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    September 29, 2022

    Prophet Motive

    It is lonely work being a prophet.

    As a rule, prophets bring a message of some coming unpleasant future – famine, pestilence, God’s wrath.  Not a lot of prophets forecast everyone will see crisp Benjamins falling from the sky tomorrow.

    Further, most are warning of something that may still be a way off.  Many aren’t even still around when the future arrives to get to say, ‘See, I told you.’

    Thus, not a lot of postings on Indeed for open prophet jobs.

    But one, and he even has a little curmudgeon feel that works for the folks in central casting, is at least getting to have a satisfactory wry smile of being right, even if he didn’t get to pocket the proceeds.

    This week, Moody’s downgraded the credit rating of Envision Healthcare – the massive physician staffing company – from C to Caa3.  How bad is a Caa3 rating?  That is also where Moody’s puts El Salvador’s debt.  Ouch.

    Envision is expected to see ‘weak liquidity’ over the next 12-18 months.  Decoder ring says that means they are going to be burning cash.  The $1.4 billion they have on hand will likely be gone next year and the company is carrying a LOT of debt.

    Envision staffs a lot of departments for hospital systems – emergency, anesthesiology, radiology, neonatal – and is facing huge battles on three fronts.

    First, they and TeamHealth (same idea, different owner) are the center of the bullseye in the surprise billing debate in Congress.

    Second, toss in a major legal fight with UnitedHealthcare.  ‘You denied too many of our claims.’  ‘Well, you fraudulently upcoded those claims.’

    Third, understaffing, onerous productivity demands, and contract renewals are creating unrest in the ranks of their physicians.

    No wonder Moody’s stuck a massive ‘Buyer Beware’ sign in their front yard.

    That news took me back to the morning in the early summer of 2018 when famous short-seller Jim Chanos was on CNBC laying out the case for why Envision – and similar physician roll-ups – was a house of cards destined to fail.  Kynikos, the investment firm he manages, had taken a large short position in Envision, so he wasn’t just pontificating…he had put his money where his mouth was going.

    The short play did not payoff because Envision sold for almost $10 billion to KKR, who took the company private.  But now – four years later – Chanos can at least read Moody’s warning on the risks of the Envision debt and feel the prophet’s sense of validation.

    I am neither apologist nor critic of private equity buying physician practices per se.  I am ‘pro physician,’ particularly the sub-set that are not employed by a health system.  For some, partnering with equity makes sense.  But Chanos’ warning to investors in 2018 also serves as a note of caution to physicians contemplating this move.  Not all PE strategies for physician practices are the same.  Some create real value; some are just accounting and finance sheninigans that eventually run out of gas.  Seller beware.

    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.
    September 22, 2022

    New Ways to Make Money

    Amazon paid the NFL $1 billion dollars a year for over a decade for the rights to show the weekly Thursday night game exclusively on the Amazon Prime streaming service.


    Sports-related money talk is officially ‘crazy land’ these days.  $250 million contracts for dudes who wear shorts to work are a dime a dozen.  18-year-olds who have not played a minute yet for their college get more in name/image/likeness deals from a booster than the kid with the engineering degree will make in a year.

    Stupid money.

    But the Amazon/NFL deal is interesting as we think about how value-based care will shift the dynamics in healthcare.  I love me some random parallel metaphors.

    So, if you don’t get enough football on Saturday, Sunday and Monday and just have to have more on Thursday night, you now have to sign up for Amazon Prime.  The service costs about $140 a year and the company reported its ‘biggest three hours of US prime signups ever’ during its first game last week.

    Clearly, that was part of the plan in Amazon’s fight against Netflix and Hulu and Disney and everyone else who has a streaming service, which seems to be everyone except you and me.

    But that is not the biggest play for Amazon.  Not saying a $140 times a few million folks doesn’t add up to real money, even for Amazon.

    Here is the real juice, though.  The average customer on the Amazon mothership buys about $500 a year worth of stuff that comes in cardboard boxes.  Prime members, however, spend four times as much.  Free shipping is catnip.

    Spend money for streaming content…get more people to sign up for Prime…sell them more stuff.

    Let’s connect the analogy with an example.

    Let’s say there is a large primary care group in your market that is all in on taking full global risk with Medicare Advantage.  They are focused, wired, and dialed in to make money by better managing the care for this group, reducing unnecessary costs, and getting to keep the surplus they generate. That is the secret sauce of their economic engine.

    And let’s say you are a decent sized surgical group (pick a specialty, most will do) that has a couple of ASCs, which are your real profit machines.

    What if the primary care group approached you and asked you to take 95% of the normal Medicare rate in exchange for getting a priority position for their referrals into your specialty?  You might think about any incremental volume increase against the 5% haircut.  Maybe you like it, maybe you don’t.

