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July 12, 2019

Muffled Signals

I was a psychology major with no interest in being a shrink.  I liked business, but hated accounting.  I was either open-minded or confused.

One place that my conflicted interests have always come together is around pricing.  That pricing decisions – for any product or service – contain a mix of economics, psychology, marketing and raw chutzpah has always intrigued me.

I am drawn to, and collect, pricing stories.  One of my favorites involves the owner of a small boutique getting ready to go on vacation.  Fall inventory arrived and she needed to clear out some stuff to make room.  A shelf of knick-knacks had not been selling, so she left a note for the assistant to cut the price in half and put them on sale.  The note got misinterpreted and the price was instead doubled.  When the owner returned, she was delighted to see that her 50% off sale worked as every one of the items had sold.  She was more delighted, though curiously puzzled, when she found out what actually happened.

That kind of stuff is fascinating.

Pricing plays a lot of roles, but one of its most important is as the signaling device between producers and consumers.  How does our complex market economy work without gnomes in the back room orchestrating everything?  Pricing signals.

Pricing helps everyone know how to behave.  If there is a shortage, prices go up.  Consumers get the message to think about curtailing consumption; producers get the signal to make more.  It is a beautifully elegant mechanism that makes this big old machine work.  Sure, we lurch here and there, making or buying too much, not making or buying enough.  But amazingly, it all seems to find its way back toward the steady middle without anyone having to call a meeting.

I am thinking about pricing signals as we watch the legislative processes around surprise medical bills and prescription drug prices.  I am thinking about the value of price signals as we listen to presidential candidates pitch various versions of universal healthcare.  But what I am really thinking about is mufflers.

That is because all these ideas, in the name of wanting to eliminate some real pain for some real people, are mufflers on the signals sent to the market through the price.  And when muffled, the signals don’t do their job.

Put an externally imposed ceiling on the price of anything – rent, concert tickets, meds, physician services – and you blunt the signal to producers to make more of it.  So, they don’t.  And the very thing we needed to help bring the price down – more supply – doesn’t happen because the signal never got through.

Deep thoughts for a summer Friday, I know.  But as we collectively consider options to address some of these issues, just be aware that price controls by any other name are still mufflers and suppressors of the critical signals that make a market work.

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.
June 27, 2019

Shoppable Services

The US Constitution has only 4,534 words.  The instructions on how to light my gas grill had more.

So maybe it is not a surprise that Article II of the Constitution, the part that establishes the presidency and the executive branch, hinges on this rather pithy little sentence.

‘The executive Power shall be vested in a President of the United States of America.’

There is a lot in those 15 words, nine of which have only one syllable.  We notice these things.

There are far more words in Article II talking about what makes up a quorum and how to determine who actually got the majority of the electors (uh, my number is bigger than your number…I win) than that single sentence that gives the President a LOT of power.

One of the ways the executive branch executes is through the Executive Order. FDR was the king of Executive Orders, ringing in with 3,728 of these.

In these, the boss writes instructions telling people on his team what they need to do.  They are a bit more formal than firing a tweet at a cabinet secretary as they get posted on the White House website and in published in the Federal Register and printed up on fancy letterhead and things like that.

President Trump just issued one and Alex Azar, Secretary of the Department of Health and Human Services, the guy who got most of the TO DO assignments out of this one, called it ‘one of the most significant steps in the long history of American health care reform.’  All expected hyperbole from the home team aside, he is right – this is a big deal.

Trump’s order directs his team to develop regulations, generally over the next six months, to change the game in five basic ways:

  • Require hospitals to disclose negotiated commercial rates (huge transparency move).
  • Require insurance companies to provide information to patients about costs before they receive care (everyone taking a swing a surprise billing).
  • Require agencies to coordinate on quality metrics (because I guess we should keep saying this until they actually do it).
  • Require agencies to make more de-identified data available to outsiders to use in building tools to help patients (this means apps for price comparison; it is handing the market a jackhammer to break through on transparency).
  • Expand what you can do with a Health Savings Account (sounds like no big deal, but another nudge toward empowering the consumer, another market tool).

Regular readers know our bias here as we’ve not been trying to hide it – when asked to choose, we generally prefer ideas that trust the market (consumers and competition) more than bureaucrats.  We’ll see how things play out, how the regulatory rubber hits the road, but this is the administration giving healthcare policy a giant push in that direction.

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.
June 20, 2019

Family Psychology

I still remember the very first thing Dr. Powell said in my Family Psychology class.  ‘Two people don’t get married…two family histories do.’

Wow, there was so much more truth in that statement than my 20-year-old single self could begin to realize.  The rest of the semester was spent discussing the dynamics and dysfunctions that flow from that single reality. The past 32 years have been a practical homework assignment to help me really understand what that truth means.

This is worth remembering because as physician practices work to develop plans for remaining independent, many will contemplate various strategies that lead to combining with other practices through mergers, acquisitions, management agreements, joint ventures, independent physician organizations (IPAs, but not the beer), accountable care organizations (ACOs), or some other three-letter acronym that stands for getting married.

At least three of our current clients are actively pursing a strategy of ‘acquiring’ other practices in one form or another; other of our clients are being pursued.  So, this is a topic that comes up a lot in my world these days as we help them think thorough their options.

Invariably, the conversation gets around to the family psychology, the reality of trying to unite two different family histories.  These things generally end up looking just as messy, just as weird as real families.  One of our clients had a deal blow up at the last minute because the lead doc in the to-be-acquired practice went to jail.

