As health systems struggle to emerge from the post-COVID financial crisis, the importance of the clinical enterprise to these systems has dramatically increased. Healthcare organizations are getting larger, as failing enterprises are absorbed into growing systems.
Yet clinicians of all stripes but particularly physicians feel a deepening sense of alienation from the expanding care systems in which they work. In many “wanna-be” health systems, the clinical “enterprise” is a loosely connected roll-up of independent practices held together by RVU-based compensation plans and a common corporate logo on the door.
A roll-up is not a credible foundation for a system, but merely a holding action. If you have lost your clinicians, you do not have a franchise!
In an age when clinician burnout and moral injury threaten the well-being of care givers, how care systems foster caregivers’ commitment to their enterprise has become the central strategic challenge. When one looks at the leading enterprises in healthcare- from the Mayo Clinic to Johns Hopkins Medicine – they have one thing in common. They are not only led by clinicians, but the clinicians there work together both to maintain high clinical standards and develop and propagate clinical innovation.
This commitment has a direct financial consequence for health systems. In an environment where an increase percentage of health care revenues are “risk” revenues, having affirmative control over the cost of delivering care is the key to the organization having a future. Ultimately, that control comes not from clever compensation schemes, but from how clinicians behave in working together to manage their patients.
To be clear, the clinical enterprise does not mean that all clinicians are salaried employees. In some organizations like Kaiser Permanente, for example, clinicians are employees of the Permanente Medical Groups, a closed panel entity which provides most of Kaiser’s clinical care.
But in many organizations, clinicians may be independent practitioners or members of affiliated medical groups, but are still actively involved in the governance of the clinical enterprise. In academic institutions, not all members of the clinical enterprise are full time faculty. And not all of them have MDs after their names, but are advance practice nurses and other clinicians with post-graduate degrees.
I was having a fight on Twitter this week and it hit me. America 2024 is Japan 1989.
The topic of the fight was right-wing VC Peter Thiel. In 2001 he put a ton of Paypal stock allegedly worth less than $2,000 into a Roth IRA. The Roth IRA was designed so that working stiffs could put post tax cash into an IRA, grow it slowly and take out money tax-free. (For traditional IRAs you put in pre-tax money and get taxed when you take it out). You may have read the story in ProPublica. Magically Thiel earned less that year than the max allowable income limit (around $100K) to contribute to a Roth IRA, and magically that stock was within weeks worth much more and then, later, hundreds of millions more. Since then Thiel has invested those Paypal returns in Facebook, Palantir and much more, and that Roth IRA has billions of dollars in it that can never be taxed.
My twitter adversary was saying that Thiel obeyed the law. I doubt it, but that’s not really the point. When the Roth was introduced it wasn’t meant to be a loophole that Silicon Valley types could use to hide billions from tax. But neither my twitter “friend” nor Peter Thiel want to take responsibility or pay their fair share.
Japan in 1989 was wealthy and successful and heading off a speculative cliff which it’s since taken 3 decades to dig out of. There were numerous academics pointing this out, but the most interesting analysis was The Enigma of Japanese Power written by a Dutch journalist named Karel van Wolferen. Here’s a summary from wikipedia with my emphasis added
Van Wolferen creates an image of a state where a complicated political-corporate relationship retards progress, and where the citizens forgo the social rights enjoyed in other developed countries out of a collective fear of foreign domination….Japanese power is described as being held by a loose group of unaccountable elites who operate behind the scenes. Because this power is loosely held, those who wield it escape responsibility for the consequences when things go wrong as there is no one who can be held accountable.
In Thiel’s case a collective network of tax accountants, junk philosophers, and purchased politicians like JD Vance ensure that no one has to be accountable. Ultimately Thiel doesn’t feel responsible for paying what he owes. Of course the exposure of Trump’s tax cheating shows that he doesn’t either. And many people find this OK.
Meanwhile I got into it a little with Jeff Goldsmith on last week’s THCB Gang about why hospitals are still paid per transaction when it would be much better for them to be paid some kind of global budget for the services they provide and for doctors to be paid a salary to exercise their best judgment rather than be tempted into providing care just because they get paid for it. Both COVID and the recent Change Healthcare outage put health care providers in a terrible situation financially because they depend on being paid fee-for-service via claims for individual transactions. Did the leadership of America’s hospitals and doctors come out asking for a change to the system? No, they just got a government hand out and begged for a return to standard operating procedure. No one can rationally look at how we pay for health care in America and say “give us more of the same” but there’s no leadership to change it at all.