    But what if they said, ‘Whoever helps us make more money on our Medicare Advantage side also gets all of our commercial referrals as well.  And yes, please use your ASC instead of the hospital because that also lowers our Medicare cost.’  No brainer taking the discount on their Medicare patients because now they are feeding you more of what you want.

    These are the types of deals that are coming.

    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.
    September 15, 2022

    Someone Has to Hold the Bag

    Unspoken assumptions, so hidden from view and conscious thought that they are forgotten, are often the most important.

    The cost of healthcare – regardless of how we pay for it – is unpredictable.

    We 330 million humans and our 37 trillion cells each add up to…I can’t do that math before coffee, but it is a lot…a boatload of complexity.  And cost.

    Someone has to pay the bill; someone has to carry the financial risk.  We don’t say that out loud when we debate policy, but it is still true.

    In a single payer system, the government and taxpayers own the risk.  In the fee-for-service model, several someones have to pay the piper.

    OK, we get it.

    The move toward value-based care (VBC) is accompanied by all sorts of PR-driven, focus group-tested bumper stickers, but let’s be real for a minute.  This is ‘mostly’ about is changing who ends up holding the risk bag.

    Who holds the bag matters a lot because it turns out that whoever is at the end of the line where the piper cashes the check has a lot of power over everyone else.

    One way to assess healthcare economics over the past 50-80 years is to conclude the risk-holders were asleep at the wheel.  Cash was good (printing presses at the Fed helps); no one seemed to be the worse; everyone learned to play their part in order to get their share.  Right up until it didn’t work anymore.

    So, now we are passing the risk bag downstream – from the government to health plans to providers.  But that sounds so callous, so financial, so untoward.  But hey, VBC is awesome.  It has ‘value’ and ‘care’ in it and who doesn’t like those?

    Fortunately, ownership of the risk – and the power that goes with it – is moving the right direction, at least in my strong ‘preference for the market over central planning’ bias.  It is moving closer to where real decisions – actual care – occur a million times a day.

    Take Medicare Advantage, a topic we’ve been discussing of late.

    About 50% of Medicare beneficiaries now opt for an MA plan, a number that will pass 60% by the end of the decade. These folks are covered by a plan that shifts the risk from CMS to the insurer (United and Humana have about 50% of the MA market).  That is a step.

    But increasingly, the MA plans turn around and delegate that risk to provider organizations like big health systems (mark me down as skeptical here) or primary care-centric provider organizations – the Bus Drivers we talked about last week (very bullish on this group).


    Now those holding the bag – and wielding the power – are physicians, on the ground, in the community.

    There is a lot that will go wrong, for sure. But since someone has to hold the bag, I’ll take this option all day.

    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.
    September 8, 2022

    Talking to Bus Drivers

    During high school, I spent a lot of hours on a big yellow school bus – basketball road games, summer youth group trips.  It was always a good time, especially if you got to sit by that cute girl or got deep into a game of Spades.  But once on the bus, you were oblivious to where it was going.  Tell us when we get there.

    Unless you happened to sit in the front row, looking out the windshield, talking to the bus driver.  Then you had a real sense of going somewhere.

    Many physicians, particularly specialists, are in the back of the bus, rocking along, wondering if we’re ever going to get to this place called ‘value-based care.’  Deal the cards and pass the Cheetos.

    This past week, in separate conversations, I got to sit up front and talk to two bus drivers and get a sense of where we are headed.

    One is on the west coast; one on the east.

    One has been at this almost four decades; the other is new to the gig.

    One is with a small organization owned by a band of primary care physicians; the other is pretty large and is equity-backed.

    One is purely focused on Medicare Advantage; the other does both MA and commercial plans.

    One is in a mature managed care market; one is an early mover in their markets.

    Both agree that ‘value-based care’ is just marketing lipstick on a pig attempting to dress up and rehab ‘managed care.’  They use them interchangeably.

    Both are all about capitation, full risk.  They want it, that is what they are trying to do, that is how they make money.

    Both conversations were fascinating.  I took away a few things…

    It takes some time to get traction with the primary care physicians, even though they are holding the risk and have the incentive to make changes.  Even new docs, right out of school, were not trained to think about risk and really managing care. The one that has been doing this a while has the PCPs dialed in – they get it and behave accordingly.  The new organization, and others like them, are getting there quickly.

    Once they get their own crew rowing in the right direction, the hospital relationships – far and away the biggest part of the spend they have to manage – are next.  First, they get aligned with them.  Then, they go after them.  ‘Site of service’ is the biggest needle mover.  That is code for moving surgeries and diagnostics out of the hospital to ASCs and other lower cost ambulatory sites.

    Next up comes whatever are their biggest issues on the specialty physician side.  That is happening and gaining speed.  Those that cooperate on their big agenda will win, but those that don’t will lose.  The risk-bearing entities, with the power to direct patients, will decide.

