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April 24, 2019

Butterly Flappings

Edward Lorenz is something of an accidental historical figure, thrust from the pedestrian corridors of meteorology into the sexy and mysterious world of chaos theory.  The guy took a short cut because he wanted to get a cup of coffee and ended up sort of famous.

It was 1961 and Lorenz was running some computer weather models.  As you can imagine, processing speeds were a little slower then since vacuum tubes were involved.  He interrupted a scenario to change a particular input value but entered 0.506 instead of the more precise 0.506127. No big deal, right?  When he got back from break, the computer had simulated two months of weather, but the results were wildly inconsistent with what he had expected.  All because of that minor change in one variable, and thus was born the idea known as the ‘butterfly effect,’ the notion that a butterfly could flap its wings in Brazil and cause a tornado in Texas.

There is a lot to this chaos theory (the scientific one…life with toddlers and teenagers is ‘all chaos, no theory’), but one of the key ideas is that ‘minor perturbations’ in the inputs can result in dramatic differences in the outputs.

This is important to keep in mind as people – proponents and adversaries – begin to crawl into the math behind Uncle Bernie’s ‘Medicare for All’ plan.  As Mr. Sanders, the country’s favorite curmudgeon progressive, continues to sit high atop the early polls for the Democrats, his signature idea is starting to get more attention.  Finally, some people are starting to ask, ‘Well Bern, how much will that cost actually?’

OK, the short answer is a mind-numbingly large number.

But how large depends on where you set some of those little input variables.  Estimates, and at best these are back of the napkin, range from 12.5% to 21% of GDP. 

Four variables, none of which are actually small, are:

  • How much do you pay providers?
  • How much savings do you get in prescription drugs?
  • How much administrative cost is required to run the system? 
  • How much will utilization go up if everyone has coverage?

Let’s take a minute on the first one, the one we all here care about most.  Pay docs and hospitals the same as current Medicare rates and you’ll send many hospitals, particularly in rural areas, straight into insolvency.  Pay more to reflect real costs and the price tag soars on what is an already difficult political sale.

So, as we begin to contemplate the biggest proposed policy change in generations and the numbers start flying around, keep the lesson from Mr. Lorenz handy.  Minor perturbations to big complex models have wildly unanticipated impacts.

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.
April 18, 2019

Minor League Champs

Last September, the Bowling Green Hot Rods, a minor league affiliate of the Tampa Bay Rays, beat the Peoria Chiefs 7-2 to win their first ever Midwest League Championship.

I bring you this critical, though seven-month old, item because one of the themes we are tracking this year is the migration to value-based reimbursement.  Yes, a segue is coming. 

Today, we have a little news from the minor leagues of value-based care.  See the connection?

We’re checking back in on the Accountable Care Organizations (ACOs) participating in the Medicare Shared Savings Program (MSSP). Remember when these ACOs, working in the MSSP model, were going to save us boatloads of money and fix healthcare?  Now, it seems like Single A ball.

If you’ve been reading here long, you know that the ACO/MSSP idea is a favorite punching bag for us.  For all the smoke and heat and light and energy and spending that has been put into this, CMS would have saved more money by simply asking their staff use the other side of the Sticky Notes before reaching for another.  ‘Rounding error’ is a fitting summary for the program’s ‘savings’ to date.

But we look a little deeper today.  It turns out that physician group ACOs record a net positive savings to Medicare, while hospital-integrated ACOs don’t save enough to even cover their bonuses.

Neither saves a ton, but the evidence is clear for physician ACOs.  Those that entered the program in 2012, the first year, saved $474 per Medicare beneficiary in 2015, the last year for which the data is available.  Their hospital counterparts from the same year saved only $169, less than the bonuses they received.

Bowling Green beats Peoria.

Looking at the ACOs that have been in the program longer is the right idea because they’ve had time to bake-in their strategies.  And sure enough, both hospital and physician ACOs get better over time.  But, the doc-driven ACOs start with a better savings and get better faster in subsequent years.

In 2015, the physician group ACOs saved CMS, after bonuses, $256 million dollars.  The hospital-based ACOs were net negative to the cost of the program.

It was a bit humorous to read one analysis, explaining that doc-owned ACOs outperform because they more aggressively cut spending from other providers outside their practice, but the hospital ACOs should be excused because they own all of those downstream providers and can’t be expected to reduce services to their own business units.