Talking about lack of leadership, Amber Thurman died in Piedmont Henry Hospital because no-one on the medical team was prepared to give her the D&C that she desperately needed. They were scared of going to jail under Georgia’s draconian anti-abortion law. There are many, many guilty parties here.
OK we are really back.! Following last weeks special with the Women Healthcare Leaders for Progress, the “regular” THCBGang is coming back for the Fall, mostly but not always at the 1pm PT 4pm ET timeslot on Thursdays.
Joining Matthew Holt (@boltyboy) on #THCBGang on Thursday October 3 at 1pm PST 4pm EST are futurist Jeff Goldsmith: delivery & platform expert Vince Kuraitis (@VinceKuraitis); author & ponderer of odd juxtapositions Kim Bellard (@kimbbellard);
You can see the video below & if you’d rather listen than watch, the audio is preserved as a weekly podcast available on our iTunes & Spotify channels
Though the results of the November election are by no means a foregone conclusion, it is worth thinking about how a second Trump administration might affect the nation’s $4.7 trillion health system. People were not the problem with the first Trump term; his healthcare team was strong and capable: Alex Azar, Scott Gottlieb, Seema Verma,. Bret Giroir, Brad Smith etc.
After the embarrassing political failure of Repealing and Replacing ObamaCare in 2017 (for which blame look to his White House staff), his healthcare team settled in to a quiet and unremarkable term until the COVID wave broke over them and helped drive them out of office. It was not merely ironic but deeply disturbing that MAGA politics prevented Trump from claiming credit for the Operation Warp Speed vaccine miracle his team produced.
A second Trump term would likely be very different- both more ideologically driven but also fiscally constrained. The people part is completely unreadable at this early hour. But health policy will almost certainly be a second tier priority because trade and tariffs, conflicts with our traditional allies and trading partners, and inflamed social issues like illegal immigration, wokeness, and abortion will crowd out changes in health coverage, costs and payment policy.
Show Me the Money!
However, fiscal pressures will force a second Trump administration to confront federal health spending and set him on a collision course with the hospital and pharmaceutical industries, two of the three largest organized actors in healthcare. Trump inherits a 2024 $5 trillion federal budget with a $1.7 trillion deficit, an anomalous degree of fiscal stimulus at the height of an economic boom. That deficit is also a major driver of the inflation Trump has promised to conquer.
Trump is committed to reauthorizing the individual tax cuts from his 2017 Tax Cuts and Jobs Act which are scheduled to expire in 2025, which would add $3.3 trillion to the deficit over the next ten years. He also wants to reduce the corporate tax rate from 21% to 15%. If Trump does nothing meaningful about federal spending, his FY 26 budget, due shortly after he arrives in the White House, would harbor immense out year deficits and completely gross out both the bond and currency markets–a “Liz Truss” moment for the new regime. The promise of immediately reducing inflation which Trump made in his RNC acceptance speech goes sailing out the window.
Savaging Medicaid Spending (or Trying to)
Trump has tied his budgetary hands by committing to not cutting a single penny from Medicare and Social Security, which are forty percent (!) of the federal budget. This commitment appears both in the Republican platform and in Agenda47, which is the Trump campaign’s compilation of commitments made in his speeches. Trump has also committed to not reducing the $850 billion spent on Defense.
