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    November 17, 2022

    Of Seals, Rats, Cats and Rabbits

    Here is an obscure story of environmental whack-a-mole that maybe only Noah could fully appreciate.

    Way down south, as in somewhere between Australia and Antarctica south, is the remote Macquarie Island.  You might not have seen it in your eco-travel brochures – to the extent there is overlap between readers of this blog and eco-travelers – because one early visitor to the island described it as ‘the most wretched place that can be conceived.’

    Cruise ships arrive every Wednesday!

    No one even discovered the place until the early 1800s and then all they found were some rare birds hopping around the huge population of fur seals sprawled out all over the desolate outcropping.

    Well, at that time, seals meant oil, and oil meant money, and money meant hunters.

    So, the ships started to arrive (maybe it was Carnival Cruise Lines? maybe they docked on Wednesdays?), but they brought more than hunters.

    Rats stowed away on the ships. Lots.

    No one liked the rats, so someone got the brilliant idea to bring some cats to eat the rats.

    Plus, there were now a lot of hunters and, in a strange plot twist, shipwrecked sailors.  Instead of just rescuing the sailors (seems like that would have been a good option), rabbits were imported as a food supply.

    The feral cats, in particular, were ruthlessly efficient and had eliminated virtually all the birds.  Conservationists were sad about that and worked to eradicate the cats.

    But with the cats gone, the rabbits did what rabbits do – breed and eat and poop – and in the process ate almost half the vegetation on the island.

    Now, there is an ongoing multi-million-dollar campaign to get rid of the rabbits.

    You almost have to laugh at one unintended consequence after another, but then you remember this is an ecological meltdown.

    I tell you that story, only in part because of my well-documented disdain for the rabbits destroying my yard (I am getting help with my issue), but more to make this point…

    At the start of 2021, nearly 70% of physicians worked for a large institution (health system, big corporation, private equity-backed company). There are a lot of motivations for physicians to make this move, but in large part many throw in the towel on owning their own practice simply because the finances don’t work anymore.

    Last week we discussed the Medicare cut coming to physician reimbursement in 2023, a move ostensibly intended to reign in healthcare costs.  But it will drive more physicians to give up the fight and take the employment deal from some big entity.

    Besides my rabbit issue, another thing we’ve discussed here frequently is the undeniable fact that the cost for physician services goes up, not down, when they leave independent practice, particularly if they do so by becoming health system employees.

    This will lower healthcare costs how?

    There are too many rats…ship in some cats!

    There are too many cats…ship in some wolves!

    There are too many wolves…ship in some hunters!

    The hunters are hungry…ship in some rabbits!

    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 10, 2022

    The Silly Dance

    Well, here we go again.

    No, no, not talking about Biden v Trump, 2024 edition – and aren’t we all glad for that?

    Nor the latest crypto meltdown – though I can’t tell if that is some fascinating dumpster fire we can enjoy from afar or a sign of the apocalypse.  (Wait, I could have made that statement about either of the two things we are NOT talking about, couldn’t I?)

    Instead, it is time for the annual silly dance around the Medicare fee cuts to physician reimbursement, though this time it seems a lot more real for a couple of reasons.

    For the non-healthcare people who might have accidentally stumbled onto this blog, here is the quick tutorial…

    Like, forever ago, Congress passed a law that requires ‘budget neutrality’ for Medicare, which put a bunch of math into law and the process of subsequent Medicare spending on autopilot…which, unlike their own salaries year after year, really means ‘flat.’

    There really is a lot of math, wild hand waving and gesticulations, smoke and incense, and a magic potion made from the sweat of a rare Brazilian toad.  The outcome of all of this is a single number called the ‘conversion factor.’

    The conversion factor is what Medicare pays a physician for a ‘relative value unit.’  RVUs – more complicated math, more hocus pocus, more reptilian body fluids – are a proxy for how much work and smarts and expenses it takes for a physician to care for a patient.  A quick and easy thing gets a few RVUs; a long and complicated thing gets more RVUs.

    Take your RVUs and multiply them by the conversion factor (more math, but easy, no witchcraft required) and wa-la, Doc, there is your check from Medicare.

