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December 9, 2015

Interpreting 5.3%

This week we are digging into the 2014 healthcare spending report. Click here  for part one.

When you can apply the same concept to both sports smack talking and the month end financial reporting, you’ve got real versatility.

Good results need little commentary; bad news requires analysis, charts, footnotes, plans and promises.

‘Revenue was ahead of plan, profitability was ahead of plan, and cash is strong. Any questions? No. Adjourned.’

Good news does not need spin. Explaining away poor results takes a little longer.

Healthcare spending in 2014 was up 5.3% compared to 2013. Was that good or bad?

Well, let’s just say no one simply pointed to the scoreboard and walked away. Cue the analysts and explainers.

During the last five years, we averaged a relatively low 3.7% annual growth rate in healthcare spending. The Administration has taken credit for this slower rate, but really, they should give George W. Bush the trophy since he caused the recession and the recession is the primary reason that spending slowed.

Though the ACA was passed in 2010, most of the significant provisions of the Affordable Care Act went into effect in 2014.   And it 2014, costs went up 40% more than in recent years.

Analysis, we need more analysis.

Defenders of 5.3% as being a good number note that costs went up because we got more people insurance coverage. That is a good thing, right? I thought that getting people insurance would get them out of the expensive ER and that would bring costs down?

One of the best ways to look at this is to compare how the growth of healthcare spending per capita to income per capita. That neutralizes the effects of both inflation and population growth and gives us a pretty straightforward look. What does that metric tell us?

From 1970-2006, healthcare costs outstripped personal income by 2.4% a year. That is huge, and over almost four decades, that adds up to our current crisis. Recently, healthcare costs have grown at about the same rate as personal income, which is very little on both fronts. Thanks, Mr. Great Recession, thanks.

How was 2014? According to the Internal Monetary Fund, US incomes rose 3.3%. Healthcare per capita was 4.5%. A little quick math says that is one is a lot bigger than the other.

Charts! We need charts! And footnotes. Footnotes would be good.

OK, tomorrow we’ll drag out the footnotes and explain what was behind the not-so-rosy 5.3% spending increase.

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.
December 7, 2015

95,000 Years

Well, we’re now officially in the $3 trillion dollar club. It is a small gathering.

We’ve been rounding up to 3T for a few years now because saying ‘two trillion, eight hundred seventy three billion’ just doesn’t flow right off the tongue, but now it is official.

If this were sports, we’d stop the game and have a little ceremony. We’d give someone a game ball as the announcers gushed and the graphics of greatness scrolled across the bottom of the screen. We did that recently here in Denver, which proved to be a curse, because our injured quarterback then proceeded to throw four interceptions. Not that I am still bitter.

Last week, the government released its report on 2014 healthcare spending and we’re going to spend this week unpacking the report. We’ll do our best to take a report chock full of numbers and turn it into something more valuable than just three blog posts chock full of numbers.

Today, let’s just marvel at the size of the behemoth. Later in the week we’ll go under the hood.

In an attempt to put three trillion in perspective, I busted out an Excel spreadsheet, stuck in some numbers and counted the commas. It would take more than 95,000 years to get to three trillion seconds. That’s big…a Stephen Hawking type number.

We now account for 17.5% of GDP. That is more than all government spending, though there is some double counting because half of healthcare funding comes from one government source or another.   That is bigger than all manufacturing or all retail. Only the financial services industry is bigger.

OK, we’re big. So what? Isn’t it better to spend on healthcare instead of Candy Crush or bad action figure movie sequels? Well, if given only that choice, yes.

There are two economic issues that are having increasingly negative impacts.

As mentioned above, half of healthcare funding comes from public sources. In the short term, funding for Medicare and Medicaid gobbles up cash needed for things like education and infrastructure. In the long term, since we are putting a lot of this on the country’s MasterCard, healthcare spending and national debt are inseparable.