Ringfencing Social Security, Medicare and Defense leaves the more than trillion dollar Medicaid program (state and federal combined) as the largest single potential source of potential budgetary savings to avoid inflationary blow-out growth in the federal deficit. At its peak in March of 2023, Medicaid/CHIP enrolled 94 million people, or 28% of the US population. Expect an incoming Trump administration to attack Medicaid spending, both by accelerating the decline in enrollment that began in 2023 with the expiration of the COVID Public Health Emergency and by cutting rates and payments to Medicaid Managed Care providers. Some 24 million Medicaid beneficiaries have been “redetermined” and over 15 million have lost coverage. KFF says present Medicaid enrollment is about 80 million in mid-2024 but that number is certainly moving down
While Trump has distanced himself from the Heritage Foundation’s Project 2025, that policy blueprint characterized the ObamaCare Medicaid expansion as “inappropriate” and the program itself as a “cumbersome, complicated and unaffordable burden on nearly every state”. It advocated ending what it called “financing loopholes” (e.g. provider taxes that have trued up Medicaid rates to hospitals and physicians vs. Medicare), tightening Medicaid eligibility, and imposing both work requirements and cost sharing, “reforming” disproportionate share payments, time limits and lifetime caps on Medicaid benefits and ending coverage for “middle and upper income beneficiaries”! We can certainly expect inflammatory publicity from a Trump White House on states that have expanded Medicaid eligibility to “undocumented aliens”, followed by pressure on Congress to prohibit this coverage by statute.
When former Trump press secretary and present Arkansas Governor Sarah Huckabee Sanders, announced her removal of 400 thousand Arkansans from Medicaid enrollment, she said she was “liberating them from dependency”. It is likely that that millions more Americans will be “liberated from dependency” on Medicaid during the first two years of a second Trump Administration. There will be work requirements (with politically damaging pressure on the 11 million very poor or disabled “dual eligibles” eg. Medicare plus Medicaid) population), as well as cost sharing and an voucher option to purchase private insurance (!?) for Medicaid beneficiaries. An aggressive effort to “re-welfare-ize” the Medicaid program will raise numerous bureaucratic barriers to Medicaid enrollment, scaring off a lot of otherwise eligible beneficiaries.
Democrats’ despair after Joe Biden’s pallid and halting debate performance stems from the realization that the uphill climb needed to prevent the return of Donald Trump might be too steep. What is less obvious is the awareness of the urban intelligentsia of the root causes of the adverse political climate, which can be seen in this map, taken from the Economist’s April 20 feature on declining US population.
America’s economy is booming, and the gap between its economic performance and that of the rest of the world is widening. The on-the-ground political reality is very different depending crucially on where you live. People who live in the red parts of this map do not need convincing that all that wealth, and the power that goes with it, has eluded them. Many of them believe that it has been stolen from them by corrupt leaders and the oligarchs and corporate interests that finance their campaigns.
That is the underlying reality of MAGA. Ninety percent of those red counties voted for Donald Trump in 2020. People in metro Austin, Manhattan or the suburbs of Houston do not resonate with the need to make America great again. It’s already great for many of them.
For folks living in the abandoned parts of the US, the on-the-ground reality is absurd gas prices, unaffordable mortgages, a mountain of forever debt, deteriorating public services, dreams cruelly out of reach and the despair that goes with all of it-alcohol and drug dependency, depression and anxiety, obesity, domestic violence. There is an almost perfect correspondence between the above map and that of the epidemic of “deaths of despair” suicide, drug overdoses and alcohol poisoning. This phenomenon is rooted in middle-aged whites, the overwhelming demographic of the red parts of this map, but affects all demographic segments including black and Hispanic folks who traditionally supported Democrats.
After 2016, political analysts believed that the prevalence of non-college educated whites in a local electorate was the single best predictor of Donald Trump’s shocking victory. That was not the case. A post-election analysis by the Economist revealed that a better predictor of Trump’s victory was a composite measure of health/life expectancy, specifically “county-level data on life expectancy and the prevalence of obesity, diabetes, heavy drinking and regular physical activity (or lack thereof)”, the mapping of which again correlates remarkably with the map of population decline above.
The very same forces of outmigration and economic stagnation are destroying these communities’ local health systems, as well as their schools, commercial businesses and churches. The same red areas are also areas where local physicians have retired and were not replaced, and whose hospitals closed or merged with larger regional conglomerates. A recent scurrilous analysis by Yale and University of Chicago economists blamed the rising deaths of despair and local business’s economic struggles on hospital mergers, an absolutely “from central casting” example of blaming the victim.
Yet due to the arrogance and isolation of the progressive policy advocates that shaped this legislation, it was simply self-evidently obvious that the most ambitious domestic reconstruction program in the ninety years since Roosevelt will help many of the most economically challenged areas in the country. Proud and sparsely attended ribbon cutting ceremonies made the local newspaper, if there still is one. News of these investments never arrived via the partisan news channels and hyper-targeted social media venues on which most ordinary Americans rely these days. That attitude of “self-evident good works” is of a piece with the “Why Bother Visiting Wisconsin” arrogance that let Trump into the White House in the first place.
