Tag: Jeff Goldsmith

Out of Control Health Costs or a Broken Society

Oct 9, 2023

Flawed Accounting for the US Health Spending Problem

By Jeff Goldsmith

Source: OECD, Our World in Data

Late last year, I saw this chart which made my heart sink. It compared US life expectancy to its health spending since 1970 vs. other countries. As you can see, the US began peeling off from the rest of the civilized world in the mid-1980’s. Then US life expectancy began falling around 2015, even as health spending continued to rise. We lost two more full years of life expectancy to COVID. By the end of 2022, the US had given up 26 years-worth of progress in life expectancy gains. Adding four more years to the chart below will make us look even worse.

Of course, this chart had a political/policy agenda: look what a terrible social investment US health spending has been! Look how much more we are spending than other countries vs. how long we live and you can almost taste the ashes of diminishing returns. This chart posits a model where you input health spending into the large black box that is the US economy and you get health out the other side.

The problem is that is not how things work. Consider another possible interpretation of this chart: look how much it costs to clean up the wreckage from a society that is killing off its citizens earlier and more aggressively than any other developed society. It is true that we lead the world in health spending. However, we also lead the world in a lot of other things health-related.

Exceptional Levels of Gun Violence

Americans are ten times more likely than citizens of most other comparable countries to die of gun violence. This is hardly surprising, since the US has the highest rate of gun ownership per capita in the world, far exceeding the ownership rates in failed states such as Yemen, Iraq and Afghanistan. The US has over 400 million guns in circulation, including 20 million military style semi-automatic weapons. Firearms are the leading cause of deaths of American young people under the age of 24. According to the Economist, in 2021, 38,307 Americans aged between 15 and 24 died vs. just 2185 in Britain and Wales. Of course, lots of young lives lost tilt societal life expectancies sharply downward.

A Worsening Mental Health Crisis

Of the 48 thousand deaths from firearms every year in the US, over 60% are suicides (overwhelmingly by handguns), a second area of dubious US leadership. The US has the highest suicide rate among major western nations. There is no question that the easy access to handguns has facilitated this high suicide rate.

About a quarter of US citizens self-report signs of mental distress, a rate second only to Sweden. We shut down most of our public mental hospitals a generation ago in a spasm of “de-institutionalization” driven by the arrival of new psychoactive drugs which have grossly disappointed patients and their families. As a result, the US has defaulted to its prison system and its acute care hospitals as “treatment sites”; costs to US society of managing mental health problems are, not surprisingly, much higher than other countries. Mental health status dramatically worsened during the COVID pandemic and has only partially recovered.

Drug Overdoses: The Parallel Pandemic

On top of these problems, the US has also experienced an explosive increase in drug overdoses, 110 thousand dead in 2022, attributable to a flood of deadly synthetic opiates like fentanyl. This casualty count is double that of the next highest group of countries, the Nordic countries, and is again the highest among the wealthy nations. If you add the number of suicides, drug overdoses and homicides together, we lost 178 thousand fellow Americans in 2021, in addition to the 500 thousand person COVID death toll. The hospital emergency department is the departure portal for most of these deaths.

Maternal Mortality Risks

The US also has the highest maternal mortality rate of any comparable nation, almost 33 maternal deaths per hundred thousand live births in 2021. This death rate is more than triple that of Britain, eight times that of Germany and almost ten times that of Japan. Black American women have a maternal mortality rate almost triple that of white American women, and 15X the rate of German women. Sketchy health insurance coverage certainly plays a role here, as does inconsistent prenatal care, systemic racial inequities, and a baseline level of poor health for many soon-to-be moms.

Obesity Accelerates

Then you have the obesity epidemic. Obesity rates began rising in the US in the late 1980’s right around when the US peeled away from the rest of the countries on the chart above. Some 42% of US adults are obese, a number that seemed to be levelling off in the late 2010’s, but then took another upward lurch in the past couple of years. Only the Pacific Island nations have higher obesity rates than the US does. And with obesity, conditions like diabetes flourish. Nearly 11% of US citizens suffer from diabetes, a sizable fraction of whom are undiagnosed (and therefore untreated). US diabetes prevalence is nearly double that of France, with its famously rich diets.

