We are exploring the divide in healthcare between those who only live in a value-based care (VBC) world and those whose thinking about VBC is limited to whether the hyphen is required.  We are really trying to understand why that might be the case, other than the SOB doctors clinging to their fee-for-service (FFS) filthy lucre.

It is worth noting that many equity investors are backing various VBC plays. VBC is their calling?  VBC is a ‘right’ and it is their mission to bring it to everyone? Can we dispense with that canard and try to have a real conversation about what is happening and why?

Last week, we channeled our inner Vilfredo Pareto, the Italian economist who in 1895 noted that wealth was not evenly distributed and gave us the 80/20 rule that more formally carries his name, and noted what we (two uses of the royal ‘we’ already…just in case this blog gets sued, I want to spread the risk to myself as well) believe is, maybe, the single most important healthcare economics bumper sticker:

5% of the population accounts for 50% of the total cost.

Vilfredo, we are right on track…the top 20% of individuals account for 82% of all expenditures.

Let’s spend a quick minute on this, the hard to solve, end of our skewed distribution curve.

Some of these are one-off cases that just ‘actuarially are’ – the $2M neonate, my buddy who was nearly killed in a head-on crash by a driver high on meth (Happy ending – next month, to demonstrate that he really can walk again, he will escort his daughter down the aisle and give her away). These are the miracles of healthcare, but life does not come cheap.

Most of the people on the expensive end of the tail are old or sick or both.

Not a little old, like ‘old enough to look at the brochure for the seniors-only community without shame, but the frail elderly.  A newly minted Medicare beneficiary doesn’t suddenly start costing a boatload more.

And not a little sick, but multiple chronic diseases and many comorbidities sick.  Really sick.

Yes, the first tends to lead to the second, which is why the last year of life is frequently so much more expensive than those that precede it.

Here is one specific example of just how skewed the skewness is…and a little more math for our English majors.

There are about half a million Medicare beneficiaries with end-stage renal disease (ESRD).  Out of its $800 billion budget, Medicare spends almost $50 billion a year on ESRD.  That is over 6% of all Medicare spending.  And for those who like to quote stats at cocktail parties…that means that ERSD spending by CMS accounts for a little more than 1% of the entire federal budget. One condition, 1%.

So yes, we need a different model for the people who are going to incur such disproportionate costs.  Thus, the birth of VBC.

More next time.

One of the lasting positives that I take from US politics over the past decade is the steep reduction in my consumption of news reporting.  They just made it too compelling to instead listen to 1970’s rock instead. Not only is my peace of mind and mental health better, my intelligence and knowledge have improved.  Yes, yes, it was a low bar, but we’ll take the gains, regardless.

Like the kid in ‘Talladega Nights’ who was ‘all jacked up on Mountain Dew,’ living on too many headlines and bite-sized stories – even if they are true – is dangerous.  You have as great a chance of being misled as being truly informed.

An example is one of top line healthcare numbers that most frequently gets quoted in drive-by news stories – per capita spending is now about $12,000 annually.

Simple math if you can manage those confusing zeros to know your trillions from your billions…about $3.8 trillion divided by 320 million people.

The 12k headline is handy.  It is big, twice as big as whoever is next; a lot bigger than it used to be.

And yes, it is true.

But deceptive.  Averages like this can be.  Especially in the case of extreme skewness.  Your challenge is to use ‘extreme skewness’ in conversation today. Double points if you can work it in with your teenager.  Maybe something about Cardi B’s Instagram followers.  Statistics and Cardi B all in one post.  That is why you subscribed here, isn’t it?

Here comes one of the most important starting insights about US healthcare, one that is necessary to begin to understand the issue we are exploring over a couple of weeks: why does one half of the industry think value-based care has taken over everything while the other half puts all this VBC chatter in the same category as the recent spike in UFO sightings that has the Pentagon abuzz.

Yes, we spend about $12,000 per person per year on healthcare.  That comes to almost $4 trillion dollars.  But 5% of the population (about 16 million people…less than New York, more than Illinois) accounts for half of that spending.  The same simple math says this group rings in at almost $120,000 per person, 10x the average.

More simple math (come on, English majors, don’t be scared…you can do this) shows that everyone else, 300 million+ people, incur about $625 each.  No need to worry about the confusing zeros here.  There are none.

$625.

People spend more on coffee.

More so, about one in five people in the US don’t even touch the healthcare system in a given year.  $0 per person.

This economic reality, these extremely skewed data, is a fundamental reason behind our split, parallel payment and care delivery universes.  With this reminder as our starting point, next week we’ll explore why it drives us to what we have.

A long time ago, silly memes and images circulated around the Internet for entertainment purposes, not to manipulate the market value of some parody cryptocurrency.  One of the most famous, from 2015, was the lace dress that had people seeing two different colors – was it blue or gold – and arguing intensely with anyone who saw it differently.

Gosh, that seems to be a good metaphor for many things these days, doesn’t it?  People looking at the same set of facts of drawing diametrically opposite conclusions.  Fox and MSNBC; the appropriateness of wearing pajamas to the grocery store…a long list.

I was reminded of the dress debate because this week I was at my first in-person conference since the pandemic.  A couple hundred healthcare entrepreneurs and equity investors gathered, sans masks, to blow smoke at one another.  BS is an airborne pathogen, though not fatal.

Side report from the scene – hearty handshakes were everywhere; people remembered how to tie their dress shoes and operate a belt; someone’s corporate credit card still worked at the bar, where the real work got done.  We extroverts were out and happy as a puppy finding bacon on the floor.

I’ve said here before that I like the insights from these gatherings more than other types of conferences because real people on both sides of the conversation are making real bets with their time and money based on what they actually believe about the future.  It is easy to pontificate if all you are risking is your cool PowerPoint slides.  We more believe you believe what you are saying when your chips are pushed to the middle of the table.

There are many observations that I could make from the conference, but the one that most stands out for me is the same one I made that last time I shared one of these reflections – when it comes to the debate between value-based care and fee-for-service economic models, healthcare is bifurcated as much as people were about the color of the dress.

In this room, the companies that are all-in on value-based care, making progress, proving their point, throwing dirt on the FFS dinosaurs.

In that other room, people with better mousetraps for some part of care delivery in every possible segment of the continuum.  Yes, they all believe that how they will get paid for their mousetrap is evolving, but at the core – yes, with a quality bonus; yes, some things are bundled – the more they do the more they get paid.

One group is trying to figure out how to reward people for what does NOT happen to the patient; the other is trying to get MORE of their thing to happen for patients.

And both are right.

The payer of the bill is changing, moving downstream to care givers – health systems and primary care physicians – who are driving a lot of change.  But there is a still a big role for wrench-turners who will get paid for (better) wrench-turning.