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December 13, 2019 Some Things Persist

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 That the punch bowl has been replaced by an open bar, sponsored of course by the big law firm who wants to get these folks together so they can get paid to paper the deal, might have helped.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.

November 26, 2019 398 Years

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.

November 22, 2019 Bob’s Bristol Burden

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.

November 15, 2019 Barometer Myopia

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.

November 8, 2019 Insensitive Chant

November 8, 2019

Insensitive Chant

In 2016, the Wisconsin Interscholastic Athletic Association sent a reminder to its member high schools that certain student chants were prohibited. Such as…

‘Overrated. Overrated.’

‘You can’t do that.’

‘Airball.’

These chants would hurt the feelings on the other team. If my son happens to be reading today, he is shaking his head right now as he led these very chants his senior year and frequently got shut down by the school administration. His disgusted ‘sissification of America’ speech would follow.

Another banned was the favorite comeback of the winning team if students from the other side tried any cute chant. They would simply point and drone, ‘Scoreboard, Scoreboard, Scoreboard.’

Which reminds us of the old truism: losers do more analysis and quote more statistics than do winners. Winners just point at the scoreboard.

Which brings your humble blogger back to a theme we explored in our whitepaper, The Case for Independent Physicians.

In short, we are now a decade into the industry’s infatuation with ‘value-based care,’ but no one is chanting ‘Scoreboard, Scoreboard’ because they can’t.

Average premiums for employer sponsored health plans will again go up 5-7% in 2020, three times more than inflation.
The CBO still projects that healthcare spending will grow 6% a year far into the future, just as it has in the past decade.

In case you are wondering, general inflation during the past ten year only topped 3% for about six months and was less than 2% more than half the time.

So, what do you chant when you can’t just point at the scoreboard?

You obfuscate, though I am guessing that is not how the students in the gym would describe it.

We get metrics from CMS and commercial insurers about what percent of their payments are now in a value-based contract (a lot, they say); we get numbers about how many ACOs we have and how many patients are covered by one (growing); we get reports on declining hospital admissions and improved measures of health outcomes and activities.

Is it time to summon the child from Hans Christian Andersen’s fable about the emperor’s new wardrobe?

Rather than throwing rocks from the cheap seats or shrugging with indifference because we are still predominantly fee-for-service (most independent specialists in particular), instead it is time to go on the offensive.

Here is the drum I am starting to beat, and encouraging our clients and friends to do the same:

‘Independent physicians are not behind on value-based care, we are leading the way. We are actually lowering cost and providing better care. An office visit from an independent doc is cheaper than one from a hospital employed provider. A case in our ASC is cheaper than one in the HOPD. Our imaging is way, way cheaper. Do you want better value for your dollar, or do you want new complicated reimbursement models?’

At the risk of hurting someone’s feelings, it is time to start pointing and chanting, ‘Scoreboard, Scoreboard.’

More to come next week.

October 31, 2019 The Pile of Discarded Name Badges

October 31, 2019

The Pile of Discarded Name Badges

Today officially ends my long fall conference season and leaves me with a big question: For Christmas, should my kids each get a couple of lanyards with plastic nametag holders, logo-emblazoned cell phone charges, a water bottle, or a basket full of those tiny hotel shampoos? Sometimes they read along, so I hope this does not ruin the surprise.

My conferences covered diverse perspectives, so I got to peer at healthcare from several angles. Stepping back and squinting at the past several weeks as the big blur it has become (what city is this again?), a couple of big things emerge.

Four observations, in no particular order…

First, the industry is ever more bifurcated on the subject of ‘value-based care.’ For many, this is the new reality and the game is over. For another swath, particularly surgical and procedural-oriented physicians, this all seems like a bunch of self-important wonky hype because it has not come to their world at all.

The first group has no idea the second group exists, or if they do, they presume they are Neanderthals that will either get it soon or go extinct.

The second group – many of our readers – need a new script for talking to the first group and here it is, free of charge: ‘We ARE fully into value-based care, and in fact, we are leading the way and are ahead of you all. When you move FFS business out of the hospital, HOPD, and health system-employed physician settings and to our lower cost ambulatory model, you save a ton of money and isn’t that the essence of value?’

Second, no one talks about changing their EMR anymore. It just seems too hard and too expensive. But there are about a gazillion new tech companies that have some bolt-on solution to make all the pain go away.

Unfortunately, most of those companies won’t make it and will also go away, but right now you can’t pick the survivors.

Third, if there are any real issues that matter in the election (that is not a rhetorical comment…it seems everyone has picked sides and are only talking to their own team), healthcare will be at the top of the list and the philosophical differences between the Shirts vs. Skins are wider than ever.

Here’s a free piece of advice for President Trump…if you ever get asked a question about healthcare, just point to CMS Director Seema Verma, sit down and give her the floor. She is beyond impressive and delivers the most articulate and compelling defense of market-based healthcare ever. That advice implied ‘sit down and shut up,’ so it’s not going anywhere, is it?

Finally, the big outsiders who are coming into healthcare…holy cow, are they going to blow things up. Understanding what Walmart is doing with their clinic in Dallas, Georgia; seeing some things Google is doing that only Google can do; hearing healthcare plans from companies as diverse as Mastercard to Lyft to Bose (yes, the speaker people)…well, Dorothy, this ain’t Kansas, is it?