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    June 16, 2022

    Unexpected Philanthropy

    Most of us 99%ers have at one time or another played the game, ‘If money were no object…’  Normally the question involves things like where you would live or what places in the world you would visit.  As a sign of – how do we say this? – ‘the evolving demographic of my friend group,’ it was recently posted as ‘what body part would you have repaired?

    For the 1%ers, it is not a way to jump start a dinner conversation, but a real question.  Some build funny shaped rocket ships, some buy sports teams or islands.

    John Arnold decided to use his fortunes to sue some hospitals.  He is probably not worried about the rising price of gas, but he is hacked off at the rising cost of healthcare.

    Billionaire John Arnold

    Arnold, who made his money as an energy trader at Enron and the got out before the collapse, and his wife Laura, through their philanthropic organization have awarded over $2.5 billion to address issues like gun control and criminal justice reform.  They may be a redeeming footnote to the Enron debacle.

    This time, they are backing a small law firm – Fairmark Partners – that has filed lawsuits against big health systems in Wisconsin, North Carolina, and Connecticut.  This is not their first healthcare play.  They’ve awarded over $350 million toward initiatives to influence healthcare policies and disrupt markets.  They are working to bust up pharma monopolies and get a $30 per month insulin solution to market.

    Beats another billionaire in space, doesn’t it?

    The Fairmark lawsuits – targeting HCA in NC; Hartford Healthcare in CT; and Advocate Aurora in WI – are going after the systems for consolidating, then price gouging.

    This may surprise you, but all three systems said the suits are baseless and they each have letters from their mothers saying what nice people they are.

    A twist on these suits may be something that the Justice Department and Federal Trade Commission are watching.  President Biden has targeted consolidations in general – and hospital systems specifically – for anticompetitive behavior.

    Historically, the trustbusters focused on a single market – did a hospital merger give too much power in this or that city?

    But these sprawling regional health systems bring unique leverage to the table to demand higher prices.  By offering insurance companies an ‘all or nothing’ deal – you get all the facilities in our system or none of them – they put them over a barrel.  For example, the payer might be able to live without a hospital in one area because there are alternatives, but in another market the system has the only hospital around and the payer has to have that facility for coverage.

    Little Fairmark – Ok, you can play a lot bigger when a billionaire is writing checks – is taking on some of the behemoths in the industry. Not as exciting as a rocket launch, but it will be fun to watch.

    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 9, 2022

    Selective Competing

    There are two ways to win without cheating.

    First, be better than the other guy.

    Second, set the rules to your advantage.

    Growing up, I loved sports, but let’s say I wasn’t very talented.

    We can say that because it was true.  As my high school basketball coach said of me, ‘Well, he’s short, but he’s slow.’

    When we were making up games in the backyard, I exceled because I was quick to be the one to make up the rules of the game.

    Want to race?  Ok, we run down to the phone pole, but you must calculate the average of the digits in your Social Security number before you run back.

    I could do a little math in my head.  My buddies were quicker than me, but only in one sense of the word.

    Similarly, the Medicare Shared Savings Program (MSSP) might be better at attracting kids (ACOs) well-suited to playing the game than driving actual cost savings.

    In short, ACOs get bonus payments from CMS if their actual costs are lower than their benchmark.  Ostensibly, which is an appropriately complex word for a very complex process, the benchmark is what CMS would have paid had the provider, based on their history, had the Medicare members been in traditional fee-for-service Medicare.

    A few years ago, CMS decided to modify how it set an ACO’s target benchmark.  In addition to the ACO’s own historical spending, CMS also threw the spending of other regional providers into the mix.  There was some initially appealing logic to the ‘regionalization’ tweak, but as is often the case with big, blunt government programs, the unintended consequences are not minor.

    It turns out that a lot of early adopter ACOs did not renew once the regional adjustment was added.


    Well, their costs were higher than the region, which meant their benchmark was lowered, which meant they likely would not get a bonus and in fact now faced downside risk.

    So, they opted out.

    Guess what happened on the other side?

    Already low-cost providers, who historically would have been competing with themselves when the benchmark was set by just their own past performance, now got a higher benchmark – it was raised by the other higher cost regional players.

    ‘Hey, we can beat that,’ they said.  In fact, what they said was, ‘We are already beating it, so we don’t have to do diddly and we’ll get to pocket the bonus.’

    Higher-cost players exit the MSSP and stop trying to lower costs; lower cost players enter and take advantage of the higher benchmark and pocket the extra cash; CMS declares victory by showing the ‘participating ACOs’ having lower costs this year than in previous years; and the program marches on.

    Adding math at the phone pole did not make me any faster, but it allowed me to pretend I was.

    Maybe that is all that really matters to our reformers – not that we, you know, actually lower healthcare costs, but we feel really good about ourselves for trying hard.

    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 2, 2022

    Spinning or Winning?

