it’s the delivery team. They were outside the apartment, and they were 60 mins early! Thankfully the delivery crew agreed to wait, and I went over to meet them. So at 6th time of asking, the crew was there, the equipment was there, I was there, and we all went into the apartment.