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January 9, 2020

Bell Curves, Bifurcation and Long Tails

We generally don’t travel a lot over the holidays, and we don’t have large extended families on either side to keep us hopping, so the business slowdown gives me a little room to allow for some random reading that goes ‘who knows where.’

So now comes my first blog due date of the year and the first opportunity for all of that to come out in some ‘almost cogent’ 500-word output.   My family is happy that you are reading this, and they are off the hook from having to listen to the latest ‘interesting’ thing that Dad wants to share.

You’d think I might try to frame up the coming year with some outline of coming healthcare trends or challenges, and that is your first mistake of the year, assuming I would start with something logical.

Instead, let’s talk about distribution curves, both normal and busted.

You think I was kidding about the family’s relief, but yes, we had a long dinner conversation over the holidays about distribution curves.  At least they are all old enough now to have a glass of wine when Dad goes down one of his wormholes.

The bell curve is one of the key underlying truths of life, a reality that shows up all over the place.  On many dimensions, it is right to assume that the world is normally distributed and then act accordingly.  There are people and organizations on either end of the curve, and they think, feel and behave like the outliers they are.  But most are bunched in the fat middle, hanging close to the median, and think the fringe crazies are, well, a little crazy.

But then there are many things that are not normally distributed at all and assuming they are will get you in trouble.

There are 1,000 songs an hour uploaded to music streaming services (will save you the math…that is 9 million a year), but only a handful make money, much less Beyoncé money.  That is a very long tail.

Some things are this extreme or that with little in the middle.  Bifurcation is one of my favorite smart-sounding words and there is no more interesting example than global population distribution. Take a quick look at this picture. That blows my mind.

OK, Tim, you wandered around the Internet the past couple of weeks.  Besides making me more interesting at parties (you needed this for December, not January, didn’t you?), is there a point here about my business?

Well yes, yes there is.

As you plan your strategy, be clear about your assumption on how your market is distributed and then check to make sure you are right.

If it is normally distributed, you can chase the tails or chase the middle, but know they are not same.

If it has a long tail with only a few big winners, make sure your math works.

If it is really bifurcated, don’t get caught in the empty middle.

Tim Coan
Tim Coan

CEO and founder

Tim Coan, ALN’s CEO, writes an insightful and witty blog weekly about a variety of topics relevant to independent physician practices.
December 19, 2019

That’s A Wrap

We come the final blog post of the year…wait, of the decade – wow, that adds some pressure for me to step this up a bit, doesn’t it?

If I had been thinking a little more, I would have done some really witty and creative retrospective look-back on these past ten years and come up with a misty-eyed piece that could be set to some Neil Diamond song.  But if I had been thinking more, I would have come up with some better than Neil Diamond.

If you just pause for a minute and think about what has happened in healthcare over the past ten years, it will blow your hair back a bit.  Maybe Neil in black sequins is right after all.  Consider that at the end of 2009, we did not even have the Affordable Care Act yet.  ACOs, value-based care and MACRA were not yet common in our lexicon. Retail clinics and telemedicine were nascent glimmers of new ideas.  Precision medicine meant a sharper dart to throw at the Physician’s Desk Reference.  Google’s only interest in healthcare was the random searches of people diagnosing themselves before going to see their doctor.

It would be easy to go on breathlessly about this being a decade of such great change and transformation, but I think that would be overdoing it.  In truth, most aspects of how we – patients, providers, payers, employers – experience healthcare in 2019 still feels a lot like how it did at the beginning of the decade.

But (orchestra begins to swell) we laid down a lot of things in these teenage years of the new millennium that now set the stage for real and seismic change in the decade to come.  All the prep work, the things under the surface that must happen, is necessary but not yet really disruptive.

So, as you head off to find the eggnog and a parking space at the mall, we’ll leave you with this thought:  While it would be easy enough to skeptically conclude that all the prognostications about the transformation of healthcare this past decade were little more than marketing spin, let me suggest that we are getting close to having enough of these individual parts now in place.  They are starting to coalesce and achieve critical mass of the ‘new.’ Then suddenly (apparently sudden but not really) big change happens.  That is what the next decade holds.

And one other parting thought: Thank you. As I bring the blog to a close each year, I am reminded that it is a real privilege to have each of you reading along.  That you give a few minutes of your day to consider my rambling is not something I take for granted.

Have a wonderful holiday and we’ll see you again in the new decade.