THCB Gang Episode 135, Thursday September 28

Sep 28, 2023

Joining Matthew Holt (@boltyboy) on #THCBGang on Thursday September 28 at 1pm PST 4pm EST are futurist Jeff Goldsmith: author & ponderer of odd juxtapositions Kim Bellard (@kimbbellard); and patient safety expert and all around wit Michael Millenson (@mlmillenson).

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.

THCB Gang Episode 133, Thursday August 17

Aug 17, 2023

Joining Matthew Holt (@boltyboy) on #THCBGang on Thursday August 17 at 1pm PST 4pm EST are futurist Jeff Goldsmith: medical historian Mike Magee (@drmikemagee); policy expert consultant/author Rosemarie Day (@Rosemarie_Day1); and patient safety expert and all around wit Michael Millenson (@mlmillenson);

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.

Vertical Integration Doesn’t Work in Healthcare: Time to Move On

Aug 14, 2023• 1

So in this week of THCB’s 20th birthday it’s a little ironic that we are running what is almost a mea culpa article from Jeff Goldsmith. I first heard Jeff speak in 1995 (I think!) at the now defunct UMGA meeting, where he explained how he felt virtual ~~vertical~~ integration was the best future for health care. Nearly 30 years on he has some reflections. If you want to read a longer version of this piece, it’s here—Matthew Holt

By JEFF GOLDSMITH

The concept of vertical integration has recently resurfaced in healthcare both as a solution to maturing demand for healthcare organizations’ traditional products and as a vehicle for ambitious outsiders to “disrupt” care delivery. Vertical integration is a strategy which emerged in US in the 19th Century industrial economy. It relied upon achieving economies of scale and co-ordination through managing the industrial value chain. We are now in a post-industrial age, where economies of scale are in scarce supply. Health enterprises that are pursuing vertical integration need to change course. If you look and feel like Sears or General Motors, you may well end up like them. This essay outlines reasons for believing that vertical integration is a strategic dead end and what actions healthcare leaders need to take.

Where Did Vertical Integration Come From?

The strategy of vertical integration was a creature of the US industrial Revolution. The concept was elucidated by the late Alfred DuPont Chandler, Jr. of the Harvard Business School. Chandler found a common pattern of growth and adaptation of 70 large US industrial firms. He looked in detail at four firms that came to dominate markedly different sectors of the US economy: DuPont, General Motors, Sears Roebuck and Standard Oil of New Jersey. They all followed a common pattern: after growing horizontally through merging with like firms, they vertically integrated by acquiring firms that supplied them raw materials or intermediate products or who distributed the finished products to final customers. Vertical integration enabled firms to own and co-ordinate the entire value chain, squeezing out middlemens’ profits.

The most famous example of vertical integration was the famed 1200 acre River Rouge complex at Ford in Detroit, where literally iron ore to make steel, copper to make wiring and sand to make windshields went in one end of the plant and finished automobiles rolled out the other end. Only the tires, made in nearby Akron Ohio, were manufactured elsewhere. Ford owned 700 thousand acres of forest, iron and limestone mines in the Mesabi range, and built a fleet of ore boats to bring the ore and other raw materials down to Detroit to be made into cars.

Subsequent stages of industrial evolution required two cycles of re-organization to achieve greater cost discipline and control, as well as diversification into related products and geographical markets. Industrial firms that did not follow this pattern either failed or were acquired. But Chandler also showed that the benefits of each stage of evolution were fleeting; specifically, the benefits conferred by controlling the entire value chain did not last unless companies took other actions. Those interested in this process should read Chandler’s pathbreaking book: Strategy and Structure: Chapters in the History of the US Industrial Enterprise (1962).