    After all, they are the bus driver.

    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.
    September 1, 2022

    Free Fresh Grass

    I may have mentioned this before, but I am at war with the rabbits.  My family is worried about me; I find myself thinking of Elmer Fudd a little too fondly.

    They have totally destroyed our back yard.  Unfortunately, I am in the particular age/suburban male demographic that cares about his yard too much.

    The pellet gun suggestion was immediately vetoed.  Our dog is such a non-threat that the rabbits think he is coming out to play with them.  I tried an organic spray on the lawn, and it worked – rabbits are repulsed by the smell of rotten eggs – for two days until the sprinkler washed it away.

    Early in the summer, I decided to hit CTRL/ALT/DEL and tear up the worst part of the yard and reseed it.  I put up some fencing around the patch, watered it as instructed, and waited on my grass.  Finally, I began to see little green shoots and thought I would soon be out of the neighborhood Hall of Shame.

    One morning, I got my coffee and headed to the deck for a few quiet moments before I started my day.  I looked out to check on my project only to find not one, not two, but four fat rabbits right in the middle of my fenced in area, delightfully enjoying the fresh grass I had grown for them. As I walked down toward them, they dropped some of their destructive pellets, hopped over my fence with zero effort, and I swear, looked back with a smile of gratitude for me creating such a hospitable buffet for them.

    The city worked to eliminate the coyotes; we back up to a green belt where the rabbit condos are in abundance; and I was providing really nice Kentucky bluegrass for breakfast.  I did everything short of giving them frequent flyer points every time they pooped in my yard.  What did I think was going to happen?

    Rabbits, and people, respond to incentives.

    So, it is not a surprise that Medicaid/CHIP added 17 million enrollees since the beginning of the pandemic.  This is on top of the expansions that came with the Affordable Care Act.  Part was the economic disruption of the pandemic, for sure.  But part – experts and the rabbits think a large part – was due to the ruling that was part of the Public Health Emergency (PHE) that states could not disenroll people.

    Normally, Medicaid enrollment churns pretty fast, so if you stop the outflow (disenrollment) but not the inflow, the overall number goes up.

    Medicaid, for many providers, used to be an afterthought.  Their thinking about their payer mix generally split into two buckets: commercial and Medicare.

    Want to guess how many are on Medicaid now?

    Almost 90 million, roughly the population of every state on the Atlantic seaboard from New York to Florida.

    Now, the PHE will end at some point (maybe?) and normal churn will return, which will create its own set of challenges for physician practices.

    Just keep all this in mind.

    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.
    August 25, 2022

    Some Stuff is Just Hard

    For some people – those of a certain age or of a certain type of life experience – it is truism that young people need to do some hard manual labor as a critical formative experience.  If you nodded and thought of your teenager, who seems to have grown a new hand that looks a lot like a cell phone, you know what I am saying.

    Hard work, especially when you are young, teaches you a lot about life and yourself.  Sweat and body aches and long days are good teachers. But sometimes the lessons they teach are less sublime, less philosophical than what we old people romanticize.

    Word came through town one day that a man was cutting hay in his pasture and was looking for some young boys to come load bales.  I needed some cash for a new pair of jeans for school, so I signed up.  Meet at the field at 6:00am the next day.  Prepare to stay until dark.

    It was hot and humid.  I had driven by the pasture many times, but it never looked this big. Bales stretched to the horizon and weighed almost as much as I did. The bed of the truck was higher off the ground than I expected.

    There was a lot of time to think that day (loading hay is not demanding cognitive activity), but I did not come to some deep understanding about my soul or the complexities of the universe.  I had only one real insight:

    Hauling hay is friggin’ hard.

    So it was with an ironic smile that I read yesterday that Amazon announced it is closing its Amazon Care telehealth unit, which had been launched in 2019. You’d think a telehealth service launched just before the pandemic would have been gold, but it just wasn’t working, not getting the uptake they expected, not meeting the needs of the business customers it was targeting.

    This is the same Amazon that famously flamed out with the Haven joint venture it had with JPMorgan Chase and Berkshire Hathaway.  The one that was going to totally revolutionize healthcare, remember?

    You know I am a fan of healthcare disruptors, especially outsiders.  We need it if we are to make any progress on our challenges. Yes, we incumbents have plenty of our own problems, deserve plenty of criticisms for being innovation luddites.

    But guess what, outsiders?

    Healthcare is friggin’ hard.

    It is not like we haven’t been trying.

    Now Amazon will approach it differently – just use their massive cash pile to buy things like One Medical and, maybe, Signify Health.  Well, that is one way to go at it.

    Disruptors – tech giants and start-ups, equity funds who see big markets and big opportunities, big box stores – welcome.  Come on in and join the party.  But this is a lot like hauling hay in the July Arkansas heat.

    Better bring your work gloves and a big water jug.

    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.