If post-debate polling is any guide, all these trillions of dollars of good works, funded with money borrowed from our grandchildren, will not be enough to turn the red tide, which could well leave the Republicans firmly in control of all three branches of the federal government. As they go to their cushy post-administration redoubts at the Brookings Institution, Yale, Hopkins and Harvard’s Kennedy School of Government, and hobnob at Aspen Institute and Martha’s Vineyard cocktail parties, the executors of all these good works, for the unforgiveable political sin of failing to communicate effectively with the struggling working class they used to champion, will have fully earned their retirement.
Jeff Goldsmith is a veteran health care futurist, President of Health Futures Inc and regular THCB Contributor. This comes from his personal substack
Years ago, the largest living thing in the world was thought to be the blue whale. Then someone discovered that the largest living thing in the world was actually the 106 acre, 47 thousand tree Pando aspen grove in central Utah, which genetic testing revealed to be a single organism. With its enormous network of underground roots and symbiotic relationship with a vast ecosystem of fungi, that aspen grove is a great metaphor for UnitedHealth Group. United, whose revenues amount to more than 8% of the US health system, is the largest healthcare enterprise in the world. The root system of UHG is a vast and poorly understood subsidiary called Optum.
At $226 billion annual revenues, Optum is the largest healthcare business in the US that no-one knows anything about. Optum by itself has revenues that are a little less than 5% of total US healthcare spending. An ill-starred Optum subsidiary, Change Healthcare, which suffered a catastrophic $100 billion cyberattack on February 21, 2024 that put most of the US health system on life support, put its parent company Optum in the headlines.
But Change Healthcare is a tiny (less than 2%) piece of this vast new (less than twenty years old) healthcare enterprise. If it were freestanding, Optum would be the 12th largest company in the US: identical in size to Costco and slightly larger than Microsoft. Optum’s topline revenues are almost four times larger than HCA, the nation’s largest hospital company, one third larger than the entirety of Elevance, United’s most significant health plan competitor, and more than double the size of Kaiser Permanente.
If there really were economies of scale in healthcare, they would mean that care was of demonstrably better value provided by vast enterprises like Optum/United than in more fragmented, smaller, or less integrated alternatives. It is not clear that it is. If value does not reach patients and physicians in ways that matter to them—in better, less expensive, and more responsive care, in improved health or in a less hassled and more fulfilling practice—ultimately the care system as well as United will suffer.
What is Optum?
Optum is a diversified health services, financing and business intelligence subsidiary of aptly named UnitedHealth Group. It provides health services, purchases drugs on behalf of United’s health plan, and provides consulting, logistical support (e.g. claims management and IT enablement) and business intelligence services to United’s health plan business, as well as to United’s competitors.
Of Optum’s $226 billion topline, $136.4 billion (or 60% of its total revenues) represent clinical and business services provided to United’s Health Insurance business. Corporate UnitedHealth Group, Optum included, generated $29 billion in cashflow in 23, and $118.3 billion since 2019. United channeled almost $52 billion of that cash into buying health-related businesses, nearly all of which end up housed inside Optum.
Source: 2023 UNH 10K
For most of the past decade, Optum has been driving force of incremental profit growth for United. Optum’s operating profits grew from $6.7 billion in 2017 (34% of UHG total) to $15.9 billion in 2023 (55% of total). However, the two most profitable pieces of Optum by operating margin—Optum Health and Optum Insight—have seen their operating margins fall by one third in just four years. The slowing of Optum’s profitability is a huge challenge for United.
Gaul Had Three Parts, So Does Optum
The largest and least profitable (by percent margin) piece of Optum is its giant Pharmacy Benefit Manager, Optum Rx, the third largest PBM in the US.