Tim Coan
Tim Coan

CEO and founder

Tim Coan, ALN’s CEO, writes an insightful and witty blog weekly about a variety of topics relevant to independent physician practices.
December 13, 2019

Some Things Persist

I recently attended a healthcare investor conference, you know those gatherings where people with money – mostly private equity funds and banks – mingle with company executives who might be looking for money now or in the future.  There are a lot of navy blazers.  It is a little more advanced than the junior high dance because the boys are not just standing in the corner, wanting to talk to the girls but afraid to do so.  That the punch bowl has been replaced by an open bar, sponsored of course by the big law firm who wants to get these folks together so they can get paid to paper the deal, might have helped.

Lots of interesting conversations take place which is what makes attending these valuable to me.  Investors and executives are in it together, thinking about the industry but they come from different perspectives and ask different questions. Yet, everyone is trying to serve a real market need while also making money.

Which was ironic – serve customers AND make money – given that one of the biggest market stories of 2019 was the splashy IPOS of companies like Uber and Lyft and WeWork (IPO? Oops) that don’t make money and likely never will.  It feels a lot like 1999 when we forgot that fundamentals matter, that some things might change but some laws are persistent.

Time for ‘Coan hard right turn non-sequitur.’  We haven’t had one of those in a while, have we?

At the same conference, we heard from the CEO of an organization helping primary care physicians form physician-owned ACOs.  Across their organizations, they have about 5,000 physicians, manage thousands of patients, and now control about $7 billion of spending.  Pretty impressive.

As he spoke, I thought about the fact that the vast majority of ALN’s clients are still predominately, if not exclusively, in a fee-for-service world and would find his view of things as foreign and strange as Eliot found ET to be.  [Side note – this is a theme we are going to be exploring next year because this change is going to affect your practice in ways that you may not see coming.]

During the Q&A, I took the opportunity to ask a question on behalf of all of you FFS Neanderthal specialists: ‘As your physicians are now under value-based payments, but you rely extensively on fee-for-service physicians to deliver much of their care, what do you want and expect from them as your partner?’  Translated: What do we need to do to get your referrals?

You might have expected some new, managed care-infused answer, but he responded without hesitation: ‘Two things.  Access – get our patients in quickly.  Communication – tell us what you found and what you did.’

He said the same thing that primary care physicians have been saying to their specialists for decades.

How do FFS physicians play in the value-based world?  Start with the fundamentals.

Some rules persist.

Tim Coan
Tim Coan

CEO and founder

Tim Coan, ALN’s CEO, writes an insightful and witty blog weekly about a variety of topics relevant to independent physician practices.
November 26, 2019

398 Years

This Thursday, almost four centuries ago (mark your calendar for the really big celebration in 2021) the Detroit Lions played the first football game on Thanksgiving and Uncle Bob fell asleep in his big recliner after eating too much for lunch and began to snore loudly.

As you know, about 150 people gathered to celebrate together that first year.  Though there were some turkeys, they probably ate more deer, courtesy of king Massasoit and the Wampanoag natives.  The Pilgrims’ dwindling sugar supply probably meant no pie, so I am glad we made that improvement to the tradition over time.  And no, there was not football but instead they had a firearms competition.  Maybe I’ll wander over and challenge the neighbors to a little skeet shooting in the street?

As we all wind toward the first big holiday of the season, I want to thank each of you for reading along here each week as we work to process the news and moves of healthcare, trying to help independent physicians navigate forward in a crazy time.

Have a wonderful, restful time this weekend doing something you love with the people you love (or related to…in which case you might be reminded to pick your friends well).

We’ll get back after it next week.

Tim Coan
Tim Coan

CEO and founder

Tim Coan, ALN’s CEO, writes an insightful and witty blog weekly about a variety of topics relevant to independent physician practices.
November 22, 2019

Bob’s Bristol Burden

In the midst of the all the splash Disney CEO Bob Iger is getting for the launch of their new streaming service, Disney+, that will compete against Netflix and Amazon, Mickey and Co. have a big problem. Their goose that has been laying golden eggs has dysentery and the prognosis is not good.

ESPN is in trouble and the future looks bleak.

This is not a story about sports or cable television.  It a parable for hospitals.  The warning comes at the end, but you will see the parallels along the way.

Not that long ago, EPSN was printing cash for parent company ABC, which is owned by Disney.  Some analysts estimated the sports network accounted for up to half of the net income of the whole enchilada not that long ago.  A full quarter of the average basic cable bill went directly to ESPN.   Cable operators had no choice but to pay the extortionary carriage because you could not sell a package to viewers that did not include ESPN.

