Sign-up for the weekly ALN blog




May 24, 2019

Big Flashlight

Lumens are the standard measure for light brightness and a typical flashlight can range from just a few lumens for one of those mini, key-chain gadgets to around 1,000 for a really good light.  Get into the kind emergency responders use and you’re talking up to 3,000 lumens. 

Then there is the Torch, which claims to be the world’s most powerful flashlight, weighing in at 4,100 lumens.  The company’s website shows a video of someone setting paper on fire with the beam.  Another shows a lady scrambling eggs with the thing.  A multi-functional camping tool.

It also sounds like the recent RAND report on hospital pricing.  It is shining a really bright light into some dark places.  Things may get scrambled or even set on fire.

RAND got their hands on a big ‘ol pile of commercial claims paid to hospitals between 2015 and 2017.  These were not Medicare claims or charges, but the amounts actually paid to hospitals by commercial payers for both impatient and outpatient services.  Most of the data came from self-funded employers who pay their own claims; some came from the All Payer Claims Databases mandated by Colorado and Indiana; a few payers participated by sharing their numbers. 

In all, the study had claims for 330,000 inpatient stays and 14.2 million line items for outpatient services.  These represented $13.0 billion in allowed amounts – $6.3 billion inpatient and $6.6 billion for outpatient – across 1,598 hospitals in 25 states. The RAND folks then also repriced every one of these claims as if it had been paid by Medicare, creating a very robust comparative data set.

Stop and understand that this kind of information – actual negotiated and paid prices by commercial payers – has been shrouded in more secrecy than the Coca-Cola formula.  RAND is shining its mega-lumen data into a dark corner.

The study found that hospitals in the study were paid, on average, 241% of Medicare rates in 2017, up from 236% in 2015.

[Pause for you to confirm your commercial rates as a multiple of Medicare.  Yep, no where close to 2.4x, are they?]

Another recent study put the average rate in 2012 at about 175% of Medicare.  Now we’re at 241%?  Man, those reform strategies to control cost are spectacular, aren’t they?  Failures, that is.

To rub salt in the wound, while the impatient rates were right at 2 times Medicare, hospital outpatient rates were almost 3 times Medicare (293%).  And where is volume moving? To the outpatient setting.

There is more to unpack here, so we’ll come back to it next week.  In the meantime, I’ll just let you soak over the Memorial Day weekend in the fact that while your payers have told you that you are being unrealistic, demanding and petulant asking for that highly unreasonable 125% or 130% of Medicare, the hospitals are being told, ‘300% and not a penny more…until next year…we’ll give you more then.’

Yeah, this stinks.  Enjoy your holiday.

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 16, 2019

Making General Groves Proud

With apologies to Nobel Prize winner Richard Feynman, most physicists are not known for their writing skills.  After all, these are the kids who picked time in a lab over reading Shakespeare.  Though Feynman’s personal website has a section alongside his textbooks and scientific publications for his ‘popular works,’ he holds no candle to fellow physicist Henry DeWolf Smyth when it comes to writing for the general public.

Smyth’s one big hit was released August 12, 1945 and people gobbled it up.  ‘Atomic Energy for Military Purposes’ just sounds like a ‘can’t put it down’ page-turner, doesn’t it?  Well, the US had just dropped two nuclear bombs on Hiroshima and Nagasaki the week before.  Smyth’s report was the official story of the incredibly secret Manhattan Project.

One of the amazing things about the project was the government’s ability to keep such a massive venture from becoming exposed.  That was mostly due to the relentless, paranoid secrecy of Smyth’s boss, General Leslie R. Groves, the man in charge of all Army activities related to the Manhattan Project.   A lack of cell phones and no TMZ website helped, but Groves took intelligence secrecy to new heights to keep the existence of Manhattan, much less the full scope of its work, from virtually any outside knowledge.

Hospitals and payers must have studied his tactics.  For sure, they must have his famous sign from the Los Alamos lab (What you see here, what you do here, what you hear here – when you leave here, let it stay here.) hanging in their offices.

You see, the prices negotiated between payers and hospitals have forever been as closely guarded secrets as Robert Oppenheimer’s lab in the desert north of Santa Fe.  If we had been able to keep patient health data as closeted as they have been able to keep the prices actually paid to hospitals, we’d never have needed HIPAA.

But, the Trumpsters are proposing to blow that wide open. 

As of this past January, hospitals have been required to post their retail pricing.  People know that is a waste of time because almost no one pays what is on the charge master. 

That appears to have been just a distracting opening bit to soften them up, a favorite negotiating tactic of the President.  In March, the Department of Health and Human Services published a proposed rule requiring an additional disclosure, the one that matters – the price actually paid by commercial payers, the negotiated contract rates.

Public comments were due last week, though an extension has been requested.  Of course, the incumbent stakeholders – hospitals and payers – are forecasting calamity of Biblical proportions if such proprietary trade secrets were made public. Prepare for a locust swarm, they warn.

But as we are seeing, price transparency is a consistent lever the President and his team are bringing up against healthcare costs (hello, pharma industry).   If this sticks, and I would not bet against it, physicians are likely not far behind.  Might be worth thinking about.

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 8, 2019

Three Little Wishes

Our last post touched on the progressive idea of ‘Medicare for All’ running through some of the Democratic presidential candidates.  Then last week, President Trump’s Department of Justice has formally asked an appeals court to toss the Affordable Care Act – lock, stock and barrel. 

There you go…about all you need to know about healthcare politics this far ahead of the election calendar. 

Right now, more real people care about the politics of ‘Game of Thrones,’ don’t they?  Who will rule in the end…Cersei Lannister or Daenerys Targaryen? Or does Jon Snow end up on the Iron Throne?

Side note…our politics would be more fun if the candidates skipped the ads and debates and instead just battled it out on flying dragons.  If you don’t get the reference, you are one of the 412 people in the country not up on GoT.  Good for you.  You have a life.

Speaking of real people, recently the Kaiser Family Foundation asked a bunch of them what their priorities were for healthcare policy.  Three pretty straightforward desires came to the top of their list.

First, the folks want the government to do something to lower and control drug costs.  Given what has happened over the past several years, it is no surprise this one is atop the list.   As they say in the south, ‘pigs get fat and hogs get slaughtered.’  Whatever happens, and it seems something will even before the election, the pharma industry brought it on themselves.

Right behind that issue was the runner-up – continue the insurance protection for people with pre-existing conditions.  I long ago got out of the prediction business, but this is such a popular idea that it is hard to see any acceptable policy proposal from either side getting far without some version of this provision.

Third, people want the surprise billing (out-of-network providers) issue fixed.  Yes, this is a complex issue; yes, many of the proposed solutions carry more unintended consequences than you can imagine, but this was a poll, and this is what the people want.  Someone else can figure out the how of it all.

Those are not easy, for sure, but that is the list. 

I get that politicians looking for donations and momentum and soundbites like big, bold ideas that get their faithful all worked into a lather.  But the bulk of the folks aren’t too excited about the ‘blow it all up’ or ‘take over everything’ ideas from either side.  Just these three wishes and they’re good.

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 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.