    Years ago, our family was watching the Olympics.  Though not a one of us can do a cartwheel without having a team of medics standing at the ready, we were outraged at the low score the judges gave a gymnast that we thought had nailed her routine.  My son uttered, ‘I could never play a sport that is judged.  Give me the clarity of a scoreboard.’

    But what if even the scoreboard is subject to interpretation?  Many are these days.

    We continue to explore how well we are doing – or not – bending the healthcare cost curve over the past 10-15 years. It is time to look hard at one of the centerpieces of reform – the Accountable Care Organization (ACO).

    Warning…like assigning points to a double back flip on the balance beam, it depends on how you look at it.

    For the government side of reform, ACOs are the funding and delivery vehicles for the Medicare Shared Savings Plan (MSSP).  2020 – yes, the year that will forever come with an asterisk – was the eighth performance year for MSSP and the scorecard from the Centers for Medicare and Medicaid Services (CMS…acronyms are breeding like rabbits today) says the 513 ACOs saved CMS $1.86 billion, net after the incentive payments were made back to the ACOs.

    CMS called it a win.

    ‘Accountable Care Organizations are an Affordable Care Act success story. The 2020 Shared Savings Program results continue to demonstrate the impact ACOs have in improving quality and lowering health care costs,’ said CMS Administrator Chiquita Brooks-LaSure.

    Even in Washington, where we now let ‘trillion’ roll off our lips as easy as a mom in the drive thru can say ‘double, nonfat, oat milk, extra steam vanilla latte,’ a couple billion dollars is real money.

    But first, let’s put these big numbers in context.  The Medicare spend for 2020 was about $830 billion, so we’re talking about a ‘savings’ (more on that to come) of about 0.22%.

    Said another way, currently we spend about $13,000 per year per Medicare beneficiary.  There were about 10.6 million Medicare folks (of the 64 million total) covered by an ACO, so the ‘savings’ (have to use the quotes until we get around to unpacking just how that number is calculated) comes to about $190 per person.

    We have a saying in our house that dates back to the days of homework – ‘Barely counts, almost doesn’t’ – as in, ‘Are you done with your homework yet?’

    So, a barely win is a win.

    Fair enough.  Thanks for not spending $2 billion more of the taxpayer dollars.

    But, but, but…

    We must ask two questions.

    Given the vast amount of energy that goes into ACOs and MSSPs, is that a really good return on the investment?

    And does that reflect real savings or various statistical oddities and accounting trickeration?

    Sorry son, but this is more about subjective judging than a clear scoreboard.

    We’ll explore deeper next time.

    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 12, 2022

    Mark’s Cool Chart

    One of my professional mentors told me that if I was going to be any good at sales, I needed to be able to sell big deals on a single, simple picture.  His were on cocktail napkins, a la the famous Southwest Airlines kind of picture.  He was very good.

    That set me on my near clinical obsession with charts and graphs.  There is a story in the data and the data want to tell that story.  One good picture can change how we think about something.

    Mark Perry at the American Enterprise Institute has one such game chart, one that he updates regularly as the data change.  Multiple commentators have called it the ‘Chart of the Century.’

    Now even the accountants, who find it a slight abomination when their little rows and columns are converted to a trend line, are even a bit intrigued.

    Perry’s graph  is getting even more traction these days because it shows price changes of selected US good and services since 2000.  With all the inflation news, the site is currently getting more hits than Shohei Ohtani.

    The chart simply plots over time data for 15 items used by the Bureau of Labor Statistics (BLS) in the calculation of the Consumer Price Index (CPI), that now ubiquitous inflation number that is still a puzzling new idea to anyone under 40.

    The overall price change – aggregate of all items the BLS tracks – has gone up 65.5% since 2000.  Since recent months have spiked a lot of things, I went back to a version of the chart I found from the summer of 2018 and that number was 57.4%.  Let’s use that to be fair.

    But I want to examine at just one line on the chart.  It is easy to find.  Right that at the very top.  It shows the price changes for Hospital Services.  Before you look, you wanna guess that number, given 57-65% is the overall rate of price increases?

    How about 211-216%.

    Perry notes that, as a general rule, the items that are above the average are subject to more government intervention and those below average have more market competition.  That Hospital Services wins the title, and is now pulling away from second place College Tuition and Fees, seems to validate that observation.

    Another question to ponder…how can overall healthcare spending as a percentage of GDP stay relatively flat while the largest sector of the industry (hospitals are about 31% of total) is going up 4x faster than general inflation?

    3rd grade math and a little logic says everything else in the healthcare spend bucket has come down.

    Here is our big point on the reform status report: The changes – value-based care, MSSP, ACOs, expansion of Medicaid enrollment – were all very ‘pro’ hospital/health system because all this integrated care was how we were going to bend the cost curve.

    So, how do you explain being at the top of Mark’s Chart of the Century?