The other half comes from individuals and companies. Again, the gluttonous beast is gobbling cash that is needed elsewhere. Healthcare costs put a damper on the ability of businesses to invest and grow and create jobs. As that cost gets increasingly shifted to the employees, the issue just gets transferred to the family budget meeting. We are on our way toward healthcare costs consuming 10% or more of family income, even for people who have the employer provided insurance, the gold standard. Consumer spending, which is the primary driver of our economy overall, gets impacted.

Three trillion is a big round number, but one with implications. Next, we’ll look at the rate of growth in spending to see if the trend provides good news or bad.

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.
December 3, 2015

The Anti-Hammer

Yesterday, we celebrated the high degree of innovation around the lowly 16 ounce hammer. ‘Celebrated’ is a bit strong and ‘high degree of innovation’ is a stretch, but hammer makers are getting it done, by responding in lots of ways to the market.

Where else can you read, ‘hammer makers are getting it done’ and say with a straight face that you are working?

Then there is the anti-hammer.

In response to a variety of concerns about narrow networks that limit patient access to certain physicians and hospitals, CMS recently released a proposed rule that will require health plans on the exchanges to meet minimum provider network adequacy standards come 2017. Under the proposal, states can come up with their own standards or CMS will impose a national standard on them. BTW, this sort of sounds like the entire exchange concept itself, so they must like this model of ‘impose it on yourself or we will impose it on you.’

Let’s stipulate that narrow networks are a controversial issue, both for patients and providers. A lot of people don’t like this.

But in contrast to Home Depot responding to Ace Hardware’s $27 hammer with a $12 version and letting people make their own decision about the hammer best for them, CMS decides that more dictating is the answer.

Remember what triggered this narrow network thing in the first place: The ACA dictated minimum coverage requirements. And then dictated pricing limits. And then dictated that people could not be denied coverage for pre-existing conditions. And dictated required medical-loss ratios.

So, right or wrong, in an attempt to get inside that dictatorial anti-innovation box, payers narrowed their networks.

Minimum network adequacy is not the only new dictate CMS is pondering. They also want to ‘make shopping easier’ by mandating standard deductible levels in 2017 as well. Gold plans would be at $1,250 deductible, silver at $3,500, and bronze at $6,650.

Are high deductibles, like narrow networks, an issue for consumers and providers? You betcha.

But instead of removing dictums and letting the market innovate, they want to add more.

This is completely backward.

Logic says that hammers, given their pedestrian task of smashing nails, should be a near commodity with very little design or pricing variation. But we have hundreds to choose from. Health insurance, however, which needs to align with vastly different needs across our 315 million people, is being increasingly standardized, commoditized, and blanderized (I made that one up, but it works, doesn’t it? Webster’s, send me my royalty check.)

We have an exceedingly complex domestic economic issue in the cost of healthcare that needs a major change. But we continue to take our most potent force for innovation – the market – off the table.

Makes me think of another hammer. It was red and came with a sickle.

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.
December 2, 2015


The simple redneck guide (redundant, I know) to household maintenance reduces all problems to one of two categories. If it is moving and it should not be, use duct tape. If it is not moving and it should be, use a hammer.

So do you need a hammer? Of course you do. Everyone needs a hammer.

The hammer seems to be fairly straightforward commodity. Its purpose is to bang something.

But if you start shopping for hammers, you’ll find enough variations in features and pricing to require a spreadsheet. And I am not talking about specialty hammers. These hammers are just within the realm of the ‘Honey, can you hang this picture frame’ hammer.’ Home Depot alone has scads. You can get one for $7 or pay $30 and everything in between.

This is the market doing its thing.

Competitors are rewarded when they understand the thin, but important, distinctions in consumer needs and preferences. They develop products that squarely fit one of those niches and consumers get exactly what they need.

It is fascinating watching this start to play out in parts of healthcare as we, too, get more consumer oriented. Look at how players in the primary/urgent care segment are sliding into their various slots in the value stack.

At the low end, we’ve got retail walk-in clinics that deliver limited services at an everyday low, low price. Your basic $7 hammer.