Last week Jeff Goldsmith wrote a great article in part explaining why health care costs in the US went up so much between 1965 and 2010. He also pointed out that health care has been the same portion of GDP for more than a decade (although we haven’t had a major recession in that time other than the Covid 2020 blip when it went up to 19%). However, it’s worth remembering that we are spending 17.3% of GDP while the other main OECD countries are spending 11-12%. Now it’s true that the US has lots of social problems that show up in heath spending and also that those other countries probably spend more on social services, but it’s also clear that we don’t actually deliver a lot more in services. In fact probably the most famous health economics paper of the last 50 years was Anderson & Rienhardt’s “It’s the Prices, Stupid”, which shows we just pay more for the same things. Anyone who’s looked at the price of Ozempic in the US versus in Denmark knows that’s true.
But suspend disbelief and say we actually wanted to do something about health care costs, what would we do?
There are 4 ways to cut health care costs
Cut prices
Cut overall use of services
Reduce only unnecessary services
Replace higher priced services with lower priced ones
Number 3 or reducing only unnecessary services is the health policy wonks dream.
How the Search for Perfect Markets has Damaged Health Policy
Sometimes ideas in healthcare are so powerful that they haunt us for generations even though their link to the real world we all live in is tenuous. The idea of “moral hazard” is one of these ideas. In 1963, future Nobel Laureate economist Kenneth Arrow wrote an influential essay about the applicability of market principles to medicine entitled “Uncertainty and the Welfare Economics of Medical Care”.
One problem Arrow mentioned in this essay was “moral hazard”- the enhancement of demand for something people use to buy for themselves that is financed through third party insurance. Arrow described two varieties of moral hazard: the patient version, where insurance lowers the final cost and inhibitions, raising the demand for a product, and the physician version–what happens when insurance pays for something the physician controls by virtue of a steep asymmetry of knowledge between them and the patient and more care is provided than actually needed. The physician-patient relationship is “ground zero” in the health system.
Moral hazard was only one of several factors Arrow felt would made it difficult to apply rational economic principles to medicine. The highly variable and uniquely threatening character of illness was a more important factor, as was the limited scope of market forces, because government provision of care for large numbers of poor folk was required.
One key to the durability of Arrow’s thesis was timing: it was published just two years before the enactment of Medicare and Medicaid in 1965, which dramatically expanded the government’s role in financing healthcare for the elderly and the categorically needy. In 1960, US health spending was just 5% of GDP, and a remarkable 48% of health spending was out of pocket by individual patients.
After 1966, when the laws were enacted, health spending took off like the proverbial scalded dog. For the next seven years, Medicare spending rose nearly 29% per year and explosive growth in health spending rose to the top of the federal policy stack. By 2003, health spending had reached 15% of GDP! Arrow’s moral hazard thesis quickly morphed into a “blame the patient” narrative that became a central tenet of an emerging field of health economics, as well as in the conservative critique of the US health cost problem.
Fuel was added to the fire by Joseph Newhouse’s RAND Health Insurance Experiment in the 1980s, which found that patients that bore a significant portion of the cost of care used less care and were apparently no sicker at the end of the eight-year study period. An important and widely ignored coda to the RAND study was that patients with higher cost shares were incapable of distinguishing between useful and useless medical care, and thus stinted on life-saving medications that diminished their longer term health prospects. A substantial body of consumer research has since demonstrated that patients are in fact terrible at making “rational” economic choices regarding their health benefits.
However, a different moral hazard narrative took hold in liberal/progressive circles, which blamed the physician, rather than the patient, for the health cost crisis.
On Christmas Eve 2014, I received a present of some profoundly unwelcome news: a 64 slice CT scan confirming not only the presence of a malignant tumor in my neck, but also a fluid filled mass the size of a man’s finger in my chest cavity outside the lungs. Two days earlier, my ENT surgeon in Charlottesville, Paige Powers, had performed a fine needle aspiration of a suspicious almond-shaped enlarged lymph node, and the lab returned a verdict of “metastatic squamous cell carcinoma of the head and neck with an occult primary tumor”.
I had worked in healthcare for nearly forty years when cancer struck, and considered myself an “expert” in how the health system worked. My experience fundamentally changed my view of how health care is delivered, from the patient’s point of view. Many have compared their fight against cancer as a “battle”. Mine didn’t feel like a battle so much as a chess match where the deadly opponent had begun playing many months before I was aware that he was my adversary. The remarkable image from Ingmar Bergman’s Seventh Seal sums up how this felt to me.