    This whole charade started in 1998 and the conversion factor was $36.69.  One RVU was worth just less than two $20 bills.

    CMS just announced the 2023 conversion factor and it is $33.06, down $1.55 from 2022. The line graph for 25 years looks like a dead snake…very flat.

    Yes, there are additional cuts on top of this do to other Congressional gamesmanship around the sequester…remember that?  So it could be even worse.

    Breaking news that you may not yet have heard…inflation is high. Like, really high.

    That is a big cut to the top line at the same time operating costs for physician practices are going up faster than ever.  This really could break things.

    So, now we forecast doom and the breakdown of the entire system; physicians and Congress types both swear deep fealty to Granny and protecting senior healthcare; handwringing ensues…and at the last-minute Congress will pass a stop gap measure the blunt the cuts.

    We’ll kick the broken can down the road again.  Heck, we’ve got a lot of experience doing this, so we’re pretty good at it.

    In the meantime, our political situation means that the chance of Washington coming up with a real fix is less likely than my landing an endorsement deal for a shampoo company.

    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.
    October 27, 2022

    Moving the River

    In the hit series ‘Yellowstone,’ the patriarchal mega-rancher John Dutton, played by Kevin Costner, is in a major feud with stereotypical California real estate developer (my apologies if you are a California real estate developer…but I don’t think this blog attracts that crowd, so I think I am OK) who wants to build a golf course community alongside Dutton’s ranch. Well, that would just ruin all that is good about having a big ranch in Montana.

    This gets complicated, but the developer is going to take all the water for his golf course, which will destroy the Dutton ranch.  Some people would go to court to argue the case, but that is just not how Montana cowboys do things.

    Instead, Dutton sends his crew upstream with a load of dynamite.  They blow up so much rock and dirt that the river changes course back to the Dutton ranch.  This is among the least criminal things the Dutton crew does…which may have something to do with why this show is a hit.

    Water flows.

    The landscape defines where and how it flows.

    Change the landscape and the water flows to a different place, a different way.

    Maybe not as sudden as a truck load of dynamite, the flow of our water is changing dramatically.

    From my random reading list this week…

    On one hand, a report from a group of health system CEOs and CFOs discussed their challenges and how they are going to move forward.  It was a daunting list with no easy answers.

    Revenue is down. Costs – particularly employee costs – are up and the outlook is not getting any better.  Both nurses and administrators are unhappy and leaving in droves. ‘Digital transformation,’ and all that entails, continues to lag other industries and market expectations.  Regulations are oppressive; cyber threats lurk under every rock; safety and security, wellbeing, diversity and inclusion…these real, but sorta vague, expectations seem to have no end.

    I pick on this group a lot, but Lord, I don’t want their job.

    On the other hand, to take one example, Walmart announced this week that it will continue to expand its health clinic presence in Florida with plans to open 16 new locations next year, bringing their total footprint in the Sunshine State to 22 centers.  That will push them to almost 50 overall across Florida, Georgia, Arkansas, Texas, and Illinois.  And remember, these are not your typical ‘doc in a box’ things we often see in retail stores – they provide primary care, urgent care, lab, X-rays, other diagnostic tests, dental, optical, hearing, and behavioral health services…all alongside the traditional Walmart store.

    The water flow continues to be re-routed, both on the low acuity end of the spectrum and the high acuity end with various at-risk payment models.  And as in the fictious battles between ranchers and developers, whoever has the water wins.

    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.
    October 20, 2022

    The High Price of Gas Doesn’t Hurt Everyone

    After last week’s post about the cost of employee health insurance, I received a note from a practice administrator who is a long-time reader and a good friend, sharing a story from the days of his Oklahoma youth.

    As a senior in college, he complained one day to his father about the rising price of gas.  Filling up his ’73 Camaro had gone from $0.60 a gallon to $0.90. [Side question for President Biden as the mid-term elections approach…that $0.90 sounds really good right now, doesn’t it?]  His father, being in the oil and gas industry, reminded him that rising prices at the pump might be hurting the county, but it was paying for his college, so he should quit whining and be grateful.