Actually, Dad telling you to stop crying, rub some dirt on it, and get back outside to play is the first rung on the primary care ladder, but since no money changes hands, we’ll skip that one.

In some places, you can get a doc in a Prius to come to you for a check-up. You can now get care on your smart phone. Urgent care centers, some of which offer a little, some of which offer more, are sprouting up like dandelions. Traditional primary care practices go in here somewhere, depending on what each offers. If you want a $30 hammer, you can now find a free-standing ER. If you want a $1,500 hammer, you can go to the hospital ER. OK, that was a cheap shot. Factual, but a bit chippy.

The point is the market is innovating rapidly in this area. Options in the value stack, from low end to high, are getting more and more precise as providers respond to customer needs. This is a good thing.

To be more direct, I trust the market more to drive this type of innovation than I do something that emanates from on high.

Give us more hammers.

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.
November 30, 2015

Proton Torpedoes

Which is the best order?

IV, V, VI, I, II, III, VII – as they were made? Or,

I, II, III, IV, V, VI, VII – according to the chronology?

Or do you just skip episode I all together because of that inane Jar-Jar thing?

Yes friends, as we head toward the December 18 debut of the latest installment in the Star Wars saga, this question must be asked.  People are online debating this, and yes, they also get to vote in elections.

For those of us who need to be reminded that Chewbacca, the walking shag carpet, is a Wookie; the things on the side of Leia’s head are hair and not Honey Bun cinnamon rolls; and that Harrison Ford was Hans before he was Indy, we might be a little out off by the hype and silliness. 

But even we must admit that the scene back in 1977 as Luke and the rebel fighters sped toward the Death Star, weaving their X-Wings down the trench was pretty cool.  Using the Force as Obi-Wan had trained him to do, Luke hit the one in a million shot, dropping two proton torpedoes into the tiny exhaust port, the only vulnerability of Vader’s planet-sized warship.  Boom! The crowd goes wild and George Lucas is consequently able to purchase a small island – New Zealand.

Let’s recast this using the Republican Congress and the Affordable Care Act as players, though any implied similarities between the Administration and evil Lord Vader are purely coincidental.

The House has voted to repeal ObamaCare more often than they sweep the place, all of which have been as effective as the little rebel bullets bouncing off the Death Star.  Multiple trips to the Supreme Court have been equally useless in their goal of thwarting the Empire (I am getting into the groove with this analogy).  But maybe they finally hit the exhaust port, at least a little bit.

Recall that one provision of the ACA was this thing call Risk Corridors, a program to mitigate losses the insurance companies might face during the initial years of offering plans on the exchanges.  See here, here and here for a refresher, but the short version is that if insurers paid out more in medical expenses than they planned, they would get a refund from the government.

For 2014, insurers collectively asked for $2.9 billion in risk corridor payments.  And the ACA clearly says they have a legal right to that money.  But Luke Boehner, Han McConnell and the Republican rebel forces snuck an explosive into the 2015 Omnibus Budget Bill  that says, ‘OK, we’ll pay your risk payments, but the government can only use the cash from refunds paid into the program by other insurance companies that made too much money from their exchange plans.’

Refunds paid in for 2014 were only $362 million, which means the government can only pay about 12.5 cents on the dollar for the $2.9 billion in claims.  The IOUs can be paid out of future year refunds, to the extent there are any.

We might not see a glorious explosion of the Death Star as the credits roll, but the failing co-ops have put this issue at the top of their list as to why they are not making it.  United Health has pulled back a lot from the exchange market and has intimated they may pull out entirely.  This issue may or may not be a contributing factor…yeah, right.

As we will be reminded in three weeks, the battle continues.



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.
November 25, 2015

Thank You

I just want to say a quick thank you to you all. It continues to amaze and humble me that so many of you choose to read my ramblings three times a week. Some of you write back with comments and others have passed it on to friends who you think might get something out of this. I can’t tell you how much I appreciate your being along for the ride.

All of us here at ALN hope that you have a wonderful Thanksgiving with your family and friends. We’ll be back at it next week.

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.