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May 29, 2019

Eating My Cake

Last week, we took a look at a recent RAND study that showed hospital pricing for commercial insurers to be, on average, 2x what Medicare pays for inpatient services and 3x on the rapidly growing outpatient business. 

And that got me thinking about my grandmother’s chocolate cake and the first meeting between my wife and my brother.  No, I have no idea how the neurons in my brain are organized.

We had been dating long enough that it was time to take Justine to her first extended family gathering.  When it was time for dessert, she, as the guest of honor, was ushered to the front of the line.  There was Mammaw’s famous cake with the more famous fudge icing.  It would change your life.  She took the knife and started cutting out the first corner.

Which was when she first got introduced to the depths of the redneck in my brother Chris.  With all the burly bravado he could muster (he has perfected this mode), he stepped in, took the knife out of her hand and pronounced that she might soon be the newest member of the family, but she had not yet earned a corner of the cake.  See, the fudge was a little thicker in the corners, so those had long ago been claimed by various family members, of which he was one.  She was not about to take what belonged to him.

That is a bit of how physicians must think about the hospital pricing levels revealed by this study.  There is only so much cake and when they use their monopoly pricing power to take more than they should, they are taking it from someone else…and that includes your practice. 

I want to challenge you to not just read this as another data point, another statistic.  I want you to think very intentionally about the strategic opportunity this represents. 

First, note the sub-title in the RAND report: ‘Findings from an Employer-Led Transparency Initiative.’ The people behind this are the employers who pay most of the bill for over half of all Americans.  They are fed up and looking for better answers.  Get their issues firmly fixed in your mind, let this drive your thinking.

Second, you now have a very clear target for your business case.  Your services – your professional fees, your ancillary services, your ASC – compete directly with the hospital’s outpatient business.  If you can’t deliver your services at a material discount to these high hospital prices and still make good money, you’ve got big problems. That should be easy enough.

Third, and this is where docs struggle, you have to go tell your story to everyone that matters – the commercial payers who sit in the middle, the brokers and consultants who advise the employers, the employers themselves.  Yes, inertia and incumbent power are against you. But you have a better story, a story the employers want to hear.

You are effectively giving them back a corner of their own cake.

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.