By the late 1960’s, the sun was setting on the firms Chandler wrote about. Chandler’s writing coincided with an historic transition in the US economy from a manufacturing dominated industrial economy to a post-industrial economy dominated by technology and services. Supply chains re-oriented around relocating and coordinating the value-added process where it could be most efficient and profitable. Owning the entire value chain no longer made economic sense. River Rouge was designated a SuperFund site and part of it has been repurposed as a factory for Ford’s new electric F-150 Lightning truck.

Why Vertical Integration Arose in Healthcare

I met Alfred Chandler in 1976 when I was being recruited to the Harvard Business School faculty. As a result of this meeting and reading Chandler’s writing, I wrote about the relevance to healthcare of Chandler’s framework in the Harvard Business Review in 1980 and then in a 1981 book Can Hospitals Survive: The New Competitive Healthcare Market, which was, to my knowledge, the first serious discussion of vertical integration in health services.

Can Hospitals Survive correctly predicted a significant decline in inpatient hospital use (inpatient days fell 20% in the next decade!). It also argued that Chandler’s pattern of market evolution would prevail in hospital care as the market for its core product matured. However, some of the strategic advice in this book did not age well, because it focused on defending the hospital’s inpatient franchise rather than evolving toward a more agile and less costly business model. Ambulatory services, which are today almost half of hospital revenues, were viewed as precursors to hospitalization rather than the emerging care template.

Is More Physician-Owned Hospitals the Solution to our Health Cost problem?

Jul 26, 2023

BY JEFF GOLDSMITH

Robert Frost once said, “Home is where, when you have to go there, they have to take you in.”

Increasingly, in our struggling society, that place is your local full service community hospital. During COVID, if it wasn’t your local hospital standing up testing sites, pumping out vaccinations and working double overtime helping patients breathe, we would have lost several hundred thousand more of our fellow Americans.

But it wasn’t just COVID where hospitals leaped into the breach. As primary care physicians’ practices collapsed from documentation overburden and chronic underpayment, hospitals took them in on salary. If it wasn’t for hospitals, vast swatches of the northern most three hundred miles of the US and large stretches of our inner cities would be a physician desert. Hospitals subsidize those practices to a tune of $150k a year to have a full service medical offering and keep their own doors open.

As our public mental health system withered, the hospital emergency department (and, gulp, police forces). became our main mental health resource. Tens of thousands of mentally ill folks languish overnight in hospital observation units because, despite not being “acutely ill”, there is nowhere for the hospital to place them. And as our struggling long term care facilities withered under COVID, those mentally ill folks were joined in observation by seriously impaired older folks too sick to be cared for at home. As funding for public health has withered on the vine, hospitals have become the de facto public health system in the US.

THCB Gang Episode 131, Thursday July 20

Jul 20, 2023

Joining Matthew Holt (@boltyboy) on #THCBGang on Thursday July 20 at 1pm PST 4pm EST are futurists Jeff Goldsmith; patient advocate Robin Farmanfarmaian (@Robinff3); Suntra Modern Recovery CEO JL Neptune (@JeanLucNeptune); and our special guest Investor at Bessemer Sofia Guerra (sofiaguerrar)

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.

THCB Gang Episode 128, Thursday June 29

Jun 29, 2023

Joining Matthew Holt (@boltyboy) on #THCBGang on Thursday June 29 at 1PM PT 4PM ET are futurist Jeff Goldsmith: medical historian Mike Magee (@drmikemagee); and patient safety expert and all around wit Michael Millenson (@mlmillenson).

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.

THCB Gang Episode 126, Thursday June 15

Jun 15, 2023

Joining Matthew Holt (@boltyboy) on #THCBGang on Thursday June 15 were double trouble futurists Jeff Goldsmith and Ian Morrison (@seccurve); patient safety expert and all around wit Michael Millenson (@mlmillenson); Suntra Modern Recovery CEO JL Neptune (@JeanLucNeptune); and policy expert consultant/author Rosemarie Day (@Rosemarie_Day1). Lots of discussion about United and their hold on the US health care system, the continued hype around AI, and where the rubber is meeting the road or not on health equity.