So, it is not real savings unless you reduce spending in your own part of the value chain, but if you own all parts of the value chain, you can’t be expected to reduce spending??

You see why we think this model is flawed?

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.
April 10, 2019

Trend Lines

Years ago, a friend gave me a book, a book as beautifully named on the outside as it was on the inside.  It was ‘The Visual Display of Quantitative Information’ by Edward Tufte.  If you flinched at that title, I understand…most people would.  But I leaned in and thus began my journey of becoming an arm-chair charts and graphs nerd.

Now, I did not major in business because I hated Accounting I.  I opted instead for psychology.  So, it would not have been a smart bet in 1984 to predict that I would come to love data like I do now.  More specifically, I love the visual display of data (keep your pivot tables) because, when properly designed and displayed, one good chart makes the story in the data obvious to everyone.  Data, well presented, brings truth – good or hard – front and center.

I want to invite you to do such a truth-finding exercise for your practice. Here is the context for my suggestion to you…

The nature of our work and the ALN culture makes us data hounds.  Recently, some of our executive team were looking at some numbers for one of our clients.  We began to ask some questions, questions that moved from that client to our clients overall.  The line of inquiry was essentially around this big question – With all the macro changes in healthcare, which of our clients are doing better and which are doing worse?

That lead to my partner and I asking for a big historical data set for each of our clients – charges, payments, encounters, etc.  In came the pile of numbers, going back for several years.  Simple charts got created.  Thank you, Engineer at Microsoft, whoever you were, who added the trend line options to Excel years ago.

Then, we stepped back and looked at the pictures, letting the data, now able to speak, tell us the stories.  And sure enough, some of our clients are doing well, despite the industry challenges.  Their strategies and execution are being affirmed.  For others, unfortunately, the slow slide – hard to see without the appropriate long lens – points to a future at risk.

So, even if you get pretty good regular monthly reporting, if you have never (or not in a long time) taken a similar long view look at your metrics, you should.  Once a year, you should look back at least three years, though five might be better, at the big metrics that point to the health of your practice. 

Get your numbers, put them into some helpful charts, then gather all the right people into a room and look at them together.  Let the truth get on the table so you can then talk honestly about what you should do going forward. 

I’ll go so far in encouraging you to do this little exercise as to offer my help on the visualization if you need it.  Just drop me a line if I can help.  I promise this will be a valuable use of your time.

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.
April 4, 2019

The March to Managed

For many physicians, the phrase ‘managed care’ should never travel without the appropriate preceding epithet. That is fitting given the role that a dam, specifically the Grand Coulee Dam, played in the early history of managed care and HMOs.  It is fun to cuss a little and get away with it because you have woven in a historical double entendre.

While there were some early HMO-like experiments in the early 1930s, the first discernible representation of what we know today as managed care arrived in 1938 when industrialist Henry J. Kaiser partnered with Dr. Sidney Garfield to provide prepaid healthcare for the workers building the dam on the Columbia River in the state of Washington.

Early on, Kaiser and the eponymous Kaiser Permanente Medical Group were synonymous with this new idea. President Nixon signed the HMO Act of 1973 and most of us can pretty much sketch out the history since then… it was just California thing, then it was going to take over the country, then it got beat back, and now, maybe it will and maybe it won’t, depending on where you live and how you practice.

However, there is one segment where managed-care (and if you think PPOs are ‘managed-care’ then you also think a Twitter feed constitutes literature…we are talking about the HMO idea) is on the steady march forward.  In case you’ve not been paying attention, the government payers – both Medicare and Medicaid – are becoming more managed every year.

Here are some numbers for you.

First, let’s take Medicaid. Prior to the Affordable Care Act, there were 56 million people covered by Medicaid. That number is now up to 72 million. Of those, 49 million (68%) are in a managed Medicaid plan.

Of Medicare’s 60 million beneficiaries, 20 million are now covered by Medicare Advantage, also a managed plan.  UnitedHealthcare, the largest player in the MA space, sees a clear path in the coming years for MA penetration to reach 50% of the Medicare population.

Just a little math shows that one in five Americans are now covered by a government-sponsored HMO, That slice of the pie is going to continue to grow, and we haven’t even thrown in commercial HMOs yet.

There are a couple of takeaways from these headline numbers.

When CMS threw out their lofty goals for the transition to value based care, there was a lot of smoke and mirrors regarding the Obama care acronyms like ‘ACOs.’  Don’t get confused by the sideshow…the objective is being accomplished by moving government beneficiaries into managed-care plans.