In 2011, ESPN had over 100 million subscribers.  Assume about $8 a month per subscriber in revenue. Big number.

Earlier this week in the 10k filing, Disney noted the sports channel lost another 2 million subscribers in the past year, bringing the total down to 86 million.  14 million times $8, going the other way. Ouch.

This is mostly the result of the big trend of cable cord-cutting by Millennials and other youngsters.  They just don’t want cable.  Give me my phone and internet access and I am good.  Thus, Disney’s move into streaming.

Most businesses, when faced with revenue losses that show no signs of reversing begin to cut costs and resize the expense side of the ledger.

But ESPN has a big problem – it lives and dies on live sports coverage and has signed long term deals that obligate it to pay the NFL, NBA, MLB and college conferences billions into the future for the rights to carry their games.

These were deals cut before the slide in subscribers really started to show.  Oh, the signs were there, but ESPN execs, awash in easy cash, denied that cord-cutting was a real risk to their business (foreshadowing).

Now, falling revenues are stacked against huge future obligations.

What do you do when a cash printing machine quickly flips to cash sucking albatross?

Ironically, ESPN does not have to pay the NFL for the right to show all those highlights because it pays to broadcast Monday Night Football.  Don’t want to re-up on that billion-dollar contract?  OK, then pay hundreds of millions for using those highlights.

We call that ‘being in a bind.’

The point?

When money was easy, hospitals borrowed tons to build massive new facilities everywhere that are printing cash. Like viewer demographics and cord-cutting, big forces are moving business out of the hospital to ambulatory settings.  But those bonds are like a contract with the NBA…you have to pay them back even after LeBron retires and people stop watching.

Tim Coan
Tim Coan

CEO and founder

Tim Coan, ALN’s CEO, writes an insightful and witty blog weekly about a variety of topics relevant to independent physician practices.
November 15, 2019

Barometer Myopia

It was a classic physics exam question:

‘Show how it is possible to determine the height of a tall building using the aid of a barometer.’

The obvious answer, for the examiner anyway, was to use the barometer to determine the differences in air pressure at the top and bottom of the building and thus calculate the height.  That is what barometers are for, that is how physicists are supposed to think.

The student, who legend says might have been future Nobel Prize winner Niels Bohr, wrote, ‘Take the barometer to the top of the building. Attach a long rope to it, lower the barometer to the street, then bring it up, measuring the length of the rope. The length of the rope is the height of the building.’

When challenged by the professor to give the ‘right’ answer, the student promptly offered up several other alternatives.

  • Drop the barometer off the roof and measure the time it takes to hit the ground and calculate it that way.
  • Stand the barometer in the sun and measure the shadows of both barometer and building and calculate using the height of the triangles of each.
  • Tie it on a string and swing it like a pendulum, both on the ground and on the roof. Determine the radial altitude on both the ground and the roof and calculate it that way.
  • Mark off the number of barometer lengths as you go up the staircase and add those up.

And my personal favorite: Trade the barometer to the janitor in exchange for him telling you the height of the building.

Oh, the arrogance of falling in love with our presumed answer to the problem.

And that is exactly what we’ve done with value-based care.  Giving the ‘right’ answers to the pricing mechanism question – ACOs, capitation, maybe bundled payments – has become more important than actually solving the problem – reduce the cost of healthcare, give us more value for our money.

Healthcare is complex beyond comprehension.  There are so many places where the big collective ‘we’ are not getting good value for our money.  Just off the top of my head…

  • Over-utilization due to financial self-interest (I led with that to please the ‘examiners’ who want me to say ‘fee for service is evil’)
  • Flawed work that does not come with a ‘make good’ guarantee
  • Ridiculously high unit prices that bear no resemble to value
  • Care that has no proven efficacy
  • Inflated prices that reflect waste and unnecessary friction in the entire process
  • Monopolistic prices that reflect an incumbent’s power more than value delivered

We could go on.

The point is we need more innovation in how we leverage pricing mechanisms as we drive for value, not less. Pricing models both reflect and drive innovation.

Sometimes, the fastest way to better value is to just lower the price.

That is a message independent physician practices should be trumpeting.  ‘Hey, we just cost less than the other folks.’

Like talking to the janitor, sometimes the easy answer is the best answer.

Tim Coan
Tim Coan

CEO and founder

Tim Coan, ALN’s CEO, writes an insightful and witty blog weekly about a variety of topics relevant to independent physician practices.