    Similarly, I am guessing there are plenty of small business owners who are also working through the sticker shock of their 2023 health insurance premiums and thinking, ‘Those stinking doctors are getting rich on the backs of the rest of us who are paying these ever-increasing healthcare costs.’

    Well, that sentiment would be half right, and in the name of public service, let me affirm the part that is correct and maybe shed a little light on the half that is wrong.

    Yes, someone is getting rich.

    No, it is not those stinking doctors.

    As we have noted before, there is little good, reliable national data on the reimbursement rates that physician practices receive for their commercial insurance patients.  But we do have Medicare data and that is a decent proxy for things as a whole for a couple of reasons.  One, it is a big chunk of the market.  Two, the commercial payers tend to peg to Medicare and have been regressing toward it – or below in some cases – for a couple of decades now.

    So?

    In 2022, Medicare paid 6% less per unit of physician work (RVU) than it paid in 1998.  Not adjusted for inflation, mind you…in absolute terms.  If in 1998 Medicare would have given you a $1, now they give you a dollar and ask for change back.  Really.

    No, the physicians are not getting richer.

    By comparison, the average family plan provided by employers cost a bit less than $5,800 a year back in 1998.

    In 2022?

    That family plan rang in at over $22,000 (6.5% is the expected average increase for 2023).  Oh, and throw in higher co-pays and deductibles and some other ‘plan design enhancements.’

    Wait…that math doesn’t work, says our intrepid fictional business owner.  ‘My premiums grow and grow, but physician reimbursement is actually down a few ticks.’

    In fairness, this is a very complicated subject, and I am at about word 445 of my 500-word limit.

    But (as another of our public services here), UnitedHealthcare just reported third quarter results. On revenue of $81 billion for the quarter, net income was $5.26 billion, up 29% year-over-year.

    Long pause…

    OK, maybe the story is not THAT complicated.

    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.
    October 13, 2022

    Arguing With Myself

    It is a strange collection of friends, for sure – Walter, Bubba, Peanut, Achmed the Dead Terrorist, and more.  Stranger still, they all live in trunks.

    And they are all close with their buddy Jeff.

    For the uninitiated, Jeff Dunham is a hilarious ventriloquist, and these are the names of a few of his most popular puppets. His 2006 special on Comedy Central, ‘Arguing With Myself’ sent his career soaring.

    I have to wonder, if you are able to quickly switch back and forth between a dozen or more voices, when you are just doing daily life and having a discussion with yourself, which voice – or voices – do you use?

    It is that time of the year when I feel a little like Jeff might feel everyday because I have a conflict going on inside my head.

    You know our day job around here is providing revenue cycle services to physician practices.  We work to get our clients paid for the care they deliver to patients. We are tied to, and work hard toward, making all those good lines going up and to the right for our clients.

    But as an employer, it is health benefits renewal time, and you know what that means…our broker just came back with a very ugly proposal from our carrier.

    Sure, that is the first step of the stupid annual dance.  We’ll now go shop it and threaten to leave. They will ‘sharpen their pencil’ (so dull pencils can only write unreasonable numbers?) and try again.  Eventually, someone will win, we’ll pick a plan, and then we get to the tough question of deciding how much of the cost increase the company will absorb vs. how much will be passed on to the employees.

    It is no solace knowing that our clients also have to work through the same process.  I am sure physician practices feel more like a confused ventriloquist during this exercise than most any business.

    Let’s be honest about this final question…someone is taking a hit – the employees or the owners, or both.

    The delicate cost sharing question has been around long enough that now employees generally expect they will ‘get to participate’ in the increase in the cost of health insurance.

    For the past couple of years, the pandemic made it tough on employers to decide how much to shift to the employees.  This year, there are a couple new wrinkles that make it complicated.

    We know inflation is already biting families, so the increase in their contribution to health coverage is one more nibble.

    There is also the labor market question.

    Is the job market still incredibly tight, giving employees power and options? If so, asking them to pay could be inviting them to leave?  Or has the tide so turned (the ‘recession’ word is now being floated more frequently) that employers can ask employees to share?

    So yes, healthcare business owners will have several voices in our heads for the coming couple of months.

    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 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.