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.

THCB Gang Episode 124, Thursday June 1

Jun 1, 2023

Joining Matthew Holt (@boltyboy) on #THCBGang on Thursday June 1 at 1PM PT 4PM ET were double trouble futurists Jeff Goldsmith and Ian Morrison (@seccurve), and delivery & platform expert Vince Kuraitis (@VinceKuraitis). Lots of discussion about Kaiser and Geisinger and what this means about the model for the future of care delivery. Do incentives or professionalism matter more?

The video is below. If you’d rather listen to the episode, the audio is preserved from Friday as a weekly podcast available on our iTunes & Spotify channels

What Can We Learn from the Envision Bankruptcy?

May 24, 2023

By JEFF GOLDSMITH

Envision, a $10 billion physician and ambulatory surgery firm owned by private equity giant Kohlberg Kravis Roberts, filed Chapter 11 bankruptcy on May 15. It was the largest healthcare bankruptcy in US history. Envision claimed to employ 25 thousand clinicians- emergency physicians, anesthesiologists, hospitalists, intensivists, and advanced practice nurses and contracted with 780 hospitals. Envision’s ER physicians delivered 12 million visits in 2021, not quite 10% of the US total hospital ED visits.

The Envision bankruptcy eclipsed by nearly four-fold in current dollars the Allegheny Health Education and Research Foundation (AHERF) bankruptcy in the late 1990’s. KKR has written off $3.5 billion in equity in Envision. Envision’s most valuable asset, AmSurg and its 257 ambulatory surgical facilities, was separated from the company with a sustainable debt structure. And at least $5.6 billion of the remaining Envision debt will be converted to equity at the barrel of a gun, at dimes on the dollar of face value.

KKR took Envision private in 2018 when Envision generated $1 billion in profit, in luminous retrospect the peak of the company’s good fortune. Envision’s core business was physician staffing of hospital emergency departments and operating suites. In 2016, then publicly traded, Envision merged with then publicly traded ambulatory surgical operator AmSurg. This merger seemed at the time to be a sensible diversification of Envision’s “hospital contractor” business risk.

Indeed, Envision’s bonus acquisition of anesthesia staffing provider Sheridan, acquired by AMSURG in 2014, helped broaden its portfolio away from the Medicaid intensive core emergency room staffing business (EmCare), which required extensive cost-shifting (and out of network billing) to cover losses from treating Medicaid and uninsured patients. It is clear from hindsight that where you start, e.g. your core business, limits your capacity to spread or effectively manage your business risk, an issue to which we will return.

The COVID hospital cataclysm can certainly be seen as a proximate cause of Envision’s demise.

The interruptions of elective care and the flooding of emergency departments with elderly COVID patients, which kept non-COVID emergencies away, damaged Envision’s core business as well as nuking ambulatory surgery. By the spring of 2020, Envision was exploring a bankruptcy filing. An estimated $275 million in CARES Act relief and draining a $300 million emergency credit line from troubled European banker Credit Suisse temporarily staunched the bleeding. But the pan-healthcare post-COVID labor cost surge also raised nursing expenses and led to selective further shutdowns in elective care and further cash flow challenges.

While one cannot fault KKR’s due diligence team for missing a global infectious disease pandemic, with hindsight’s radiant clarity, there were other issues simmering on the back burner by the time of the 2018 deal that should have raised concerns. Two large struggling investor owned hospital chains, Tenet and Community Health Systems, began divesting marginal properties in earnest in 2018, placing a lot of Envision’s contracts in the pivotal states of Florida and Texas at risk.

More importantly, there were escalating contract issues with UnitedHealth, one of Envision’s biggest payers, as well as increasing political agitation about out-of-network billing, which provided Envision vital incremental cash flow. These problems culminated in a United decision in January 2021 to terminate insurance coverage with Envision, making its entire vast physician group “out of network”.