    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 5, 2022

    Doing Math with Lou

    One of the very best Abbott and Costello bits of all time was when Lou Costello worked out three different ways to prove to his landlord that 7 x 13 = 28.  If you are having a tough week, head over to You Tube to find it.  Will be the best five minutes of your day.

    I mention that clip because we have some tricky arithmetic coming today.  Your mind needs to be limbered up.

    Last week we noted that healthcare spending, in the decade just prior to COVID, flattened out in the range of 17% of GDP.  If not a full-throated celebration of the promised bent cost curve, stopping the steady rise from 13% just a few years prior was at least a moral victory for the government’s reform agenda.

    But there are some numbers behind the numbers that can help you decide just how much credit is deserved.  Today, let’s start with Medicaid’s role in the story because a very significant portion of ‘reform’ has been about the expansion of that program.

    Let’s go back to 2005.  Why 2005?  Prior to that year, the per capita cost for a Medicaid enrollee was quite a bit higher than the overall healthcare per capita cost.  That was logical because those covered by Medicaid have comorbidities associated with their poverty.  But the government was asserting downward pricing pressure and the gap was closing.  2005 was the year the lines crossed – we spent $6,500 per Medicaid enrollee, the same as the population at large.

    That same year, there were 46.3 million people covered by Medicaid, which represented 16% of the population.

    Fast forward to 2019 but stop before we got to see Dr. Anthony Fauci every day so we don’t have the COVID distortion.

    Medicaid enrollment had ballooned to 73.9 million people, 23% of the population.  Thus, the argument by many that Obamacare was little more than political air cover for a massive expansion of this program (that is a topic for another day).

    Per capita spending for Medicaid had continued to decline relative to the overall number.  In 2019, it was just 74% of the overall number – a full $3,000 less for Medicaid than everyone else.  Did we solve the health ills that plague the poor and disabled?

    Uh, no.

    This is pure government pricing leverage.  We pay less per Medicaid beneficiary because we pay less for Medicaid services.

    If, as Lou suggests, I hold the two here and carry the seven here (you just have to watch it), the math suggests to me that we ‘saved’ about $220 billion in 2019.

    Just from pricing dictate.

    Like the hand waving that makes 7 x 13 = 28, if we just ‘say’ prices are low, then wa-la, costs come down.

    Yes, I live on the provider side of this issue and have a dog in the hunt. Fair enough.  But you don’t have to be a physician forced to accept below market reimbursement to question if this approach is the best long-term strategy.

    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 28, 2022

    Simple Numbers, Complex Causes

    The former president is back on our televisions again.

    No, not that one.  He and Elon are off somewhere in a thumb wrestling match over their respective social media platforms.  Comedy writers everywhere are going to have a heyday.

    President Obama narrated a five-part documentary on the great national parks around the world currently playing on Netflix. Seeing the promos got me thinking that we haven’t checked in on how our headline healthcare economic measures are doing in a while.

    For the half of the workforce that has no pre-Obama life experience (ponder that…about half of the US workforce was born after the 44th president was initially elected), let’s reset the context.

    Healthcare spending, as a percentage of GDP, had lumbered along around 13% as the 20th century was coming to a close.  Then suddenly, the trend line began to climb faster than the price of a used car.  By the 2008 election, it had passed 16% and showed no signs of slowing. The promise to solve this issue propelled Obama to the White House, with his signature legislation to follow two years later.  Two years after that, Nancy Pelosi read it.

    In 2020, healthcare spending hit 19.7% of GDP, up almost 50% from 2000.

    Wait, wait…we need a big asterisk here.  Everything about 2020 gets an asterisk, especially healthcare spending.

    If we go back to 2019 – like my plane ride this week that did not require a mask – you see a trend line that the Prez and the wildlife in Tanzania might point to with pride.  From 2009 through 2019, the healthcare number had a 17-handle every year, moving incrementally from 17.2% to 17.6%.

    While that is not bending the curve, it absolutely flattened from the rapid rise of the decade before. We try to call the ‘balls and strikes’ as we see them and that is clearly a heck of lot better than the path we were on previously.

    But (you knew that was coming), we need to dig in a little bit to understand what is driving the story.  We still live in a bifurcated industry where some believe the reforms of 2010 are the cause behind this effect, and the path forward is more of the same, while others argue market innovations have succeeded despite bad policy from the government.

    If you have been reading along here for more than a minute, you know where I am going to come down.  Though Covid may have made me allergic to hand sanitizer, it did not change my bias in the government v market debate.

    So, with that disclosure clearly on the table, I’d like to look under the hood to explore what has been driving things the past decade to see if we can be better informed about what we should do in the coming decade.

    Also, disappointingly, there will be no cool slow-motion footage of flying monkeys.  For that, you’ll have to check Netflix.  Go ahead, their trend line could use a little help these days.

    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.