The CT scan was the second step in determining how many moves he had made, and in narrowing the uncertainty about my possible counter moves. The scan’s results were the darkest moment: if the mysterious fluid filled mass was the primary tumor, my options had already dangerously narrowed. Owing to holiday imaging schedules, it was not until New Years’ Eve, seven interminable days later, that a PET/CT scan dismissed the chest mass as a benign fluid-filled cyst. I would require an endoscopy to locate the still hidden primary tumor somewhere in my throat.
I decided to seek a second opinion at my alma mater, the University of Chicago, where I did my doctoral work and subsequently worked in medical center administration.
The University of Chicago had a superb head and neck cancer team headed by Dr. Everett Vokes, Chair of Medicine, whose aggressive chemotherapy saved the life and career of Chicago’s brilliant young chef, Grant Achatz of Alinea, in 2007.
If surgery was not possible, Chicago’s cancer team had a rich and powerful repertoire of non-surgical therapies. I was very impressed both with their young team, and how collaborative their approach was to my problem. Vokes’ initial instinct that mine was a surgical case proved accurate.
The young ENT surgeon I saw there in an initial consultation, Dr. Alex Langerman performed a quick endoscopy and thought he spotted a potential primary tumor nestled up against my larynx. Alex asked me to come back for a full-blown exploration under general anaesthesia, which I did a week later. The possible threat to my voice, which could have ended my career, convinced me to return to Chicago for therapy. Alex’s endoscopy found a tumor the size of a chickpea at the base of my tongue. Surgery was scheduled a week later in the U of Chicago’s beautiful new hospital, the Center for Care and Discovery.
This surgery was performed on Feb 2, 2015, by a team of clinicians none of whom was over the age of forty. It was not minor surgery, requiring nearly six hours: resections of both sides of my neck, including the dark almond and a host of neighboring lymph nodes. And then, there was robotic surgery that removed a nearly golf ball-sized piece of the base of my tongue and throat. The closure of this wound remodeled my throat.
I arrived in my hospital room late that day with the remarkable ability to converse in my normal voice.
Like birds of a feather, talent in healthcare management often gathers in flocks. The University of Minnesota, University of Michigan and University of Iowa healthcare management programs are all justly famous for graduating, over many decades, an exceptional number of future transformative healthcare leaders. But sometimes, talent comes from the “street”- challenging healthcare turnarounds that attract risk-taking leaders who, in turn, gather young talent around them. The University of Chicago’s urban academic health center has been one of these places.
The U of C was (and remains) the largest care provider on Chicago’s troubled South Side, a vast urban landscape that struggled economically and socially for more than seventy years with intractable poverty and violence. Like other major teaching hospitals in challenging neighborhoods–the Bronx’s Montefiore and Harlem’s Columbia-Presbyterian come to mind–all the management challenges of running complex academic health center are magnified by coping with huge flows of Medicaid and uninsured urban poor.
In 1973, President Edward Levi appointed Daniel Tosteson, who was then Chair of Pharmacology and Physiological Sciences at Duke University, to be Dean of the Pritzker School of Medicine and Vice President for the University of Chicago’s troubled Medical Center. Tosteson was a charismatic basic scientist with no prior experience running a 700-bed urban teaching hospital. He arrived in the middle of a severe Illinois’ fiscal crisis, and a horrendous Medicaid funding challenge (31% of the Chicago’s patients were Medicaid recipients). Chicago’s clinical chairs who led the recruitment of Tosteson also played a crucial role in the subsequent turnaround–notably Dr David Skinner, Chair of Surgery and Dr. Al Tarlov, Chair of Medicine, and Dr. Daniel X Freedman, Chair of Psychiatry.
To renew the Medical Center, Tosteson recruited an experienced clinical manager, Dr. Henry Russe from competitor Rush Presbyterian St-Lukes, as his Chief Clinician. But Tosteson went off the reservation and hired a 34 year old economist named David Bray, who was Executive Associate Director of the White House Office of Management and Budget (responsible for the national security and intelligence agencies) as his Chief Financial Officer. He also named John Piva, formerly of Johns Hopkins, his Chief Development Officer. To revitalize Chicago’s principal affiliate, Michael Reese Hospital, he recruited as its President, Dr. J. Robert Buchanan, then Dean of Cornell Medical College. And he recruited me, at age 27, from the Illinois Governor’s Office, as his government affairs lead and special assistant.