Yep, humans are humans, both in families and physician practices. The Jerry Springer Show is not running out of potential guests.

It has long been a point that a lack of cultural and values alignment is often the most important reason that mergers and acquisitions fail.  Just because it is valid and has been made repeatedly does not mean many organizations still ignore it, as the high failure rate of all mergers proves.

The issue is even more true when combining physician practices than for most companies in general.  A physician practice, intentionally or not, was built in the image of the founding physicians.  They are not just the owners, but also the product…they are the source of the revenue for the business.  This combination of factors means that whatever the family history of this practice – its values, its operations, its approach to the patient experience, its way of making decisions, its lingo, its everything – it is hard-wired deep into the DNA.  Signing a transaction document and changing the logo on the door are not going to undo that history.

There is a high probability your practice is having, or will have, courtship discussions that have an eye toward either marriage or at least moving in together.  Your future independence likely means you need to entertain or pursue these discussions.  Just keep Dr. Powell’s truism at hand early and often.

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.
June 12, 2019

Turtles and Tortoises

Turtle vs. tortoise.  Quick, what’s the difference?

Turtles spend most of their time in the water; tortoises on land.

There is a relatively long list of two things that seem the same, so much so that many of us use the words interchangeably, but have some meaningful differences.

Alligators and crocodiles

Cement and concrete

Champagne and sparkling wine

Ethnicity and nationality

Mugs and cups

It would make for a great casual dinner conversation.  Give a pair of words and note the thing that makes them different.  Or a drinking game if you live in a fraternity where everything is a drinking game.

My favorite couplet:  Great Britain vs the United Kingdom.  The latter contains Northern Ireland while the former does not.

Understanding the nuances between words that look like synonyms, but aren’t quite the same, will come in handy as the discussion around universal healthcare heats up with the coming political season.  It might not matter much if you know whether your road is solid (cement) or includes stone, rock and sand as well (concrete), but it may matter a lot what someone actually has in mind when they advocate for a ‘single payer system.’

The Medicare for All Act of 2019 (HR 1384) making its way through the House – not going anywhere in this Senate – is one such animal.  It is a single payer proposal, but a specific form of such.  And the details matter.  This proposal is radical, even by global standards, for a single payer model.

It is funded at a fixed amount allocated by Congress, has no role for private insurance nor any regional governance.  Further, it has no patient cost sharing – no participation in the premium, no co-pay, no deductible, no co-insurance.  It also has a very broad scope of coverage, including dental, vision and long-term care benefits.

It probably should be renamed ‘Medicaid for All’ because, but for everything being controlled at the federal level, it functions more like Medicaid than Medicare.  But that label doesn’t play as well in the marketing campaign, does it?

I’ll call my sparkling wine ‘champagne’ even if it was not made in that specific region of France because it just sounds better.

Canada, the idea that comes to mind for most people when you say, ‘single payer’ – maybe because it is the one other country most people can find on a map – does not have a single national insurance system.  Provincial governments receive per capita grants that they administer within the federal rules.

The Commonwealth Fund did an analysis of the ‘single payer system’ in 12 high-income countries.  There is variation across several dimensions – policy setting, administration, benefits coverage, and patient cost sharing.

Yes, they are all far more government driven than we are currently, but as with ‘ethnicity’ vs. ‘nationality,’ at times the subtle differences matter a lot.  Just a little tip in case you want to press in a little deeper in coming days as this idea gets tossed around.

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.
June 6, 2019

The Easy (Blue) Answer

Imagine I want to buy your house.  And pretend you want to sell it to me.  We sit down and discuss the price, but you just want more than I want to pay.  We can’t reach a deal. 

So, I go over to your next-door neighbors.  We sit down over an iced tea and talk turkey.  Maybe they are more motivated than you, maybe they are ready to move, but regardless of why, they agree to a much lower price.

Fine, you say, buy their house.

But I want your house; I just want it at their price.  Their house is in the same neighborhood and pretty similar to yours. Since you are being unreasonable, I should be able to just negotiate terms with them and then get your house for that price, right?

That is effectively how the Blue Cross Blue Shield plans would like to solve the thorny surprise billing issue. 

Their association, which represents 36 independent BCBS companies covering almost one in three Americans, recently sent a letter to Congress asking them to establish a benchmark for what out-of-network provides would be paid.  The answer, they pose, is simple – if someone is OON, they get paid Medicare or the in-network rate, whichever is higher.

How thoughtful that they threw in that last part.

They want the government to develop this ‘methodology’ so it is fair and standard (again, how nice), but that sort of glosses over the most salient input to the fair and unbiased methodology – which is the in-network rates THEY happen to have negotiated. 

Like a wolf wearing a wool coat, this is price-fixing dressed up in a thin disguise.  Take out the 117 million people covered by Medicare and Medicaid and the Blues have about half of everyone who remains…and a far greater percentage in many markets.  When you have that big a share, you set the market price.  The Feds, in this model, are just running the spreadsheet.

As we’ve discussed many times, this issue needs to be solved, is gaining political traction, and is complex and messy.  Which is why simplistic, one-sided solutions aren’t the answer.

How about an employer association propose that if they don’t like the premium increases offered to them by their carrier, they can just force the carrier to agree to pricing some other insurer offered them? 

Or that I can buy your house at the price I negotiated with your neighbor?

Same idea.

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.
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.