Second, these are what you think they are – ‘managed’ plans with gatekeepers on the front end, narrow networks on the back end, and rigorous utilization management throughout the process.

Plan your strategy accordingly.

And if you get in trouble for using profanity, tell them you were just thinking about hydroelectric power system.

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.
March 27, 2019

Certificate of Greed

President Donald Trump seems to enjoy consistent support from a relatively steady portion of the population. My completely unscientific analysis, though I did ponder this statement deeply for a minute while wearing a cardigan sweater and stroking my professorial beard, breaks his persistent fans into two groups.

The first seems to be characterized best as the ‘poke ‘em in the eye’ crowd. When the president jabs the establishment, whoever that is, they love it because they get to enjoy the visceral reaction flowing from their personal frustrations.

The second group, however, tolerates the antics in exchange for getting tangible policies and executive actions consistent with what they believe is best for the country. Supreme Court justices and border security are two such examples.  Another thing frequently cited by this group, even though it gets far less media or Twitter attention, is Mr. Trump’s pro-market approach to deregulation.

Of particular note to independent physicians is the administration’s quiet campaign against Certificate of Need (CON) laws. You might’ve missed this because ‘quiet campaign’ is not what you typically expect from the president and it is a bit beyond his direct power since CON regulations are set at the state level.

But, in a broad, sweeping report to the president last December about how to fix the healthcare system, three of his cabinet secretaries took very specific aim at the anti-competitive effects of the increasingly anachronistic CON scheme.  Now, some state legislators are taking up the banner in trying to get these scaled back, if not repealed entirely.

Recall that CON laws came about in the late 1970s in response to an ill-fated cost containment measure from the Nixon administration (thanks Tricky Dick). Mr. Trump’s pro-market predecessor, Ronald Reagan, repealed that federal mandate in 1986 as evidence was already mounting that the idea was causing more harm than good. Here we are, over 30 years later, and only 15 states have eliminated the CON laws. As a westerner, I am happy to note that the vast majority of the states that actually welcome real competition are located out here on our side of the country.  Cowboy up.

The report to the president lays out the evidence that all this idea has accomplished is the protection of large regional health monopolies that increase cost with no demonstratable improvement in quality or the amount of charity care delivered.

We have been discussing the importance for independent physician practices to become a care delivery platform. While not always the case, when you can expand to include facilities, you open new opportunities that make your platform is stronger and more sustainable. CON laws generally function to protect established hospital systems and limit options for physicians. That is just reality and it is wrong.  If you care about your independence, this issue likely matters to you.

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.
March 20, 2019

It Is Not About the Price

As a young consultant, I figured out quickly that I had a knack for selling and embraced my inner ‘BS-er.’ More importantly, I found myself working for an old partner who was the proverbial peddler of frozen water to native tribes in the far north. This guy could really sell.

Invariably, the first time you make a pitch to the prospect, you get to that moment of truth where you put the price on the table. And just as invariably, the prospect objects to the price. That is when you learn that new deodorants should be tested on rookie sales people.

The first time I went back to my mentor to discuss the client’s objection to our quoted price, I was sure the answer was a discount. The old guy leaned back in his chair, looked at me and said, ‘The price is not too high; your solution is too small.’

His point was that if you solve a big enough problem for the client, pricing becomes less of an issue. There is a lesson here for physician practices looking to become focused care platform as a way to sustain long-term independence.

Historically, it was fine for a physician to simply play her role in the broader process. Patients flowed in from somewhere, you did your part, and passed them on to whoever was next. Collegiality, cooperation, and the fact that everyone made enough money along the way were all it took to make healthcare work. 

Obviously, things have changed.

Now, the customer cares about the price. And by customer, I mean everyone who participates in paying the bill – employers, payers and individuals; the government and the tax payers.

They have collectively said, ‘That price is too high.’

So, you have two choices: you can discount the price, or you can come back with a bigger solution that solves a bigger problem that makes paying your price a good deal.

This is the opportunity for physician practices who want to become a platform…broaden the scope of your services so that you were not just a bit player in the overall scheme of things. Solve a bigger problem; take responsibility for integrating and delivering the services that are logically next to yours so that you provide a more complete answer to what the patient needs.

Value-based care is a big principle, not just a form of reimbursement like capitation or something that only applies to big health systems. You can deliver and get paid for value in a lot of ways, and when you do, you change the discussion around price.

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.